What happened Friday

A review of things you need to know before you go home on Friday; more retail rate rises, record dwelling consent levels, high inflation expectations, higher housing debt, lower business borrowing, swaps stable, NZD firm, & more

30th Jul 21, 3:59pm by David Chaston

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

MORTGAGE RATE CHANGES
SBS Bank is raising its fixed rates by about +20 bps across the board effective tomorrow.

TERM DEPOSIT RATE CHANGES
SBS Bank has raised its one year TD rate to 1.30%

SCORCHING LEVELS
There were 4310 building consents issued in June, with 44% of them in Auckland. That is the highest level ever, let alone for a June month. It means the residential construction industry is likely to remain at full capacity for some time, particularly in Auckland. (The average over the previous past five years has been 2900 in a June, for the past ten years, 2200.)

CONFIDENT PRICES ARE RISING
Consumer confidence as measured for July in the ANZ-Roy Morgan survey eased -1 point to 113.1. The proportion of people who believe it is a good time to buy a major household item, a key retail indicator, rose +2 points to +24. Inflation expectations remain extremely high at 4.9%, while house price inflation expectations lifted from 5.8% to 6.4%.

PUSHING THROUGH A DOUBLE STANDARD
In Australia, BNZ's parent NAB said it will spend AU$2.5 bln of its cash reserves to buy-back its shares. This will have the effect of lowering its Common Equity Tier 1 capital. They are aiming for a CET1 target range of 10.75–11.25%. They are currently at 12.4% which they think is just too much capital at risk in their business. (But don't even think about suggesting capital support at that level if you want to borrow from them - they will want you to have at least 40% equity support for most business lending. But "all banks do that". Even the RBNZ's new capital requirements in New Zealand are modest by these standards.)

"WE STARTED AN AUCTION AND NO-ONE ELSE JOINS IN"
Fonterra released its July Global Dairy Update today which showed that milk production is up globally, dairy exports are up everywhere except from the EU, and that at the July 20 GDT auction, they sold 21,600 tonnes of product - which was 96.4% of all product sold on that platform. Few other suppliers are supporting this price discovery mechanism.

RECORDS EVERWHERE YOU LOOK
The level of total housing debt rose to $317.6 bln, a rise of +$2.655 bln in June from May and the largest June rise ever. It was also a record rise in a year, up +$33.8 bln. In percentage terms, the +11.9% annual gain is the fastest rise since February 2008.

LONG RUN OF DECLINES
For every other lending category, the story is of declines. Personal consumer lending fell -5.3% from a year ago, lending to business fell -1.3% on the same basis and lending to agriculture fell -1.2%. Sadly, these trends aren't new. For agriculture is is now a 15 month consecutive string of declines, for business it is an eleven month run of going backwards, and for consumer lending it is a 21 month run (although the unregulated BNPL sector has been eating away at this category).

DEPOSIT GROWTH IS ALL ABOUT HOUSEHOLD BEHAVIOUR
Bank deposits are up +$18.1 bln in a year. That was boosted by household at-call deposits that made up +$29.5 bln of that annual rise offset by a decline in term deposits of -$18.8 bln. It is clear from today's data that the atrophying of term deposit balances has just about run its course, with the decline from May a mere -$181 mln, the smallest fall away in 22 months.

END OF THE WORLD
If you are of the paranoid, apocalyptic type, you may wish to read this.

PREPARING FOR IDIOTS DOING IDIOTIC THINGS
While the Australian federal government is weighing advice about when and how Australia "can live with the virus", NSW authorities are marshalling more than 1000 police to break up another anti-mask/anti-vax rally in Sydney tomorrow. Australian troops are also being called in, and may be on the streets of Sydney as early as Monday - but after tomorrow's expected ugly punch-up.

PRESSURE IN NSW REMAINS HIGH, EASED ELSEWHERE
There were 170 new community cases in NSW today with 93 not assigned to known clusters, so still going backwards there. Their lockdown has been extended by four weeks and masks are mandatory there now. Queensland has closed it's border with NSW, which is a last-resort action for them. There were two new case in New Zealand, and still none in the community.

GOLD ON THE MOVE UP FURTHER
Compared to where we were this time on yesterday, the gold price is up another +US$11/oz to US$1827/oz in early Asian trading. This is still well above the recent range-trading levels.

EQUITIES MOSTY NEGATIVE
The NZX50 Capital Index is down -0.8% near the end of its Friday session. The ASX200 is down -0.1% in early afternoon trade. In Asia today the openings are sharply negative again despite yesterday's bounce. Tokyo is down a sharp -1.7% and heading for a weekly loss of -2.4%. Hong Kong down -0.9% and heading for a -2.8% weekly loss. Shanghai down -0.9% at its open and heading for a -4.4% weekly retreat. The S&P500 ended today's session up a modest +0.4% and for their four days is up +0.9%.

SWAP & BONDS RATES HOLD
We don't have today's closing swap rates yet and if there are significant ongoing changes we will note them here. They are probably unchanged. The 90 day bank bill rate is up +1 bp at 0.48% and back to its late April level. The Australian Govt ten year benchmark rate is up +3 bps so far at just on 1.19%. The China Govt ten year bond is down -4 bps at 2.89% and that is its lowest since June 2020. The New Zealand Govt ten year is up +1 bp at 1.51% and the same as the earlier RBNZ fix of 1.51% (unchanged). The US Govt ten year is little-changed at 1.25% and has been fairy stable in between.

NZ DOLLAR RISING
The Kiwi dollar has been up-and-down today and is currently at an even 70 USc. Against the Aussie we are up at 94.7 AUc. Against the euro we are up slightly at 58.9 euro cents. The TWI-5 is now up +30 bps just over 72.7.

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BITCOIN IN MODEST GAIN
The bitcoin price is now at US$40,237 and up +0.8% above where it was at this time yesterday. Volatility in the past 24 hours has been low at +/- 1.6%.

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21 Comments

by J.C. | 30th Jul 21, 4:09pm 1627618199

although the unregulated BNPL sector has been eating away at this category

BNPL is a godsend compared to the awful 'monopoly' the banks and the credit card brands have. It is well suited to the spending behaviors of a different generation. Stuff the old farts. Furthermore, BNPL shifts the 'cost of sale' to the vendor over the shopper. That is also a good thing. It creates the opportunity for a sale when none may exist.

by frazz | 30th Jul 21, 4:11pm 1627618310

Just make sure you make the payments or they will eat you alive!

by J.C. | 30th Jul 21, 4:19pm 1627618783

The packaging and selling of mortgage debt securities is all the rage again in the U.S. Who on earth buys this garbage?

Texas Capital Bank recently sold $275 million of securities to investors looking to cash in on the pandemic-fueled boom in home prices. The bonds are backed by short-term loans the bank makes to mortgage lenders. When those lenders’ borrowers default, the investors in the bonds effectively cover the loss.

https://www.wsj.com/articles/hot-housing-market-lets-banks-sell-mortgag…

by fortunr | 30th Jul 21, 4:41pm 1627620074

Here we are again - a deja vu feeling. And this time we have the most humongous housing bubble in the world, right here in NZ.
Well, at least our banks are not into this business of packaging / trading these securities......

by David Chaston | 30th Jul 21, 4:49pm 1627620542

Yes they are, via Covered Bonds. But the RBNZ has set relatively low limits for that.

by Audaxes | 30th Jul 21, 5:33pm 1627623209

Let's.not forget RMBS

by Galloleous | 30th Jul 21, 4:53pm 1627620829

https://i.kym-cdn.com/entries/icons/original/000/029/223/cover2.jpg

Next crash is going to make 08 look like a joke, and the FED is running low on ammo....

by CWBW | 30th Jul 21, 6:42pm 1627627377

The mortgages in NZ are different from the US version pre-2008.

NZ mortgages are full recourse and stress tested making them great investment and a great alternative to managing a property or its loan directly.

I would buy them any day if they have a smaller lot sizes.

by Uninterested | 30th Jul 21, 7:54pm 1627631656

Buy some bank shares then if you must.
Good luck with that.

by Cowpat | 30th Jul 21, 5:46pm 1627624019

Unless the June GDP figures are extraordinary or made up , Household debt / GDP in another first will breach the 100 percent mark, the magical point of less return . If student debt is included New Zealand household debt /(well being) GDP should sit in the elite global group at 106 percent. Interestingly Ireland, after all the calamity has Household debt /GDP at 33 percent

by Justa comment | 30th Jul 21, 7:29pm 1627630153

I see the 90 day bill rise is holding above 0.45%.
The market seems certain now of an August OCR hike.

by brisket | 30th Jul 21, 7:41pm 1627630919

They’ll choose one other initiative to unwind, rather than lowering the rate. Sydney outbreak etc.

by Burni | 30th Jul 21, 7:32pm 1627630350

Something is wrong when demand for dairy exports are largely up globally but the government wants herd numbers down to combat emissions. Suggests apart from Europe the rest of the world's dairy producers aren't that bothered.

by youngdumbandbroke | 30th Jul 21, 8:06pm 1627632409

It highlights how insignificant NZ is in terms of economic output and pollution.

by frazz | 31st Jul 21, 8:34am 1627677283

Your forgetting the large amount of Kiwis that want clean drinking water. We have reached peak Dairy.. even Fonterra agrees

by Galloleous | 2nd Aug 21, 9:00am 1627851602

Peak Dairy was in 2014 and has been dropping since. Yet output is still increasing.
We are the best producers of dairy products in the world in the most environmentally friendly way on an emissions per output basis. Which is the only stat that counts in my book.
https://www.stats.govt.nz/indicators/livestock-numbers

by positivelywallstreet | 30th Jul 21, 9:31pm 1627637506

With regards to the End of the World article would governments not insist on birth control to limit the damage before anarchy set in? We could halve the worlds population in a generation with a one child policy.
They will do something practical,just as there is some innovation going on now to solve our shipping problems.
The doomers would say shipping problems are the first sign of collapse but there are solutions.

by Galloleous | 2nd Aug 21, 9:04am 1627851890

Are you blind?
We don't have to do a one child policy, all the developed nations in the world have birthrates around 1.6 which is well below the 2.1 required to maintain numbers.
It is the developing nations with a lower standard of living that are pumping out the kids, and their governments are in no position to try and legislate for less kids.

by Squishy | 31st Jul 21, 12:10am 1627647037

At the current rate Sydney will be in lockdown until March by the sound of government advice being issued. I'd book a flight to Europe or the US where you can get vaccinated straight away and not have to live under lockdown conditions.

by Carlos67 | 31st Jul 21, 3:42am 1627659752

Evidence is starting to mount that the Delta strain can still be transmitted by a vaccinated person so where does that leave Australia ? Basically once the Delta strain gets out into the community beyond a certain threshold in numbers your stuffed and just chasing your tail. Its just going to keep going round wave after wave like a dangerous version of the the Flu, year after year and that's without a mutation. I see ongoing boarder closures for years and the constant struggle to keep the entire population vaccinated with the latest version of the jab in an attempt to keep some form of normal business as usual.

by Carlos67 | 31st Jul 21, 4:20am 1627662004

End of the world - great paper, everyone should at least skim read it. Pretty much all common sense predictable stuff really but probably 90% of the population either cannot get their heads around it or simply don't care. Great read but no point worrying about it, you cannot change a thing.