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A review of things you need to know before you go home on Thursday; ASB shakes up FHB mortgage market, lack of inflation a headache, housing market ready to turn lower, swaps stable, NZD unchanged, & more

A review of things you need to know before you go home on Thursday; ASB shakes up FHB mortgage market, lack of inflation a headache, housing market ready to turn lower, swaps stable, NZD unchanged, & more
ID 22702269 © Daniaphoto | Dreamstime.com

Here are the key things you need to know before you leave work today.

MORTGAGE RATE CHANGES
No changes announced today. But ASB has done away with its 'Standard' rates, reverting to a single low rate card. (However their low equity premiums will still apply.)

TERM DEPOSIT RATE CHANGES
None here today.

RBNZ's INFLATION HEADACHE
Inflation was +1.5% in the year to June, but declined -0.5% in Q2-2020. Economists see the Reserve Bank having to do much more in future with its quantitative easing program after it turned negative in this latest quarter. Neither the bond or currency markets reacted to today's outcome.

STILL AN EXODUS?
New Zealand residents have been leaving the country at a greater pace than they have been arriving back, according to the official May migration data.

TURNING POINT
"The worm seems to have turned for property values in the main centres" and heading for a fall, says CoreLogic.

THE NEW NORMAL
The June Marketview online sales report shows that spending at domestic online merchants was up +34% from the same month a year ago, while spending at offshore sites fell -10% on the same basis. The net result is a fast shift to online retailing although not as fast as we had in the locked-down April and May months.

LOWER FOREIGN INVESTMENT
For the first time in more than five years (and probably much longer) the proportion of Government bonds on issue held by foreigners has slipped below 50% in June. No doubt the RBNZ's new and growing holdings built via the LSAP program have moved this needle. One year ago, the percent held by foreigners was 53.6%, five years ago it was over 70%.

QUALITY DOWNGRADE
The June jobs report in Australia features a very sharp rise in part-time employment (+249,000) and a drop in full-time jobs (-38,100), allowing the jobless rate and participation rate to hold steady. Re-opening there came with uncertain hiring even if there was lots of it.

AUSSIE SETBACKS
Meanwhile, the pandemic setbacks are growing in Australia. With 317 new cases and two deaths, Victoria has registered the biggest spike of any state or territory since the pandemic began; NSW has reported ten new cases today so far. It is their housing market that may first feel the impact of this fierce second wave.

A TIGER ON THE PROWL
China has reported a stronger set of economic data for Q2-2020 than most analysts were expecting. The top-line growth result was +3.2% pa year-on-year and far better than the +2.5% expected. It was also far better than their -6.8% shrinkage in Q1-2020. Other data was also positive with only June's retail sales data holding them back at -1.8% year on year (when growth of +0.3% was expected).

EQUITY UPDATES
On Wall Street, the S&P500 ended its session earlier up +0.9% and less than the gains the earlier European markets posted which were up closer to +2%. Shanghai however has opened down another -1.4% today and a building sell-off trend despite the good official stats. Hong Kong is down -1.1%. Tokyo is down -0.5%. Locally the ASX200 is down -0.6% in early afternoon trade. The NZX50 Capital Index is down -0.7% in late trade and giving up all of yesterday's gains.

SWAP RATES UPDATE
Swap rates are probably unchanged again today. We don't have final wholesale swap rates movement details yet but we will update this later in the day if they show a significant movement. The 90-day bank bill rate is unchanged at 0.31%. The Aussie Govt 10yr is marginally lower at 0.89%. The China Govt 10yr is down by -5 bps to 3.07%. The NZ Govt 10yr yield is unchanged and holding at 0.94%. The UST 10yr is down marginally to 0.62%.

NZ DOLLAR LITTLE-CHANGED
The Kiwi dollar has given a little back from what it gained yesterday, now at 65.5 USc. But against the Aussie we are firmer at 93.8 AUc. Against the euro we are holding at 57.5 euro cents. And that means the TWI-5 is still just under 70.

BITCOIN HOLDING
The price of bitcoin is little-changed again but on the softer side at US$9,202. The bitcoin price is charted in the currency set below.

This soil moisture chart is animated here.

The easiest place to stay up with event risk today is by following our Economic Calendar here ».

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47 Comments

The inflation rate target plus the employment rate targets are both blown. What to do?

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the answer to that question will be PRINT.
It will also be the answer to every other question.

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Will they print it into the consumers' pockets though??

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Nope. It will disappear into the corporate and institutional ether.

Really, it looks like mass-write downs of residential mortgages are going to be the only way to preserve the country if job loses really take off.

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Which is a bit insane and will likely end in revolution if it happens. Essentially land owners would be given their properties for free, landlords get bailed out and renters get nothing.

Pretty sure that type of thing has been tried before, pretty sure it's led to a very angry bunch of renters who end up throwing out the land lords and the government who orchestrated such a dumb move. See China, Mexico, France etc etc for reference :-).

Only way the government could swing it is to try and print say 100k for every person. Then make sure those holding debt pay down their debt with it, with zero chance of it leaking into their bank accounts. Then those without debt can get it credited to their savings accounts. Would likely generate a hell of a lot of inflation...

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it will be done by bankruptcy like it has in the past. Argentina tried to short the system and look where it got them.

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Speculators can never seem to get enough social welfare eh.

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Hmm, reserve banks always seem to 'look through' one off inflationary impacts of fuel price changes when it increases inflation above their target... Why not when its the other way around?

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NIRP <2021

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Yep - tighter monetary conditions - buy bonds.

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Chinese bank runs. Fantastic read from the mighty ZH.

Indeed, as Bloomberg adds, "after several bailouts and the first bank seizure in more than two decades last year, the coronavirus outbreak and its economic fallout have exacerbated an already shaky situation in the world’s largest banking system" leading to a sharp erosion of confidence in the $43 trillion banking system among the nation’s more than 1 billion account holders, threatening a cornerstone of China’s rise into an economic powerhouse.

https://www.zerohedge.com/markets/china-rocked-unprecedented-surge-bank…

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J.C , could of chosen a winner, J.A comes to mind.

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Shanghai stocks dropped 4.5% today. Thats a bit....

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The RBNZ M1 sectoral inflation model unchanged y/y at 1.8 percent

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No journalists have picked up on Sir Stephen Tindall ( Tindall family worth $635 million) saying that the ultra-wealthy like himself should be paying more tax, on TV news the other night. This would be a sea-change, especially as we are probably about to enter a period of yet more increasing inequality in the post-Covid down-turn. There is a growing organisation of multi-millionaires and billionaires in the USA who wish to be taxed more which was referred to in the same news clip.
This subject seems to be taboo with local journalists......are they scared to take it up? What about an interview with Sir Stephen Tindall?
Don't get me wrong, I am an advocate for SME businesses and the building up of wealth to sensible levels, but once the wealth of the super rich reaches a critical mass it keeps on snowballing.
Such tax revenue could apply towards universal health benefits in the areas which aren't covered as yet such as dental (over 18 yrs) cover, hearing and sight.

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I think they would be happy to give a little away but still stay very rich. Especially if the option is some black shirts turning up at your house and saying "give us all your money or we will kill you".

Running a company that made its money selling cheap Chinese junk, mostly paid for with welfare cheques, isn't that great to start with.

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Is it along cheap junk, or products that many people couldn't otherwise afford?

The Warehouse has always looked after its employees well and genuinely believes in operating as a company with a community focus. The world would be a better place if more businesses operated the way that The Warehouse does.

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There's nothing to stop them from giving away their money right now.

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It's all virtue signalling and PR. If they actually wanted to do something about it, they could do it anytime.

Voluntarily handover 95% of your income to IRD, a registered charity, or even random people on the street.

Or even better, lower the retail prices at all the companies you own, pay your staff more, etc.... You clearly didn't need to make the profits you were and still are making.

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One problem with that is that it is the relative wealth that is the important thing in relation to your standing in society. If you were super rich and gave most of it away and the super rich person down the road didn't, your trophy wife/ toy boy would scuttle down that road pretty fast!
Hence he is saying that it should be compulsory. ie a fixed % for all super rich....
preserves the pecking order.

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Facile libertarian rubbish.

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Labour had a policy remit at their 2019 convention to investigate covering 'basic' dental procedures (extractions, fillings) for all adults.

Waiting to see if they still announce such a policy, given COVID.

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We need to be giving more consideration to the tradable and non-tradable components of the CPI given that these are telling different stories. The non tradables ( i.e. items that are not traded across international borders) have been humming along at a little over 3%.
KeithW

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The cost of domestic crony capitalism?

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The cost of a rising minimum wage perhaps ?

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How does one become a crony?
Asking for a friend.

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Absolutely, the trade-off between the two is responsible for much of the house price growth. Weak tradable inflation (technology and China) has been off set by high non-tradable inflation (house prices). Its the only way the RBNZ has got anywhere near it's target.

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House, mate what's going on?
First the NZ / OZ bubble now house prices...
Taking the Mickey mate but I dont think we can turn a blind eye to what is happening now.

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:)
Remember the auckland rentals number, it started to drop and is picking up momentum. I cant say for sure what's causing it, any idea? Rising rents possibly next. The usual sequence is for rising rents followed by increasing house prices so dont get too cozy my boy. (Tongue in cheek)

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The big unknown.
The average person doesn't know it yet but there will be a lot of pain to come one way or another. Sad but that is how the cookie crumbles.

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I'm a big fan of the Weinsteins, here is their latest

https://www.youtube.com/watch?v=XjOg-OP_69Y

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Auckland Council today approved an inflation busting 3% rates rise.

I probably wasn't alone in writing to their feedback process and suggesting that they keep rates flat given so many folks are struggling to make ends meet. How they can justify this increase is beyond me.

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Taxes to climb higher, is what it is saying.

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councils are increasing taxes just to stand still.

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The country could double the current tax rate and we would still go backwards.

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so perhaps the question perhaps is, would we go backwards faster if they doubled rates?

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Most likely but I see things going bad anyway.
We have to pay ot back eventually, the only way I see that is possible is hyperinflation.

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there may be options but if you have debt them hyperinflation feels like the way to go. However why would banks want that outcome?

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"would banks want that"

Not with low and falling interest rates and with QE in place that situation is not changing for years

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I'm bugged if I know how this is going to play out but I'm kicking back and not doing anything untill there is a clear indication.
Ugly messy stuff going down is about all I see, I just dont know the how, where, what and who....

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As a hedge against future inflation keeping some debt allows you to play both sides. Still, being conservative is a good thing

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I knew that Goff wouldn't budge.
Consultation in name only. Promptly ignored. Which is typical for council consultation..

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I believe that the RTA amendments will be ploughed through by the idealistic idiots in govt. Get ready for the onslaught from both sides of the tenant-landlord equation.

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Simple .. that "consultation" questionnaire of theirs just had 2 boxes - either 2.5% increase or 3% . I ticked neither and put a note saying it should be 0%. I am sure they account for that as a "spoiled ballot".

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I did the same. And mentioned enforced staffing level cuts plus enforced salary reductions, not these voluntary ones.
You know where my response would have been filed.
Actually I look forward to see how their spin doctor section will spin this blatant ignoring of their ratepayers wishes.

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