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A review of things you need to know before you go home on Wednesday; new home loan option, CPI up, dairy prices hold, Moody's impressed, tractor drought, swaps slip, NZD holds, & more

A review of things you need to know before you go home on Wednesday; new home loan option, CPI up, dairy prices hold, Moody's impressed, tractor drought, swaps slip, NZD holds, & more

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

MORTGAGE RATE CHANGES
Mortgage broker Squirrel unveiled home loans requiring a deposit as low as 5% targeted at first home buyers in cities who are on good incomes but can't rely on parental support. It is a variation of the first/second mortgage structure using Resimac as the first mortgage funder. The average rate will currently be about 4.09%.

TERM DEPOSIT RATE CHANGES
None here today.

FIRST SIGNS OF RISING INFLATION
Statistics NZ says the Consumers Price Index rose +0.8% in the March quarter, giving annual inflation of +1.5%, a result in line with market forecasts, though lower than the Reserve Bank expected. Higher fuel and housing costs drove the small rise. Non-tradeable inflation fell to its lowest level in five years, while tradeable inflation rose to a "positive" level after three quarters of being deflationary.

DAIRY PRICES HOLD
The latest dairy auction continued to hold on to the big gain we got in early March, although it was undermined somewhat by the rising Kiwi dollar. We are now close to the end of the dairy season (May 31, 2021) and no analyst changed their payout forecast. But one did raise his forecast for the 2021/2022 season, betting on $8/kgMS for next year.

LIKE WHAT THEY SEE
Moody's, the only major credit rating agency to give NZ a triple-A rating, released a positive assessment of New Zealand's position. "Compared with Aaa-rated peers, New Zealand retains ample fiscal flexibility to respond to both long-term spending needs related to social demands, or a potential sudden rise in expenditure to support the economy in a subsequent downturn. This fiscal space provides flexibility to fund higher spending on infrastructure, affordable housing and other social priorities while maintaining a prudent fiscal policy stance over the medium term."

MORE, BUT LESS MORE
Stats NZ released their life expectancy tables through to 2019, showing rises, but the gains are slowing. At birth, females can expect to live until 83½ years, and males to 80 years. At 65, females can now expect to live to 86½ while males can expect to live to 84¼. For Maori women or men, at 65 they have a life expectancy 4 years less than the overall average.

MBIE SEEKS FEEDBACK ON OVERSIGHT OF BANK & INSURER CONDUCT REGIME
The Ministry of Business, Innovation and Employment (MBIE) is consulting on outstanding aspects of the incoming regime governing conduct in the financial sector. This includes regulations covering requirements for claims handling and complaints processes, and prohibitions of certain types of sales incentives. MBIE's looking at banning sales targets for frontline bank staff and the treatment of intermediaries such as brokers selling insurance on behalf of an insurer. The outcome of the consultation will help inform the development of the Financial Markets (Conduct of Institutions) Amendment Bill. Submissions close on Friday, June 4.

LOWEST EVER (ALMOST)
The global supply chain problems have shown up dramatically in New Zealand's tractor sales stats for March. Only 23 new tractors were registered in the month, the lowest month except for April 2020 when the pandemic shut everything. This year, the blame goes to supply chain problems. The average over the past five years was for average sales of 206 in the month.

CRISIS EXTENDS
After being back down to a still-high ~$200/MWhr price level, wholesale electricity prices have jumped back up over $300/MWhr. The severe stress continues; expect major factories to start shutting down soon because the extreme wholesale pricing levels just are not going away. And this is despite average hydro lake inflows being close to normal for this time of year.

BIG SOE BOND ISSUE
Kāinga Ora/Housing NZ said it will issue $600 mln unsubordinated, unsecured Wellbeing Bonds, due 18 October 2028, taking the total issue size to $1.125 bln. The issue yield has been set at 1.805% pa, reflecting a margin of +0.29% pa over the underlying swap rate.

RETAIL SALES RISE FIRM
In Australia, retail sales were up +2.5% in March from the same month a year ago, and rising at a rate slightly above what was expected. This is a bounce back from the February snap lock downs.

TEN YEAR HIGH
The spot price of iron ore surged higher yesterday and today, resetting at its highest in more than a decade, on strong Chinese steel mill margins and continuing supply concerns from Brazil. China is frustrated at "being milked". Kettle/pot.

GOLD HIGHER
The gold price is now trading in Australia, soon in Asia. It is up +US$3 at US$1,783/oz from where it closed in New York earlier today, and up +US$14 from this time yesterday.

EQUITIES SOLD OFF AGAIN
The S&P500 ended -0.7% lower on Wall Street earlier today, following falls earlier in the week. In Shanghai, it has opened flat, but Hong Kong is a sharp -1.7% lower and the very large Tokyo market has opened down another substantial -2.2% lower. The ASX200 is down another -1.4% in early afternoon trade, while the NZX50 Capital Index is down -1.3% in late trade, both adding to the prior day's sell-offs.

WHY EQUITIES ARE BEING SOLD OFF
In the US, Netflix reported an unexpected slowdown in subscriber growth, when investors were used to better-than-expected rises, and that may suggest companies, governments and investors have underestimated the COVID-19 unwind ahead. It may presage a sharp, painful unwinding of equity valuations. All eyes are now of the Q1 earnings season reports.

SWAPS SLIP & BONDS SLIP
We don't have today's closing swap rates yet. If there are significant movements today, we will note them here later when we get the data. They are probably a little lower again. The 90 day bank bill rate is unchanged at 0.34%. The Australian Govt ten year benchmark rate is down -4 bps from this time yesterday at 1.69%. The China Govt ten year bond is little-changed at 3.18%. And the New Zealand Govt ten year is down -5 bps at 1.61% and now at the same level of the earlier RBNZ fixing at 1.61% (-2 bps). The US Govt ten year has fallen -4 bps to 1.57%.

NZ DOLLAR HOLDS
The Kiwi dollar has retreated slightly to 71.8 USc. Against the Aussie we have risen notably at 92.9 AUc and a gain of almost +½c. Against the euro little-changed at 59.6 euro cents. That means the TWI-5 is unchanged at 73.6.

BITCOIN FIRMS
The bitcoin price is now at US$56,179 and +3.3% above where it was this time yesterday. Volatility is high at +/- 3.4% over the past day.

This soil moisture chart is animated here.

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End of day UTC
Source: CoinDesk

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22 Comments

In the US, Netflix reported an unexpected slowdown in subscriber growth

The adoption curve is probably flat and subscriber acquisition would have slowed as there is less market to sell to.

Shoebox apartment industry is in free fall in the Melbourne CBD. Would expect similar for other Australasian major cities. No reason why Auckland shouldn't be whacked, but maybe the 'dire shortage' will help.

https://www.domain.com.au/news/wont-be-able-to-give-them-away-investors-...

Those are staggering losses. Paper losses made real.

If your savings and investments are not outpacing the rate of monetary expansion (25% for the USA) then you are loosing purchasing power.
When a currency is losing value, the price of hard assets such as the stock market, real-estate, fine art etc appear to go up significantly when denominated in that currency.

Everyone knows the base rate has been 7-10% in real living costs increases rather than 2% as we are told.
And the CPI is just day to day living costs. The goods and services that we are striving for are going up at 15-20% a year, but of course they are not included in the CPI..........

Im sure you all know my solution, hint it has gone up:
Last 1 year: +704%
last 2 years: +950%
Last 3 years +528%
https://coin.dance/stats

Agree with you about savings and investment. The NZ property ponzi is really just a demonstration of how money is being destroyed.

About the BTC source, be careful. It does look like showboating when you throw those crazy capital gains around.

I was thinking today about NZ property and Bitcoin. It seems to me that people would like property here to be like Bitcoin. The rules around freeing up land for development and council consent creates an artificial constraint on supply which is designed, like the diamond trade, to create scarcity where there is none. Of course, it's cumbersome to NZ to maintain this constraint. It makes a place to live a more lucrative venture than innovation and entrepreneurship. It is a terrific social burden. Bitcoin has ultimate scarcity without any of the above mentioned drawbacks. If people would replace property speculation with Bitcoin as their chosen store of value (beyond first home) they would in a single sweep undercut the parasitic banks, make housing more affordable and not go into epic debt to grow their asset base. It's unconscionable to maintain housing as a speculative asset class. Shelter is way down on maslow's hierarchy of needs and we're still enamoured with a roof over our heads in the 21st century. This is due to the fact that the banks have undue influence in NZ and their business is debt, and property sells debt, to the detriment of NZ society.

I'm not sure. Would it not just replace one set of ticket-clipping with another. We'd then have more bitcoin fund managers, bitcoin loss insurance, bitcoin brokers. Different sales people selling the latest and greatest crypto alternative and associated product.

Bitcoin and property are vastly different. At the end of the day property has the capacity to produce yield, its a roof over a head, can be used to grow crops. Bitcoin just uses finite supplies of electricity.

Also, as I have argued previously on this site -> People place too much faith on bitcoin, or crytpos in general being 'limited' in supply. Anything that can be created out of thin air by a team of IT nerds is not finite:

https://www.marketwatch.com/story/the-cryptocurrency-dogecoin-began-as-a...

I'm appealing to the speculative/store of value aspect of property. Not it's usefulness as homes or productive land. The only reason NZ property valuations are where they are is artificial constraint on supply and easy monetary policy. I'm not placing faith in anything more than the faith already in existence with regards to property. The same maths applies to Bitcoin as property vis a vis limited supply and macro policy in regards to monetary expansion. Bitcoin does not need insurance etc, being peer to peer. Bitcoin is not other cryptos like Dogecoin which are pure cut speculative coins. I understand your doubt, but I raise you my doubt of the long term viability of Fiat denominated assets over time given the impossible debt fuelled economic model adopted by major nations.

Well as I see it, a bitcoin token is you property on the Bitcoin Network, which has limited supply and block space, the equivalent of land.
As said earlier, that is why property should not be used as a speculative means of returns and Bitcoin should be used as a savings mechanism/store of value.

There is Bitcoin, and then there is the infinite supply of shitcoins/everything else. Bitcoin has grown organically through a decentralised past with no one person in control where as any other project has always had a lead developer who can change things, just like the central bank.
Bitcoin can not be changed easily, as any change needs the agreement of the majority of node holders (people who download and verify the bitcoin blockchain) and there is over 40k of these all around the world. People naturally act in their own best interests, and if someone proposed to increase the supply, why would anyone voluntarily dilute their savings? I sure as hell know I wont be voting for that.

https://danhedl.medium.com/planting-bitcoin-56bd1459cb23
Great series by Dan Held about Bitcoins inception and growth through time.

Great stuff Rosey

Key investment mantra: Past returns do not predict future returns

Moody's, the only major credit rating agency to give NZ a triple-A rating, released a positive assessment of New Zealand's position. "Compared with the other t***ds in the basket, New Zealand has the most glitter on it, and can increase it's debt exponentially to keep its Ponzi bubbles going - and to bail everyone out when the next crash happens. This room to 'borrow and spend' and look 'great'- by comparison with other more hopelessly indebted peers - provides flexibility to keep pumping money into the economy, keeping the bubbles inflated, while maintaining more room to 'borrow and spend' over the medium term."

New Zealand retains ample fiscal flexibility to respond to both long-term spending needs related to social demands, or a potential sudden rise in expenditure to support the economy in a subsequent downturn.

With even less anticipated future growth, the more the bond vigilantes will hibernate, thus ever-increasing levels of government debt confirmed by the lack of growth. The real global phenomenon of the past few years. Link

So it will be all immigration. We can't afford to incentivise productive enterprise vs. property, of course, so business can't take up the slack.

Although Stats NZ does not specifically use the median rent in its calculations, during the last 10 year period of seemingly "low" inflation, the median rent has rise 65 percent over the decade , 35 percent over the past 5 years and 10 percent over the last two . At least landlords are supported otherwise quite sad.
Moodys notes that "We expect New Zealand's economy to remain resilient in the face of external headwinds because of its... high wealth values," or about 1.5 trillion in housing wealth.
The NZD which has recovered all of its post housing intervention losses, including against the AUD, being helped by the unequal balance of post bubble travel into NZ ?
A2 shares hitting another new low this afternoon , after some recent relief .How low can they ( and Synlait ) go. ?

A2 shares hitting another new low this afternoon , after some recent relief .How low can they ( and Synlait ) go

Their market growth is shot. Because of China. The hype surrounding A2M in China was overrated and the milk formula business is tough.

Plant based milks which are cheaper to produce are gaining market share..A2 baby formula was there golden egg

RBNZ M1 data also out today with their take on inflation , the sectoral factor model , up a tick for the quarter.

I wish there was a supply chain problem with the sale of diesel utes!!!
They are f'ing awful to drive behind. Have to close the windows, vent etc...

You're fighting the IRD.

IRD has decided that most double cab utes satisfy the requirement that the vehicle was not primarily designed or intended to carry passengers. Therefore, companies are incentivised to purchase utes as employee vehicles, even if another type of vehicle would suit the work better.

Moreover, although the requirement that FBT be paid when the employee uses the vehicle privately - to tow their boat out to the lake over the weekend, for example - this is rarely enforced, tax experts say.

is-nz-subsidising-utes

1st world problems

You made a mistake here David:
" And this is despite average hydro lake inflows being close to normal for this time of year."

To quote the interest.co.nz article from your link
"New Zealand’s hydro storage is half full. This is equivalent to 66% the average level it would normally be at this time of year."