What happened Friday

A review of things you need to know before you go home on Friday; more mortgage rate cuts, ChCh consents flood, PMI stumbles, CPI up, FPH rises further, swaps firm, NZD firm, & more

22nd Jan 21, 3:59pm by David Chaston

ID 22702269 © Daniaphoto | Dreamstime.com

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

MORTGAGE RATE CHANGES
Both BNZ and ASB joined Westpac and ANZ with a 2.29% one year fixed 'special'. BNZ also cut its two year 'special'. Kiwibank said it will cut its one year rate on Monday, but not quite to the level of the others.

TERM DEPOSIT RATE CHANGES
No bank changed any TD rates today.

SHOWING THE WAY
The Canterbury Construction Report reveals that residential building consents ended the year strongly in Christchurch for the three local authorities there. More than 4800 new dwellings were consented in those Councils, an +18% growth over 2019 and far faster than the +7.4% growth in the prior year. Selwyn District's +60% is the standout. (Auckland's residential consent growth in 2020 is +9.6% and Wellington's is -2.3%.)

"A BIT DISAPPOINTING"
New Zealand's factories moved from a healthy expansion to a surprising contraction in December, according to the BNZ-BusinessNZ PMI survey. And the dip was sharp. It follows six consecutive months of above-average expansion. It can be seen as a bit of a momentum killer, especially as new order levels stopped expanding. But it might also just be "December" and an end-of-a-difficult-year stumble. No one really seems to know.

FIRST SIGNS OF INFLATION?
CPI inflation came in higher than expected by both the RBNZ and market analysts in the December quarter at +0.5% quarter-on-quarter and +1.4% year-on-year. +1.0% was the expected result, so now rate cuts are being seen as unlikely in 2021. Given the pressures building in the tradable goods sector, everyone is looking for price increases to flow through into consumer prices; this may be the start. Less discounting where it will be noticed first.

NZ'S BIGGEST CORPORATE COVID BENEFICIARY
Fisher&Paykel Healthcare has issued a stock market update advising of huge increases in sales for its respiratory products. But, “given the significant uncertainties associated with the course of COVID-19, the effectiveness or adoption of preventative measures, the progress of vaccines and their outcomes and the impact on future hospitalisation rates, we have no basis on which to provide formal guidance to results for the full 2021 financial year." FPH has led the NZX50 higher today by +5.5%.

"GOOD PROGRESS" RESULTS IN SIGNIFICANT DELAYS
The RBNZ is claiming it is making "good progress" in dealing with its "malicious illegal breach of a third-party file sharing application". But it has had to further delay more statistical releases as a consequence. "We will provide an updated release calendar when we can, but we expect delays of 3-4 weeks to most publications."

JAIL FOR TAX FRAUD
A 25-year-old Auckland man has been sentenced to more than two years in prison for tax fraud involving more than $200,000. Aaron Roydyn Ryder pleaded guilty to 16 charges of knowingly providing false GST returns to obtain GST returns he was not entitled to from 2014 to 2016 and 16 charges of knowingly using forged documents to support the false GST claims.

"SEVERELY UNAFFORDABLE"
The Demographia median multiple data as at September 2020 is due to be released on Monday and will claim housing here is "severely unaffordable". (Update: At this stage the Demographia release on Monday has now been "withdrawn".) But you can find median multiple data for a much broader range of New Zealand urban centers through to December 2020 here.

AUSSIE PMIs EXPAND HEALTHILY
The internationally benchmarked PMI for Australia was released today for January, and that is recording a continuing healthy expansion.

AUSSIE RETAIL SALES STAY WELL AHEAD
But the Aussie retail sales data for December was actually disappointing, down -4.2% pa on a seasonally-adjusted basis from November. However, despite that dip it is still more than +9% higher than for December 2019. Like New Zealand, these retail gains are coming from the closed borders with the locals unable to holiday overseas - that spending is happening locally now.

GOLD PRICE SLIPS
Gold is trading in Australia, and soon in Asian markets. So far today it is down -US$3 at US$1866, although that is -US$4 below the New York close, but it is still above the afternoon London fix of US$1862.

EQUITIES UPDATE
Wall Street ended its session earlier today unchanged. The ASX200 in early afternoon trade is down-0.2% and heading for a weekly rise of +1.5%. In contrast, the NZX50 Capital Index is up a strong +1.2% in late trade today, and it is heading for a weekly rise of +2.2%. Tokyo is down -0.4% in early trade while Shanghai is down -0.3% at its opening while Kong Kong is also down -0.3% in opening trade.

SWAP & BOND RATES RISE
We don't have today's swap rate movements yet. They were little-changed yesterday. If there are material changes when the end-of-day swap rates are available today, we will update them here. The 90 day bank bill rate is back up +1 bp at 0.29%. The Australian Govt ten year benchmark rate is up +4 bps at 1.08%. The China Govt ten year bond is down -1 bp at 3.17%. The New Zealand Govt ten year is higher by +9 bps at 1.12% and now well above where the earlier RBNZ fix was, at 1.07% (+3 bps). The US Govt ten year is up +2 bps at 1.11%.

NZD FIRMS AGAIN
The Kiwi dollar is now at 72.1 USc and up more than +¼c from this time yesterday. On the cross rates we are firm against the Aussie at 92.9 AUc. Against the euro we are slightly softer at 59.2 euro cents. That all means our TWI-5 is up at 73.3.

BITCOIN ON THE SKIDS
The bitcoin price is on the skids today and is now at US$29,593 and that is -16% below where it was at this time yesterday. (Update: It is now at US$30,335.) In between volatility has been a sky-high +/- 10.7%. Remember, this price hit US$41,940 on January 9, 2021.

This soil moisture chart is animated here.

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Source: RBNZ

Source: CoinDesk

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25 Comments

by JimboJones | 22nd Jan 21, 4:49pm 1611287353

Median multiples are an absolutely pointless measure. To exclude interest rates from a housing affordability calculation is ridiculous when almost everyone that buys a house has a large mortgage. According to median multiples it is just as hard to buy a house at 1% interest as it is at 20%.

by J.C. | 22nd Jan 21, 5:07pm 1611288458

Saying that median multiples are 'pointless' is not correct. These kind of measures are best described as 'directional.' IMO, using relative cost of debt servicing is somewhat pointless.

by Lanthanide | 22nd Jan 21, 5:26pm 1611289560

If you believe that the price of houses is relative to interest rates - when rates are lower prices will go up because people can service higher mortgages, and vice versa, then interest rates are already embedded into the median multiple prices at any given time.

And I think that's a better way to do it anyway. If there was a bank out there offering interest rates of 0.50% but only to a tiny handful of people, then how would you take that into account in your model? If that same bank offered those rates to many many people, then you'd expect it to show up in the median house price, yes?

by J.C. | 22nd Jan 21, 5:48pm 1611290938

If you believe that the price of houses is relative to interest rates - when rates are lower prices will go up because people can service higher mortgages

The negative correlation of interest rates and house prices is suspect. Case in point: Japan. I know people explain it away (demographics, immigration, blah blah). Mind you, I have argued that the relationship between house prices and the M2 money supply is better. But then the Japan case will refute that too.

Maybe it's just better to accept the mainstream belief that the NZ case (followed by Australia and then the other Anglophone countries) is different. We have perfected the management and preservation of housing bubbles more than any other in human history.

by Audaxes | 22nd Jan 21, 6:44pm 1611294262

The emphasis on prices then also helps to justify the charging of usury (interest), which until about 300 years ago was illegal in most countries, including throughout Europe.

However, this narrative has suffered an abductio ad absurdum by the long period of near zero interest rates, so that it became obvious that the true monetary policy action takes place in terms of quantities, not the interest rate.

Thus it can be plainly seen today that the most important macroeconomic variable cannot be the price of money. Instead, it is its quantity. Is the quantity of money rationed by the demand or supply side? Asked differently, what is larger – the demand for money or its supply? Since money – and this includes bank money – is so useful, there is always some demand for it by someone. As a result, the short side is always the supply of money and credit. Banks ration credit even at the best of times in order to ensure that borrowers with sensible investment projects stay among the loan applicants – if rates are raised to equilibrate demand and supply, the resulting interest rate would be so high that only speculative projects would remain and banks’ loan portfolios would be too risky. Link

by Audaxes | 22nd Jan 21, 6:49pm 1611294576

The creation of bank credit is the driver of household residential property price inflation.
Bank lending to housing rose from $50,788 million (48.36% of total lending) as of Jun 1998 to $292,645 million (59.71% of total lending) as of November 2020 - source.

by Albert2020 | 22nd Jan 21, 5:26pm 1611289614

Of course, median multiples matter. Whether interest rates are at 1% or 20% is irrelevant if one can not accumulate the ever-increasing (let's remember for the vast majority of potential FHBs a 20% deposit is required) deposit to be able to be considered for a mortgage. The median multiples figure gives a very good approximation of the size and time to acquire the deposit for a house.

by Fritz | 22nd Jan 21, 7:44pm 1611297848

Exactly.
Those who dismiss median multiples have no idea.
Af the same time, their value can be overplayed.

by Guido | 22nd Jan 21, 10:40pm 1611308431

Yes, it is just as hard to buy a house at 1% interest rates as at 20%, because it is in relation to inflation rates.
Real interest rate = Interest rate - inflation.
Back in the 70s-80s inflation was so high at times there was a real negative interest rate.

by Nzdan | 23rd Jan 21, 9:36am 1611347815

Not if 1% interest rates = 10 x median to wage earner multiple and 20% = 3 x median to wage earner multiple house prices.

The difference is saving a deposit 2/3rds of a years wages @ 15% TD rates vs 2 years wages at 0.5% savings rates.

It's harder to buy a house today than in the past because in order to buy a house one must have a deposit.

by Andrewj | 22nd Jan 21, 4:50pm 1611287402

Time to Worry About Stock Market Leverage Again: Another WTF Sign the Zoo Has Gone Nuts
https://wolfstreet.com/2021/01/21/time-to-worry-about-stock-market-leve…

by Cowpat | 22nd Jan 21, 5:36pm 1611290189

Taking Westpac and ANZs most recent property forecasts, by January 2022 with a little nudge and all things being equal a 2002 purchaser of an Auckland median priced home would have seen their housing wealth increase by one million over the twenty years. In the same time period , the game of chance, lotto will have created fewer than 2000 millionaires

by J.C. | 22nd Jan 21, 5:48pm 1611290902

I'm not sure why Aussie bank economists and CEOs aren't being recognized globally for their brilliance at wealth generation. Imagine if one day the likes of Tony Alexander are immortalized at Te Papa.

by Cowpat | 22nd Jan 21, 7:03pm 1611295397

Is it simply a cult and brainwashing ? When I read an article advising that New Zealand house prices are set to rise further with attached acronym ,or likewise could never fall, I remind myself to think independently and that New Zealand is run by three pink orangutans. Having reminded myself so frequently ,I now believe New Zealand and its economy is run by three orangutans.

by Fritz | 22nd Jan 21, 8:24pm 1611300243

Haha.
The nations of Australasia - the only invincible housing markets in the world!!!!

by Zack Brando | 22nd Jan 21, 6:42pm 1611294164

Nobody credible is suggesting there is 'buyers exhaustion' in Bitcoin. I'd expect the price to rebound to 35k soon enough, seems to be a reasonable support.

Profit taking and miners selling inventory into the open market, these factors are probably the source of recent downward pressure.

by J.C. | 22nd Jan 21, 6:47pm 1611294468

Miners do not sell in the 'open market'. No point.

by Zack Brando | 22nd Jan 21, 7:05pm 1611295500

Lots do though, I'm sure larger mining operations have other arrangements.. which you're alluding too? It's January, people are setting themselves up for the year. I actually wouldn't be surprised if we see continued sell down and a bounce off 25K.

by J.C. | 22nd Jan 21, 7:10pm 1611295826

Miners do not have to sell on the 'open market' if by that you mean exchanges. It's not in their interests.

by Galloleous | 25th Jan 21, 9:14am 1611519264

Nice well needed cooling off and consolidation period for BTC. Getting ready for the next leg up. This years run is faaaaar from over.

by Kate | 22nd Jan 21, 7:05pm 1611295512

Just researching the level/amount of the accommodation supplement in the various areas/regions - and have a look at this heading banner now featuring on the Work & Income website:

We are experiencing high call volumes, if you are calling about food assistance the quickest way is to apply through MyMSD.

Sad.

by J.C. | 22nd Jan 21, 7:15pm 1611296100

The tone of that msg (Work & Income) just seems so cold and bureaucratic to me. Implicitly, it's like 'that is not our dept and we are not responsible.'

by Zack Brando | 22nd Jan 21, 7:20pm 1611296437

BEFORE Researching Accommodation Supplement Levels CONSIDER:

Would it not be better to rent State Housing to more responsible people.. people with savings and jobs? Then these responsible tenants can extend rooms for rent/board, therefore helping improve the more hopeless among us.

Giving near free housing to the most self-mutilating among us at the expense of workers and students will definitely fail. Not sure why people can't see that.

by Kate | 22nd Jan 21, 7:32pm 1611297167

You're making about as much sense as Joe Biden without a teleprompter.

by Fritz | 22nd Jan 21, 7:46pm 1611297963

Sums up the sad state this country has descended to.
AND it will get worse.