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A review of things you need to know before you go home on Wednesday; 'unprecedented mortgage demand', housing up, milk price up, unemployment down, swaps up sharply at long end, NZD up, & more

A review of things you need to know before you go home on Wednesday; 'unprecedented mortgage demand', housing up, milk price up, unemployment down, swaps up sharply at long end, 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 today, but see below.

TERM DEPOSIT RATE CHANGES
Asset Finance trimmed its rates today.

BNZ IMPLEMENTS 40% DEPOSIT REQUIREMENT FOR BROKER INTRODUCED INVESTORS
BNZ says due to unprecedented housing demand, it's prioritising existing customers and applying a 40% equity requirement for new loan applications from investors who come to the bank via brokers. The 40% deposit or equity requirement is up from 30%.

$23/HOUR, TAX FREE FOR THE LUCKY
Average New Zealand housing values rose by $17,184, or $554 a day during January, topping $800,000 for the first time, according to CoreLogic.

DROPOUTS DIVE
In Auckland, residential dwelling sales were very active in January, with Barfoot & Thompson selling 1046 properties in the month, the most for 17 years. New listings rose 28% to be +6% higher than at the end of December. Only 100 properties fell off their books unsold in January. (They started the month with 2938 listings, sold 1086 of them, and added another 1379 new listings, and had 3131 active listings at the end of January.)

HIGHER MILK PRICE ...
Fonterra boosted
the price it expects to pay farmers by 20c per kilogram of milk solids on the back of continued global dairy price increases. That takes it to $7.20/kgMS, plus their dividend (of which no mention was made today - it was all about the milk price update). And that milk price increase will add about $300 mln to the payout to farmers, taking it over $11 bln. Most analysts see it going +20 higher to $7.40/kgMS.

... BRINGS SMILES (TEMPORARY?)
And farmers are happier than they were six months ago, according to the latest Fed Farmers Confidence survey. It was a survey taken before the Climate Change Commission report was released.

COMMODITY PRICES UP
The ANZ World Commodity Price Index has started 2021 strongly, gaining +3.6% in the month of January. The dairy sector provided most of the lift, while stronger prices were also recorded in the meat and forestry sectors. The annual rise is +4.6%.

AGAINST ALL EXPECTATIONS
Statistics New Zealand says unemployment dropped to 4.9% in the December quarter from 5.3%. Economists had universally expected unemployment to rise to 5.6%. Our participation rate stayed above 70%. The COVID wage subsidy did its job. However, the jobless rate for 15-19 year olds rose to 20%, for those 20-24 it is up to 10%. Perhaps they are struggling following the minimum wage increase on April 1, 2020. That is 3500 extra people in those age brackets without a job now from March 2020.

FMA BOSS DESCRIBES GAMESTOP MOVES AS 'WEAPONISED' USE OF OPTIONS
Financial Markets Authority CEO Rob Everett says the “weaponised” use of options by retail investors around GameStop may fundamentally change how US markets operate. The power of the crowd should be making hedge fund managers and regulators deeply uncomfortable, Everett said in a speech.

INVESTING UP THE RISK CURVE
The NZ Super Fund is committing $100 mln to a new investment fund managed by Auckland-based Pioneer Capital. The fund, Pioneer’s fourth, will invest in New Zealand companies that are "seeking international growth in high margin sectors". The amount invested in this venture is less than 0.2% of the NZSF's total portfolio.

WAY OF THE FUTURE?
The international lobby group for reverse mortgage lenders (EPPARG, London-based) has released survey results from lenders to this market that claims this market will treble in ten years. However almost all of that growth over the 13 countries in this survey will come from the UK and mainly the USA.

CLEAR CONSUMER PREFERENCE, POST-PANDEMIC
In Australia, there is a dramatic surge in building consents for houses and an equally dramatic collapse in consents for apartments and townhouses. Data out today for December shows a +62% rise on a year-ago basis for houses (and a record high), and a -26% fall for apartment building consents on the same basis.

OVER THE HORIZON
There may be some initial views about when the RBNZ might start raising interest rates. Economists see up as the next change but not for a while (May 2022?). But it could be sooner than when the Australian will get an increase. This is what Philip Lowes, RBA Governor says: "Before increasing the cash rate, the Board wants to see inflation sustainably within the 2 to 3 per cent target range. Meeting this condition will require a tighter labour market and stronger wages growth than we are currently forecasting. It is difficult to determine exactly when this condition might be met but, based on the outlook I have discussed today, we do not expect it to be before 2024, and it is possible that it will be later than this."

GOLD PRICE DOWN
Gold is trading in Australia, and soon in Asian markets. So far today it is down -US$18 from this time yesterday to US$1841. But that is +US$4 above the New York closing price and +US$7 above the afternoon London fix. Silver is down -7% today.

EQUITIES UPDATES
The S&P500 ended its New York session up +1.4%. In late afternoon trade, the NZX50 Capital Index is up +0.3% in a bit of a see-saw session, and the ASX200 is up another +1.0%. At its opening, the very large Tokyo market is up another +0.8%, Hong Kong is up +0.2% after yesterday's big rise, and Shanghai is up +0.8%.

SWAP & BOND LONG RATES JUMP AGAIN
We don't have today's swap rate movements yet. If there are material changes when the end-of-day swap rates are available today, we will update them here. But rates at the long end are moving steadily higher. The 90 day bank bill rate is unchanged at 0.28%. The Australian Govt ten year benchmark rate is unchanged at 1.18%. The China Govt ten year bond is up +2 bps at 3.22%. And the New Zealand Govt ten year is up by +13 bps at 1.35% and above where the earlier RBNZ fix was, at 1.27% (up +8 bps). The US Govt ten year is up +3 at 1.11%.

NZD JUMPS
The Kiwi dollar is now at 72.1 and +½c higher than this time yesterday. It was kicked up by the jobs data. On the cross rates we are also higher against the Aussie at 94.7 AUc and a gain of almost a full +1c. Against the euro we are up to 59.8 euro cents. That all means our TWI-5 has risen sharply to 73.9. The last time it was this elevated was briefly in December 2018.

BITCOIN FIRMER
The bitcoin price is now at US$36,002 and +6.8% above where it was this time yesterday.

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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End of day UTC
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29 Comments

11
up

Westpac senior economist Michael Gordon said .....it obvious that the combined efforts of the Government and Reserve Bank to support the economy through the Covid shock have had a much more powerful effect than anticipated..... It’s becoming increasingly possible that the RBNZ will regret some of the stimulus measures that it put in place last year, and could start to tighten policy sooner than we previously anticipated."

Got that? OBVIOUS and WILL regret their measures. Quite right too.

I can now easily see OCR at 1.5% by end of next year at the latest. And an OCR at 1% by end of 2021 is a very distinct possibility, IMO.

13
up

Blind Freddy could see what was coming from when the LVR's were relaxed, and certainly as recently as the last election. But what happened? Nothing! Worse. Fuel was poured onto the inferno.
Look. Everyone can get it wrong for any of many good reasons (who knew what Covid-19 could have turned into etc?) but the biggest sin of all is not 'getting it wrong' but not doing something about it when its obvious change is needed; and doing it quickly.

Im not seeing any reason now for an OCR fo 0.25, with the exception of the tourism industry. If covid mutations get worse, some tourism businesses should get real and call it a day for a while. RBNZ seems to be making excuse after excuse not to remove the emergency OCR. The cheap money is predominately now only supporting the housing pyramid game.

That’s funny because the way I remember it all the commentators here thought the economy and house prices were going to fall off a cliff due to Covid and lockdowns and there was no way the RBNZ could save it. They must have been really blind! And I don’t think many predicted this fall in unemployment either. Everything is easy in hindsight. I think the RBNZ probably got it right given the conditions at the time, maybe time for a pat on the back for once?

Yes they did get it right in March 2020, but have been way too slow (eg banks back to 30% investor policy Dec 2020, RBNZ Mar 2021) in moving out of emergency. Dont forget, Orr wanted negative OCR BEFORE covid even existed. Things like an NZ/AUD exchange of .85 they will not get, the markets are not stupid and can see NZ is doing quite well.

The Funding for Lending Programme should have been put on ice as it just put more fuel on the fire.
When announced in Nov the economy was in good shape.
Yes we didn't know what was going to happen in March signs were good in Nov.

16
up

"40% equity requirement for new loan applications from investors" - yes, it is a good starting point, but I would be delighted to see this increased to 60% at the very least, ideally 80%, and adopted by all banks.

Well, the effect of that would be a "better class" of investor.

It should be 40% if you're building something new.

If you're buying an existing property it should be 100%.

Hard to see the motivation for investing at 80% - with a net yield less than half of what a conservative Kiwisaver fund can give you - and CGT on the horizon?

But prices double every 10 years.

The Government should immediately implement National’s JobStart policy. This would see businesses that hire new staff receive a $10,000 payment and encourage new job opportunities for Kiwis

National still banging on about handouts to employers for hiring 'new' staff to bring joblessness lower than the surveyed 4.9%.
The current system of training and redeploying retrenched workers through apprenticeship subsidies is clearly much better.
Productivity improvements and median wage growth should be the target for fiscal policy, not an arbitrary statistical survey figure.

11
up

Elephant in room right now is the upward pressure on bond yields since end of last year: today's breakout long and short, is a huge movement.

Either RBNZ is not in this market: why? Or is it losing control? Because that has huge ramifications for all bubble asset markets, from housing through to shares.

I'm being slaughtered in bonds ... and yet still term deposit rates are being trimmed. Hopeless. Frustrating. Infuriating.

Anyway, I just have this feeling over the week markets have become so lunatic, there's change coming which is going to be brutal, so I'll stay the course with bonds for a bit longer, a last dying bond rout, despite being down to below 4% annualised after today, and giving away return day after day.

And leaving off with a word that must be exercising Orr: Stagflation (which means bonds are doomed).

I agree, today was a bad day for NZGB. What are you doing in bonds though, that's a really poor allocation given what's going on in the housing market.

Up until November and for the years before that bonds - via NZ Harbour's two NZ bond funds - were a great return while the OCR was going down and then a hedge against shares correcting. I halved and halved, luckily as we approached zero ... should've taken all out, but where to? The only place left right now, coz risk is everywhere, is cash (too hard to buy gold). Also have a feeling markets are such a Frankenstein with interest rates this low, there is every chance of a bond rout with a share crash: the old 60/40 portfolio is now useless.

Would hate to be a pension fund: problem is I'm my own pension fund.

Yes, good capital gain from bonds over the last few years but I would stay well away now. I agree, it's a conundrum with all assets at extreme values. Maybe buy some bonds on a dip. The RBNZ has the muscle to bring the market to heal. Australia just expanded their QE dramatically yesterday and committed to 0% cash rate for 3 years. The RBNZ is really not going to tighten as the banks have just forecast, I would pay no attention to the BNZ or Westpac. We are not going to go on a tightening cycle while RBA stands pat.

'All assets are at extreme vakues'.
How about housing? You can't lose, and economists are forecasting significant increases over the next couple of years.

Moa-breeding, I'm told, is the coming thing.

BTC mate

Hmmmm ... 10 year NZ government bond (31s) prices are down around 8.4% since the low 0.498% yield traded last May.

Will the government regret letting the RBNZ run up a decent marked to market loss?

GameStop shorts stand at 88.58% after a rousing day of trading, concerns of shorts Painting-The-Tape, Market-Sell-Orders [at any price] and Retail-Buying-Restrictions; lead the NYSE to impose some "Shorting Restrictions". This was seen as a bullish sign by some camps.

Many Reddit GME Traders seem to have taken profit today and/or exited the GME trade altogether. Someone has taught these Reddit influences how to action a Gamma Squeeze and mobilize less financially savvy users in their cause.

Savvy Reddit users see the potential to build up to another Gamma Squeeze and expect bigger players to bolster their cause [and vice versa].. with a small market-cap, extremely shorted stock and a sizable shareholder base intent on holding their stock, GME is a devilish temptation.

Whether the downward price action will cause momentum selling is yet to be seen, but with outstanding commitments to buy back 88.58% of stock, volatility is certain.

I'd guess that the momentum selling is well underway.

Yeah I’m not sure why everyone is so impressed that these guys have started a pyramid scheme.

"$23/Hr" for housing capital appreciation.

Clearly, unless we keep the Hoose Bubble inflated and growing, we'll run afoul of the New Minimum Wage soon....let alone the Living Wage.

$23/HOUR, TAX FREE FOR THE LUCKY
Average New Zealand housing values rose by $17,184, or $554 a day during January

I think the math is bad, thats $69/HOUR for an 8 hour day. Pretty good, better than any job I have ever had unless your used to earning money while you sleep in which case the math is correct.

What's up with all the vile racism in Auckland these days? The leafy suburb of Devonport seems to be z hotspot.

"BNZ says due to unprecedented housing demand, it's prioritising existing customers..."

That's funny, the housing market is so frenzied it's out-pacing the ability of banks to hire staff! Particularly as many banks, BNZ included, fired a whole load of frontline staff and closed branches last year. Ooops...

As reported here: https://www.interest.co.nz/banking/108042/bnz-shut-38-branches-across-ne...