A review of things you need to know before you go home on Tuesday; no retail rate changes, population grows slower, tourism industry told to change, new market study, record high price-to-income ratio, bond yields rise, NZD up, & more

A review of things you need to know before you go home on Tuesday; no retail rate changes, population grows slower, tourism industry told to change, new market study, record high price-to-income ratio, bond yields rise, NZD up, & 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 to report.

TERM DEPOSIT RATE CHANGES
No changes here either.

SLOWING GROWTH
September population data was released today. It has risen to 5,101,400 and sitting +94,200 higher than a year prior. That is more than Whangarei (89,700). Population growth continues to slow, easing from +2.3% pa in the June quarter to +1.9% pa in September. Infometrics note: "Population growth for those aged below 65 is particularly weak, at just +1.4% pa and continuing to slow. In contrast, population growth for those aged above 65 was +4.3% pa and continues to trend upwards." Perspectives on the median age are here.

RECORD LOWS x2
Also released today are our updated Birth and Death rates. Both are notable becuse they are each at record lows. But our infant mortality rate isn't making any progress.

NASH SAYS PRE-COVID TOURISM WON'T RETURN
New Tourism Minister Stuart Nash has told the industry he "firmly believes" that "the low-spending but high-cost tourist is not the future of our tourism industry." Speaking at a Tourism Industry Aotearoa conference Nash said New Zealand tourism will never return to how it was pre-COVID-19, with the pandemic providing the opportunity to reset NZ tourism. "I have asked officials for innovative solutions to minimise the costs to New Zealanders of tourism. This includes ensuring visitors pay for the privilege of participating in the New Zealand experience. I am keen to hear your feedback and ideas for how we can accomplish this," Nash said.

A ONE-EYED STUDY ANNOUNCED
In an action taken to fulfil an election pledge, the Government signaled it would start an inquiry into supermarket pricing, saying "Groceries are one of our most regular expenses, so we want to make sure pricing is fair." The Commerce Commission is doing the study which won't be released until November 2021. This review comes even though Statistics NZ reports that "grocery price" inflation is running at just +0.7% pa and well below the overall food price rises. The higher food prices are due to fresh fruit and vegetables, prices pushed much higher (+10.3% pa) because of Government policies that restrict harvests. But it seems unlikely the Government will let the Commerce Commission point its finger at them.

UNHELPFUL PROPAGANDA
In the Government's grocery announcement, it pointed to the "success" it had in its "market study for fuel" which it claimed caused a sharp reduction in prices. But that is a dubious claim. The drop came as the pandemic arrived and the crude oil price collapsed. Retailer margins did fall, but probably not because of their "market study", more due to market realities. Worse, even though prices dipped, the Government then slapped on higher taxes in July ensuring consumers didn't get the real market benefits, or even much of the claimed "market study" benefits. To claim these reviews lead to lower prices is not borne out by the market study into fuel.

MANY NEW RECORD HIGHS
The October house-price-to-income ratio has risen to a new record high. For New Zealand that is 7.65 times, for Auckland that is 10.1 times. Record highs were also established for Tauranga, Rotorua, Gisborne, Whanganui, Palmerston North, Wellington, Christchurch, Timaru and Dunedin. So that makes in a new record high in ten of the 21 cities we cover. This is a measure that relates the median house price to gross household incomes. We think it is an inferior measure because it ignores tax rates, interest rates, deposit levels, and mortgage payment burdens, all each more important than the house-to-income metric.

STRONG MARKET
One major Auckland real estate agency alone brought 290 properties to auction last week. 60% of them sold at auction.

WEAK MARKET
There is another dairy auction tomorrow morning. At the last event two weeks ago prices fell -2%, the first fall after three rises. But tomorrow markets are picking another retreat, maybe a -3.5% drop. That would be the largest fall since early August, and the second largest since mid-April 2020.

TAX REFORM?
In NSW Australia, their State Government is proposing moving away from a pro-cyclical Stamp Duty as a revenue source, to a State Land Tax (property tax) system. That is a move from the State Government sourcing a big bucket of revenue from property sales when they transfer, to one where every property pays every year. There is a long way to go before the proposal becomes effective however, but if it wins out, most other states will follow..

GOLD PRICE UP
The price of gold has fallen in Asian trade, now at US$1888/oz and down by -US$6 from this time yesterday and by -US$1 from the closing New York price earlier. London closed last night at US$1886/oz.

EQUITIES UPDATE
The S&P500 ended its session this morning up +1.2%. The ASX200 seems to have started back up today and is now +0.4% higher in mid-day trade. The NZX50 Capital Index is down -0.2% in late trade. The very large Tokyo market has opened up +0.4%, Hong Kong has opened +%, and Shanghai is up +% in early trade today.

EYES ON SWAPS AS BOND YIELDS MOVE UP
Update: Swap rates rose sharply again today. In fact, over the past two weeks, the two year swap rate has risen from 0.00% to 0.23% and the three year has risen from 0.01% to 0.27%. These are movements that will have the attention of bank pricing desks. We are awaiting today's wholesale swap rates. If there are material movements today, we will update them here later. The 90 day bank bill rate is down another -1 bp today to 0.25%. The Australian Govt ten year benchmark rate is up +5 bps at 0.95%. The China Govt ten year bond is up +1 bp at 3.30%. And the New Zealand Govt ten year is up +6 bps at 0.90% and above the the earlier RBNZ-recorded fix of 0.88% (+5 bps). And the US Govt ten year is still at 0.90% which is unchanged from this time yesterday.

NZD FIRMS FURTHER
The Kiwi dollar is firmer yet again today, now at just on 69.1 USc. It was last at this level in March. Against the Aussie we are little-changed at 94.3 AUc. Against the euro however we are a little firmer at 58.2 euro cents. That all means our TWI-5 has risen to 71.8.

BITCOIN RISES
Bitcoin is very much firmer than this time yesterday, up +US$860 or +5.4%, and now at US$16,775. The bitcoin rate is charted in the exchange rate 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 ».

Daily exchange rates

Select chart tabs »

The 'US$' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The 'AU$' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The 'TWI' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The '¥en' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The '¥uan' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The '€uro' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The 'GBP' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The 'Bitcoin' chart will be drawn here.
Loading...
End of day UTC
Source: CoinDesk

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

63 Comments

10
up

Colmar Brunton Executive Director Chris Vaughan says NZ is home to just under one million baby boomers (980,000 or 23% of the population). That’s 21% more than in 2006 and represents 35% of the country’s total household expenditure

Interesting - The number of Boomers in NZ increased from 2006 through 2020 by 21%

They are being imported

NZ cannot organically increase them because the last one was born in 1965
We stopped making them in 1965

Imported I would say is a bit misleading, given a lot of them would have NZ passports or dual citizenship.

Of my friends from university days (I finished 10 years ago), at least one out of every five are overseas, with most planning to return to NZ one day. Its no different then than it is now. And its no different now than it will be in the future.

Most kiwis want to see out their days in NZ. Theres just a difference of opinion of how those middle years are spent.

The 21% increase is a measurement of what is here in NZ right now, not in the future
Of the native-born, many at the front end born in 1945 will have passed since 2006, some may have migrated overseas, and some who had migrated pre-2006 will have returned

Running a simple calc on INZs residency point system, a couple in their 50s, both working full time outside of Auckland above median wage with the main applicant having studied at masters level in NZ score above 160 and are eligible for permanent residency.

If you read those numbers, the increase of 21% is of people who were aged 50 or older in 2006, and they didnt come to NZ to study and obtain a master degree here in NZ

Did the coalition government end up changing the rules for receiving super? All a bit late I suspect.

A simple google search shows that we desperately need a supermarket enquiry:
UK: Tesco Whole Milk 2.272L/4 Pints: £1.09 (NZ $0.92 per litre)
AU: Woolworths Drought Relief Full Cream Milk 2l: $2 (NZ $1.06 per litre)
NZ: Countdown Milk Standard 2L: $3.41 (NZ $1.71 per litre)

It is understood Fonterra sets the wholesale price based on international pricing

Then why do South Africans and Emiratis pay significantly less on similar Fonterra products than we do? That is even when you consider the differences in consumption taxes.
Obviously, the tens of supermarket chains and also scores of global brands each have on their shelves has a lot to do with it.

Something is certainly amiss when a litre of milk produced here is priced higher than a litre of imported petrol.

Why is international pricing so much higher in NZ? If frontera wasn’t a monopoly would it be lower?
Let’s just say I’m not surprised that our monopoly milk supplier and our duopoly supermarket chain between them charge us almost double for milk than in the UK. It must be time to sort that out. They really should split both supermarket chains into two.

"They really should split both supermarket chains into two." - Woolworths (one half of the duopoly) is offshore owned so it can't be split up. Foodstuffs (the other half) is a privately owned Co-op so that can't be split either. Fonterra charges according to what it can get on world markets - as it should. BTW it's not a monopoly supplier, there are other players in the dairy products market

So why are we paying frontera so much more for our own milk than the UK are? If we are not then the supermarkets are shafting us. There is something wrong, they can’t just both point the finger forever.
I’m sure the government could split the supermarkets if they wanted. The more sensible thing to do is threaten a split unless prices come down to somewhere near international levels. I know we are a small country but I think a tiny UK corner store chain would be cheaper than a NZ supermarket.

There is a long way to go before the [state land tax] proposal becomes effective however, but if it wins out, most other states will follow

Hopefully, our government here watches closely, grows a pair and also follows suit on NSW's bold move.

24
up

I see Jacinda has put on her best concerned frown again today re: the housing market.

10
up

I do not hold the spite towards JA as the 'old men yelling at the clouds', but she is so far out of her depth on this. Bayly is taking points at will while smirking behind closed doors knowing that politico-housing complex is now blowing up in JA's face. She is no match for the vested interests that are global in reach.

17
up

I don't place any value in what Bayly / The Nats have to say on this, it's just political points scoring and they did jack to address housing when in power.
Neither party genuinely cares. They are all invested in it as much as anyone. Jacinda can keep frowning all she likes, but it's fake.
As someone said here recently - let it boom, a runaway boom is the best chance of a decent correction.

Time for a rent freeze to my mind.

A rent freeze (although impossible to action) might be an idea if costs of supplying rentals and compliance costs didn't keep climbing.

We wouldn't need intervention if house price inflation tracked tightly alongside wage inflation

Advisers to Cindy " It appears honey moon period is over. The concerned frawn isn't working on so many people any more. Maybe it's time to distract the public. Covids also weaning on everyone. What about another baby or get married?

Doesn't seem to be having much of an effect though. Might be time to roll out the big guns, could even go so far as an empathetic head tilt.

Mother's recent admission to hospital following a stroke, has provided me some time in the wonderful Auckland weather. As such , mother will be one of the first to benefit from the new ward opening, fully equipped , for those many but not exclusively elderly who have been struck down , and require multifaceted and expensive and often long term rehabilitation care. In light of New Zealand's pop statistics., health care costs can only increase.
With such time on my hands, I am currently finalizing a business prospectus , to obtain a little cheap bank funding for a large scale tulip farm. I believe it has significant upside potential .
Finally, given the saturation of bubble blowing real estate reports, I came across Irelands' central bank most recent 2019 credit report. Night time reading.
https://www.centralbank.ie/docs/default-source/publications/household-cr...,
and a second on restructuring the Irish finance sector
http://mural.maynoothuniversity.ie/5992/1/N259-15.pdf

Well, according to NZ housing speculators, the laws of economy simply do not apply to NZ: house prices will keep increasing forever.

Sorry to hear about your mother. Hopefully she's doing as well as possible given the circumstances.

I am going for an Ostrich Farm in Awkland.and will produce enough for Christmas Dinner for all who want one delivered. Plucked, stuffed, all delivered with Countdown Groceries.....only 750$ per kilo.......Mint extra. Already for next Christmas, please order now, along with Credit Card details.

Taking part in Grocery Scramble could deliver via Foodstuffs, free fly buys....but &799per KG.

10
up

In an action taken to fulfil an election pledge, the Government signaled it would start an inquiry into supermarket pricing, saying "Groceries are one of our most regular expenses, so we want to make sure pricing is fair."
In the Government's grocery announcement, it pointed to the "success" it had in its "market study for fuel" which it claimed caused a sharp reduction in prices. But that is a dubious claim. The drop came as the pandemic arrived and the crude oil price collapsed.

The way forward is obvious: stop the Fed [RBNZ]from blowing ever-larger bubbles and eliminate cartels and monopolies. But that will require ending the absurd farce of pay-to-play "democracy" that enables the debt / asset bubbles and cartels / monopolies.Link

Have the pollies just realised that there is an abnormally large number of supermarket franchisees on NBR's rich-list? Can we still call ourselves the least corrupt country despite all this vested iterest among our elected ones to maintain status quo?

Times like these when I wish we had more French in our culture than English. All this price gouging should've led to la Revolución years ago!

https://i.stuff.co.nz/business/money/106288425/supermarket-owners-bankin...

"Have the pollies just realised that there is an abnormally large number of supermarket franchisees on NBR's rich-list? " - are you basing that on actual research or on Stuff's spurious headline about a "generation of owners"? Take a look at the timespan the featured owners have been in the industry - they work hard and take large risks in gaining access to a franchise. Their reward is commensurate with the risks they take and the work they put in.

Their reward is commensurate with the risks they take and the work they put in.

It's a duoploy. Don't make out that it's something that it's not. Doesn't mean that there's no risk or effort running the shop. It is what it is.

I happen to know three successful owners and have watched them grind seven days a week for many years, decades in fact. They deserve the fruits of their labour. There's a difference between the franchisee and the franchisor.

16
up

I didnt vote National this time around, but well done Judith Collins for your comments on the RBNZ today. It is becoming blindingly obvious that Orr has gone too far with QE, and too low with the OCR. Everything in moderation is a proven axiom. Spraying cheap money blindly in all directions is not the answer, look at the housing market, its blindingly obvious.

I agree, there really is no shortage of money out there. Our household alone has 100k invested in KiwiSaver, I’m sure that is quite common. There is so much money no one knows where to put it!
And too much of the money is in the hands of people getting close to retirement, they are never going to spend on consumer goods and create inflation, they will save until retirement. Lowering interest rates just pushes more money towards those people, and also increases house prices and rents to the point where the younger generation can’t spend any of their income and generate inflation. Even the odd avocado on toast is frowned upon.
Surely at some stage they will have to remove the stimulus, maybe quite abruptly. Is Orr so sure that won’t cause market instability?

"Speaking at a Tourism Industry Aotearoa conference Nash said New Zealand tourism will never return to how it was pre-COVID-19"

I'd be very interested to know the reasons for Nash' statement.
I predict that, because of NZ's Covid free image and the pent up desire to travel, tourism will actually be much higher once the vaccine is widely available and NZ borders open. I'd actually be prepared to bet a nice bottle of champagne with Mr Nash on this outcome

I suspect it is purely a political play:

1 The govt has not supported tourism industry operators. The wage subsidy only helped those whose primary expense is wages. Anyone with significant lease payments and a small number of employees has been smashed.
2 NZ First blocked the lease relief which may have made the difference.
3 Given 1 & 2 above, they see an opportunity to avoid criticism for failing the industry: go with the line "it needs to change anyway, it will never be the same again".

I believe you are absolutely right, people will come flooding back here when the virus is under control. May help somewhat to mitigate the corresponding massive slump in retail here, as NZ'ers flip back to spending their money on overseas travel.

Jacinda’s response to requests of relief for leases was to say that landlords should be kind.

If you ask them they are being kind. All that hard work improving their property every couple of decades and keeping up with insulation standards that most countries would laugh at. And all they ask for in return is a meagre half mil of tax free capital gains every decade to go with the crippling rent payments. So generous.

You are confusing residential investment with commercial, we are talking about commercial leases. There is a big difference between residential and commercial property.

The govt has indeed propped up tourism. The Small Business Cashflow loans (interest free for the 1st year), the "iconic tourism venture" bailouts. We had too many "popup" ventures that were poorly capitalized and poorly managed,all scavenging and scrabbling over each other. A cleanout was required and has been delivered. The remaining industry players will be better for it as will the overall experience. The unseemly rush to AirBnB would be a case in point which now seems to be resetting

No, they have not.
Research the cash flow loans and you will see the amount you can borrow is coupled to employee count only.

A tourist accomodation company with a couple of perm. employees and 25k per month lease payments can borrow enough for 2 weeks rent.

Edit: I note you have said they have both propped up tourism, and had a clean out. Hard to see your point.

Also there is more to tourism than just the bungy jump operators. They have to sleep somewhere, eat, shop etc.

NZers and other economic sectors have been subsidising the sector for a while, particularly council ratepayers.
We could start by limiting the influx numbers majorly to high-spending tourists, filming crews, etc. Shouldn't the industry be all over the economic opportunity of making more with less?

How would you "limit the influx numbers majorly to high-spending tourists"? All would be tourists have to fill out a form before they can come in, promising to spend at least X amount per day while they're here?

Rather stupid thing to say.
You do it the same way you make sure everything else caters to premium customers, you raise both the value of services offered and its price?

For example, INZ has been running deficits for years. We should set the visa fees to accurately include costs of processing tourist visas, so taxpayers don't foot the bill. The gov also spends heaps on marketing NZ tourism, how about we claw back those expenses in some creative way?

The cost of ACC claimed by injured tourists opens a big can of worms as well.

If tourism was a multi billion dollar earner is not NZ Inc already clawing back some of those expenses via tax? Trouble is, as I see it, the returns from taxing tourism aren't being funnelled back into where the costs are being incurred. A convenient disconnect between central and local govt imv.

It seems to me that when one of the supposed big sectors (farming or tourism) takes a downturn, govt tax income barely changes. Makes you wonder how important they really are.

Why? When a vaccine is widely available, being 'covid-free' won't really mean much.
I think we will eventually get back to something approaching our numbers pre-covid. I certainly don't see a large increase over and beyond that.

I would be very happy if international tourist numbers plateaued at circa 50% of our previous peaks. We need tourism to some degree but our economy hasn't fallen apart without it. Our places and infrastructure need more breathing space.

When the borders open to covid free New Zealand we are still going to be at risk having not built up any immunity.

"Worse, even though prices dipped, the Government then slapped on higher taxes in July ensuring consumers didn't get the real market benefits, or even much of the claimed "market study" benefits."

Hmmm, food for thought there.

People were far too blinded by the toothy smile, promises of hugs and all the rest of the pixie dust sparkle. No one noticed the market study didn't actually contribute anything that wasn't already about to happen. Fuel prices fell because demand fell. Watch for all the nice shiny new Waitomo stations to slowly close or become totally unmanned as they struggle with low margins.

Well that is part of the issue, the big chains only compete with the stores close to the gull and waitimo. The loss they make in those stores is clawed back by overcharging at others. This is really very obvious and needs to stop.

Petrol taxes need to be “slapped on” every year to keep up with inflation; not just CPI inflation but road building inflation which I imagine is a lot higher. All that tax other than GST and ACC goes the the national land transport fund.

Another example of governments moving to land tax to prop up revenue.
As I’ve said before, it will become a preferred option here as well.

Births at record lows, I wonder if that will I’ll still be the case 9 months on from lockdown.

It would be interesting to see divorce numbers aswell.

More fuel to the housing crisis!

"The higher food prices are due to fresh fruit and vegetables, prices pushed much higher (+10.3% pa) because of Government policies that restrict harvests."
Where would I find more detail on this?

I'm a little curious as to why the Interest team haven't looked at the Auckland City swap hedge issue in more detail. It's ripe for some decent financial investigative journalism. There is a $2.1b derivative liability on the balance sheet that represents a $4000 cost for every dwelling in Auckland. While some fixed rate hedging was defendable, to swap hedge the entire floating rate debt for 8-10y 3y ago was a catastrophic blunder.

They are having to borrow $2bn to post as collateral on these trades at an additional cost of $50m per annum. That alone is material.

Hmmm.... did they borrow $2.0bn to purchase NZ government secs to post as collateral? And paid above par as the RBNZ is doing for the high coupon issues.

Is it confirmed they paid fixed on an IR swap with no matching cash flows or something else?

I assumed as much last night because IR swaps are the most common interest rate derivative play in NZ - ANZ had notional positions of $1.4 trillion a few years back.

Of course they paid fix AA, some of the swaps were Cross Currency so there will be an FX element to the valuation.

From their borrowing disclosure you can see they have $8.5bn of floating rate debt - this is what they swapped to fixed years ago for 10+ years duration and they got that horribly wrong. Yes they have some long-dated assets but I doubt these were fixed rate, no Treasurer worth their salt would have done this. They should be made to disclose the minutes of their Alco meetings. They also disclose that swaps are under CSA so they be posting $2.1b to the banks daily - cost of around $50m per annum.

Ah huh. They hegded/fixed a floating rate liability, just as some farmers did a while back with the National Bank (now owned by ANZ) - that was a public debacle. History should have warned off both counterparties to this type of financial transaction post 2008 - The RBNZ has cut floating interest rates in half five times since July 2008 and shows no proclivity to do otherwise in the future.

It's madness, given the council has a regular property rates cash in flow to match the cost of the floating rate debt service liability, and the former only varies upwards, right? - link

At this juncture I wish to repeat the comment I made yesterday:

RE: Interest Rate Swaps - The marked to market liquid collateral (govt debt?) demands placed upon loss making counterparty agents paying fixed is a financial stability factor of great seriousness in it's own right while relentless fixed IR swap yield compression causes remain undisclosed.

Wouldn't mind Roger j Kerr's thoughts on it

Was he an IR swap market maker in a past life? Or a sovereign bond dealer?