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A review of things you need to know before you go home on Friday; no retail rate changes, PPI flat, M.bovis inquiry, mortgage lending frenzy, swap rates stable, NZD firms slightly, & more

A review of things you need to know before you go home on Friday; no retail rate changes, PPI flat, M.bovis inquiry, mortgage lending frenzy, swap rates stable, NZD firms slightly, & more
ID 22702269 © Daniaphoto | Dreamstime.com

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

MORTGAGE RATE CHANGES
There are no changes to report here.

TERM DEPOSIT RATE CHANGES
None here either.

VERY TAME PRODUCER PRICE CHANGES
Producer output prices were unchanged in December from a year ago. Producer input costs were down -0.6% on the same basis. This suggests margins rose slightly at the end of last year.

EVEN CAPITAL GOODS PRICES WERE MODEST
The price of capital goods rose +1.9% in the year led by the cost of residential buildings which were up +3.0%, but civil construction costs fell -0.1% in the year. Plant & machinery was up +1.9% led by office furniture (+7.7%) and restrained by medical & surgical equipment (-1.3%). Computer costs rose a mere +0.8%.

THE TREND FOLLOWED TO THE FARM ...
On the farm, input costs excluding livestock rose just +0.7% in the year to December. For sheep & beef farms costs were down -0.8%, for dairy farms they were up +1.5%, for horticulture they were up +0.9% and for cropping farms they were up a mere +0.4%.

... AND TO BACK OFFICE SERVICES
For business services, were are now seeing very restrained price pressure. Accounting fees were up just +0.1% in a year, legal fees were up +0.4%, office rents were up +0.2% and road transport costs were up +1.4% when diesel costs fell -1.1% in this annual period. Sea freight was up +7.1% however. These changes come after a long period when rises were generally much larger.

ASSESSING THE M. BOVIS RESPONSE
Farmers have gotten the Inquiry they sought. The Ministry for Primary Industries announced today it will conduct an independent review into the M. bovis response. The disease was first detected in New Zealand in 2017 and is likely to have entered the country two years before that. Professor Nicola Shadbolt (Chair), Dr. Roger Paskin, Professor Caroline Saunders and Tony Cleland to carry out the review.

LENDING FRENZY
The RBNZ is back with some updated data, after the delay caused by its disastrous hacking failure. In December, this new data shows investor lending for housing was up almost +90% from a year ago and up +9% from November. For first home buyers, this lending was up almost +40% in a year, up +5% in a month. Overall, lending was up +48% in a year, up almost +4% in a month. At +$9.4 bln in new lending in December, that represents the most since these records started in 2014, and are probably an all-time high.

STILL AT A GOOD LEVEL
Although it has fallen back a little, the Australian factory PMI for January has stayed at an elevated level, now at 56.6. (NZ = ) and their services PMI is at a similar level. Holding both up are good level of employment. New order levels are good too.

EVEN BETTER
Australian retail turnover was +10.7% higher in January 2021 than January 2020. That makes it its highest gain since 2015.

IRON ORE PRICE JUMPS
In China, the spot price of iron ore rose almost +5% amid renewed demand for the steel making material as Chinese mills got back to work after their holiday.

GOLD FALLS
Gold is trading in Australia, and soon in Asian markets. So far today it is at US$1766, down -US$16 from this time yesterday, and down -US$13 below where it ended in New York. It ended at US$1773 in London so the fall from there to now is -US$6/oz.

EQUITIES UPDATES
The New York markets closed down -0.4% today but that is only back to levels it was at on Monday a week ago. It has been marking time even if it is at a high level. The NZX50 Capital Index is down -0.3% near its close today, and also heading for a flat weekly result. The ASX200 is down -1.1% in early afternoon trade and they are also heading for a flat weekly finish, but one that involved it giving up some substantial earlier gains. Tokyo is down a sharp -1.0% in opening trade but looks to be heading for a weekly gain of +1.6%. Hong Kong has opened -0.7% lower and Shanghai -0.2% lower today in early trade.

SWAP & BONDS RATES
Yesterday the long swap rates took a breather. If there are movements today, we will note them here later when we get the data. Today the 90 day bank bill rate is unchanged at 0.28%. The Australian Govt ten year benchmark rate is +4 bps higher at 1.41%. The China Govt ten year bond is down -4 bps at 3.28%. But the New Zealand Govt ten year is up +3 bps today to 1.52%. That is just above where the earlier RBNZ fix was, at 1.51% (unchanged). The US Govt ten year is up +2 bps and is now at 1.29% since this time yesterday.

NZD HOLDING FIRMISH
The Kiwi dollar is back firmer today and now at just over 72.1 USc. On the cross rates we are firmer at 92.8 AUc. Against the euro we are also softish at 59.6 euro cents. That all means our TWI-5 is holding at 73.5.

BITCOIN SLIPS
The bitcoin price is now at US$51,281 and -1.8% lower than this time yesterday. Volatility over the past 24 hours has been +/- 1.5%.

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
Source: CoinDesk

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57 Comments

The NZX50 Capital Index seems to be down more than -0.3%. Getting a bit disillusioned with shares to be honest.

I told my dad to sell at least a good chunk of his shares 3 weeks ago. Didn't want to know.

I'm glad you told him to, there's nothing you can do if he doesn't want to listen though

He even acknowledged my advice today, but he doesn't think it will fall that much and he likes the dividend payouts.

Fritz... my Dad is the same. He cannot accept that the market could drop more than about 15% and he thinks it would always recover within a year. He likes the dividends too. He bought A2 milk for about 70c and sold it for about $2 because "it was no good because it did not pay dividends". LOL

Nice to hear someone in the same position.
I know very little about shares, but isn't it daft to stay in it for dividends if values are tanking?

Fritz.. I am far from an expert on shares and all I can say is that some people need to focus on dividends because they need the regular income stream. If you do not need the regular payments (from dividends) it probably is daft to (over) focus on them.

Fritz
Clearly he is more concerned long term with yield . . . and many shares are providing a better return than cash such as TD. As such any short term volatility is irrelevant but a long term gain possibly likely.
If he did sell as you suggest, what do you propose he do with the cash?

Keep it in the bank. He's 80, nearly 81.

Thanks for your advice, you encouraged me to. I think it's time to bale on shares, but what can you do with stubborn old men?
And he might be right!

Fritz
Yes, I’m a stubborn old man.
Moved some of my TD into shares. Have selected what I consider to be a couple of reasonable but conservative equities I consider are essential services so will be around no mater what and are providing reasonable yield and likely to continue to do so returning a profit in a downturn.
Not one of the main banks . . . but part in jest, banks being self interested they will like cockroaches more than likely survive Armageddon continuing to ensure they are returning a profit. If not, we are all stuffed anyway.
Yeah, I remember BNZ . . . but we all know what happened.

I have a significant amount in the NZX50 as well. I am not optimistic about its likely direction either but if I sold (some of) it where would I put it? Rental properties? x Commercial property? x More TDs? x Bonds? x Bitcoin? x Foreign shares? x
To add to the dilemma I just had a fairly big TD mature this week as well. It is just sitting in a non interest earning account while I try to choose the best of a bunch of bad choices. I have enough in TDs to last me till I can get Govt super so can afford to gamble. Problem is the gambles available (rentals, more shares, BTC) seem very unattractive right now. Any good advice anyone?
BTW: I do feel lucky to have this "problem" and am grateful not to be in the awful position so many others less fortunate than me have been put in.

Following with interest - in the same boat.

Edward.. I would buy more foreign shares but the (unfair, stupid) tax is prohibitive IMO

Yes, I have been researching a number of Aust stocks, but also took a look at the IRD reporting requirements? I don't know why Mr Orr thought retirees would buy shares instead of rentals. I have even checked out US and they have IRA Roth accounts which can be utilized for share purchases/sales to fund retirement - pity Grant can't come up with something like this .... or anything else for that matter. LOL

EdwardD...I am not a tax expert and have one Aust stock (CBA) and now that I live in NZ I think I have to pay double tax on dividends ie CBA franks or imputes (taxes) the dividend before you get it but you cannot use the imputation for NZ tax purposes so the dividend is classed as normal taxable income. When I lived overseas it did not matter (2% AIL tax rate scam, check it out online) but now I will have to effectively pay double tax on the dividend. Somebody please correct me if I am talking shite. Thx.

Karl, I will check it out. Thanks. When I went to the IRD site, my eyes crossed and I got dizzy trying to make sense of their requirements. I'll check to see if someone responds to your post. Like you, I've lived and worked in the USA and OZ (tax reporting was easy), but owning overseas shares in NZ is above my pay grade.

I thought aussie shares were taxed less here than shares from other parts of the world?
What are peoples thoughts on the relative tax efficiency of holding your US shares in kiwisaver and NZ/AUS shares via smartshares or similar?

EdwardD.. if you ever live overseas again you absolutely must check out the AIL 2% tax rate.

Yes. At the end it fell -0.95% on the day, making the full weekly fall -0.6%.

I've been thinking the same. Nearly 8% down since its peak in January, and down 6.4% for 2021 so far.

"Investor lending for housing was up almost +90% from a year ago"
Now who could possibly have forseen that....

Apparently not Grant. The experts told him this would happen beforehand but he wasn't convinced. They will listen to the experts for their Covid response, but for finance Grant knows better.

They are very selective on which experts they listen too....

Not sure they listen to anybody

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investor lending for housing was up almost +90% from a year ago

OMG.

13
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Not to worry Kate. It must all be part of some grand plan that is beyond my small mind. I'm looking forward to seeing what it is.

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It's just gross, isn't it? And here we were told all those cashed-up returning kiwi expats were responsible for this wicked housing inflation

And Kate of that lending to investors 42 percent was for interest only mortgages, up 90 percent from last year.
In relation to an earlier post, United States does include student debt within its household metric, apple for apple New Zealand has household debt over 100 percent of GDP. When looking at GDP , clearly New Zealand is heavily reliant on the housing pyramid scheme and its related sectors for continued growth.

Shhh, Grant is thinking, mmm I should say still thinking.

Yes Kate but FHBs lending has gone up 40%; still a large percentage. Most FHBS are mortgaged up to the hilt. There is no way now that the RBNZ can even think about raising interest rates through monetary policy because the FHBs, comprising family units, would suffer more than the speculating investors and that would be a political disaster the government wouldn't countenance. Low interest rates are set in concrete for the long haul.

Yeah I think they will be very slow to move up.

I think rates around the world will go up, driven by inflation. NZ can try to save it's ponzis with ZIRP, but surely that leads to capital flight?

I think the RB will tolerate a huge amount of inflation before putting rates up. I’m also not convinced yet that we will see inflation- the figures reported above don’t suggest it’s imminent.

Why the "suprised Pikachu" faces kids? We did nothing meaningful to allow supply to scale to meet demand for decades and the result has been a highly leveraged bubble. New Zealand is "all in" on property and npt without good reason, short of abandoning zoning laws and the RMA there is no chance of a building boom.

What are people's opinions on the merit of using or not using kiwisaver as part of your first home deposit? I can see pros and cons of both

Well for my wife and I it was central to our ability to buy.
I support it!

Yes. There are pros and cons. But I think it ok to use it for house deposit. Because owning your residence without debt at retirement time is a lifesaving essential.
So the same purpose as Kiwisaver.
There are too many people reaching the retirement income cliff still renting. They are really screwed then and it's too late.

It got us into our first home. The security of no longer being a tenant was worth it all by itself but the growth in house value has far outstripped what the balance of my KS account was going up by.

Yeah I will likely use it at least to end up with a smaller mortgage but do worry about having all eggs in the property basket.

And gold is down $66 this week. Thats a volatility of 3.6% over the hours the markets are open.
Lost 15% since its peak in Aug last year.

Shhh.only BTC is allowed to volatile

Weirdly silver hasn’t followed which is usually more volatile than gold

Because silver is still way under it's historical value relative to gold.

I reckon remove LVRs immediately and let these investors have a crack at breaking this 90% annual growth record. Prices are already so far beyond the reach of FHB that it doesn't really matter what prices are. In a way, the LVRs are about preservation of the current system of power, saving investors from themselves. Remove LVRs immediately so the investors can outbid each other.

I'm on the edge of my seat! What do we need.....?

A more user friendly interest.co.nz comment input field!

Not that they are going to do it but increasing the OCR by 1% would stop it all immediately

Yvil... agree. Out of all the issues the super low interest rates are the biggest by far.

Interesting point and not dissimilar to what I have recently said. Middle income FHBs are screwed.
Release the shackles and let the market boom and crash.
Also as I have said before tightening LVRs might have unintended consequences of worsening the rental situation.
Address FHBs directly by building housing on government land with 1000 year leases. Whoops, I forgot, Megan Woods poo-pooed that idea!

I would be interested in what other people think about government leasehold housing. Comments good bad and ugly welcomed.
I can't really see any holes in it, other than people won't realise much value uplift over time like with freehold. But surely it's better than renting? It's at least some form of investment, and it has stability.
It could be a pepper corn ground lease or some minor amount that only increases relative to inflation.

I think it would suffer from all the other issues that occur when the government own something. For example who would improve the property if they don’t have much to gain? How would they get more density etc? My personal opinion is that they need to do the opposite- put all that poorly used government land on the market for someone motivated to invest.

Ive seen some overseas councils sell derelict houses for almost free on the condition the new owner improves it. Maybe govt could sell land cheap on the condition that new owner builds a 30 story affordable apartment building on it.

How about:

If you don't want the New Zealand borders opened up to imported property buyers until the Government/RBNZ has done something about the shocking state of the current property market - then don't get vaccinated - and tell the clinic why when they call

The borders will stay closed; we'll be in the same state of protection, and it's a way of highlighting concern and making voices heard.
The Government isn't listening, and all protests come at a price. What better way is there to get their attention than threatening their expansion of their debt based saturation of our economy?

Another good reason to avoid vaccines that are only happening under emergency approval (would not achieve approval via usual testing processes). Also thinking a march between Parliament and the Reserve Bank literally across the road on the Terrace..back and forth, to kill two fat birds with one stone. Maybe print off a Jacinda tooth tooth mask to wear

(DP)