What happened Tuesday

A review of things you need to know before you go home on Tuesday; no retail rate changes, DTIs are 'in', cars popular, bank funding exceeds $½ tln, swaps stable, NZD firm, & more

3rd Aug 21, 4:11pm by David Chaston

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

MORTGAGE RATE CHANGES
No changes today.

TERM DEPOSIT RATE CHANGES
Nothing so far today here either. But we know there will be at least one rise to report tomorrow.

UNRESTRAINED PRICE HIKES
New Zealand's average dwelling value increased by $15,889 in July (up $512/day, tax free) taking the average value of homes to $922,421, up +5.9% over the last three months and up by a quarter in a year. (Expect Barfoot results for the Auckland market tomorrow.)

FINALLY DTIs ARE HERE
The screws are tightening. The Government has now signed off on DTI measures, which will be implemented. The RBNZ will also tighten LVR rules from October saying it 'hasn't seen sufficient reduction in risky lending' yet.

NEW CAR SALES SPURT
Every segment of the new and used-import vehicle sales market was strong in July, with the Clean Car Discount providing an added boost to overall sales - no signs of substitution yet away from double-cab utes. Used import sales were especially strong.

BORROWING VERY SHORT, LENDING VERY LONG
Bank funding rose to a record $512 bln as at the end of June 2021 (L3). 54% of that is either at call or due within 30 days. 86% of it falls due with a year. Depositors provided 74% of this funding and they don't like any term exposure with 68% of it at call and 90% due within six months. But borrowers expect banks to lend up to 30 years. It falls to wholesale investors and the RBNZ to try and square this reluctance and severe term risk.

TOPPED OUT I ?
According to official data, the number of dwellings consents approved in Australia fell -6.7% in June for a third consecutive month, following a -7.6% fall in May and a -5.0% fall in April. But that is after a record high in March and the June 2021 level is +29% higher than the pre-pandemic level by a massive +29%.

TOPPED OUT II ?
Similarly, Aussie lending for housing fell in June from a record high in May to be a massive +91% higher than the pre-pandemic level in June 2019.

PRESSURE IN NSW REMAINS INTENSE, EXTENDS TO QLD
There were 199 new community cases in NSW today with another 111 not assigned to known clusters, so still going backwards there. Victoria is reporting just 4 new cases. Queensland is reporting 16 new cases. Brisbane's snap lockdown has been extended. There were zero new case in New Zealand at the border, and still none in the community.

UPDATE: RBA TURNS HAWKISH
The RBA’s decision today to not delay the tapering of its asset purchases is a hawkish signal to markets. It seems likely they will hike rates in early-2023. There were expectations they would delay the tapering of its bond purchase program in response to the Sydney lockdown. But they said they are still on track to reduce its QE purchases from AU$5 bln per week to AU$4 bln starting in about a month. They may even reduce it from there again before the end of 2021. This hawkish stance dragged the NZD higher with the AUD, but sharply lower on the cross rates.

GOLD MOVES BACK UP
Compared to where we were this time yesterday, the gold price is up +US$3/oz at US$1813/oz in early Asian trading.

EQUITIES TURN NEGATIVE, EXCEPT IN NZ
The S&P500 turned a little lower at the end of today's Wall Street session, ending down -0.2%. Tokyo has opened down -0.8%, Hong Kong has opened down -0.9% and Shanghai has opened down -0.5% all in very early trading. The ASX200 is down -0.2% in afternoon trade. But the outlier is the NZX50 Capital Index which is up +0.6% in late trade today and in a rising trend.

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 little-changed. The 90 day bank bill rate is unchanged at 0.50% and back to its March 2020 level. The Australian Govt ten year benchmark rate is down another -3 bps so far at just on 1.15%. The China Govt ten year bond is up +2 bps at 2.84% and off its one year low. The New Zealand Govt ten year is up +1 bp at 1.54% and now well above the earlier RBNZ fix of 1.51% (-1 bp). The US Govt ten year fell sharply from 1.23% at this time yesterday to 1.16% but has since risen back to 1.19% booking a net -4 bps fall for the day.

NZ DOLLAR FIRM
The Kiwi dollar has been firm so far today and now at 70 USc. Against the Aussie we are slightly higher and back at 95 AUc. Against the euro we are up slightly at 58.9 euro cents. The TWI-5 is now back up at 72.8.

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BITCOIN SLIPS AGAIN
The bitcoin price is now at US$38,911 and another down -2.0% from this time yesterday. Volatility in the past 24 hours has been moderate at +/- 2.3%.

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16 Comments

by Shoreman | 3rd Aug 21, 4:32pm 1627965133

More records coming up in the next few months as our Government advises of more "fixes" for the market.
DTI's will have the most impact on FHB's, perhaps Investor's will get blamed again, or some other "RED HERRING " to divert responsibility to another third party.
" New Zealand's average dwelling value increased by $15,889 in July (up $512/day, tax free) " surprises me, but hey Labour always has the highest real estate increases when in power !
Got to be in to win, standing on the side lines moaning it's not fair has never worked.

by Squishy | 3rd Aug 21, 4:47pm 1627966060

What option do Government have but to tinker?KiwiBuild collapsed because it ignored the realities of land supply in New Zealand, RMA reform is likely to turn a somewhat recalcitrant puppy into a three headed Cerberus, NPS-UD is being strongly resisted by councils and may get tied down in litigation.

Tinker by day, pray for a miracle by night.

by JimboJones | 3rd Aug 21, 4:35pm 1627965335

I am very surprised that Covid has not made its way here from Aus or MIQ. Not so long ago it was leaking out of MIQ every few weeks, so it has to be the vaccination of border workers that has made the difference.

by oldbloke1 | 3rd Aug 21, 5:01pm 1627966868

Or - just perhaps, the people running our response know what they're doing, contrary to the reckons of armchair experts, and professional jeremiahs.

by Rex Pat | 3rd Aug 21, 10:03pm 1627985020

Unlikely.

by Audaxes | 3rd Aug 21, 5:03pm 1627966992

Bank funding rose to a record $512 bln as at the end of June 2021 (L3). 54% of that is either at call or due within 30 days. 86% of it falls due with a year. Depositors provided 74% of this funding and they don't like any term exposure with 68% of it at call and 90% due within six months. But borrowers expect banks to lend up to 30 years. It falls to wholesale investors and the RBNZ to try and square this reluctance and severe term risk.
Two points to take note of :
1) New Zealand-incorporated registered banks are subject to a minimum core funding ratio (CFR). The basic notion underlying the CFR is a comparison between an estimate of the funding of the bank that is stable and can be assumed to stay in place for at least one year (‘core funding'), and the core lending business of the bank that needs to be funded on a continuing basis. Core funding is defined as retail deposits plus wholesale funding with maturity of more than one year

2) Banks don't take deposits and they never lend money. They are in the business of purchasing securities. When one gets a bank loan, the loan contract is a promissory note. The bank purchases that contract from the borrower. Now the bank owes the borrower money and it creates a record of the money it owes, which we call deposits - source.

These so called bank deposits (unsecured bank liabilities) remain a bank liability until the borrower's loan is paid off.

by Rosenstein | 3rd Aug 21, 5:09pm 1627967394

500 bucks a day tax free. Heeeey must be the monaaaay! What a heist! What a beautiful state sponsored heist of their people's purchasing power.

by Rob Reid | 3rd Aug 21, 7:32pm 1627975945

Yeah. A gain like that (after tax) takes me a month of work, austerity and no bad luck.

by Cowpat | 3rd Aug 21, 5:26pm 1627968399

Australia is different as RBA holds OCR at 0.1 percent, sees no increase until 2024.
Statement https://www.rba.gov.au/media-releases/2021/mr-21-14.html
One of their banks Westpac out today increasing house price growth for 2021 and 2022 Sees terminal OCR at a respectable 1.25 percent somewhere down the distant line. In New Zealand the RBNZ provides same Australian banks cheap funding and allows them to raise mortgage rates pre OCR

by MisterB | 3rd Aug 21, 10:31pm 1627986685

"In New Zealand the RBNZ provides same Australian banks cheap funding and allows them to raise mortgage rates pre OCR".

You make it sound like RBNZ giving money to lend in Australia. LOL. The RBNZ provided it to all banks so that they would lend to NZers

You know the fixed interest rates are more or less disconnected from OCR largely (which are about variable rate loans) - those fixed rate increases were due to swaps shooting up because wholesale markets expect OCR to lift in near future. Which it will have done more of today, given RBNZ comments on tightening policy.

I see that it was actually good old Kiwibank that snuck in a variable rate lift, although to be fair to them, their rate is still lower, but nonetheless they did increase their variable, presumably to subsidize their fixed rates.

by Justa comment | 3rd Aug 21, 7:29pm 1627975788

A shame its taking so long to bring in DTIs.
The amount of money NZ has borrowed/printed that has gone tax free into the pockets of housing investors that our kids and grandkids will be paying taxes for the next 50 years is a crime and a disgrace.

by J.C. | 3rd Aug 21, 7:48pm 1627976935

ASB CEO Vittoria Shortt has been over Linkedin hyping something called "Support Finder" in the ASB Mobile App, making it easier for customers to check if they are eligible for a range of government benefits or payments from the Ministry of Social Development or Inland Revenue.

It's really a nothing achievement in terms of tech. However, everyone's liking the post and coming out with gushing praise. Someone said "MSD already provides a similar online tool (check.msd.govt.nz). Given that the ASB tool will collect and use personal data of its users, what advantage does the ASB tool provide its users?"

by Brutus Iscariot | 3rd Aug 21, 9:02pm 1627981323

I can just see it - "Bludger's Blessing"...what an app

by richard1965 | 3rd Aug 21, 8:00pm 1627977653

Hi David, Not sure if you read comments of other articles.

Article below and my comment, will like your view on it.

"The Reserve Bank's announcement of new more punitive measures against the housing market takes some pressure off it to be the first cab off the rank in terms of hiking interest rates"

David, this is the only reason that Mr Orr has spoken today not because he wants to control the crisis but because he so does not want to raise OCR.

Only as had OCR gun against his head, he announced but again will be more of a lip service like :

LVR headline is BS as will only decrease high risk lending to FHB below 20% TO 10% and will not touch speculators.

AND

DTI will start discussion after a month and will continue for weeks / months than will again have discussion for weeks and months than if decide will do it with grace time of another months or year.

Net result = ZERO as far controlling the ever growing house price on weekly basis, as of now is concerned except him saying to FHB, have patience and rent for life.

You can save this comment and hold, if it is not so.How come experts fall for all this crap and do not highlight when having one to one with errORR.

by richard1965 | 3rd Aug 21, 8:00pm 1627977654