Here are the key things you need to know before you leave work today.
MORTGAGE RATE CHANGES
No changes to report today.
TERM DEPOSIT RATE CHANGES
TSB Bank raised almost all their rate. And so did Kookmin Bank, and the Heretaunga Building Society.
BIGGER WARCHEST
Via a parliamentary vote, the Government empowered itself to spend up to $41 bln more than was budgeted for this year, an increase of +28%. (That Budget 2021/22 spending plan was originally for $145.8 bln.) It is too early to say how much of this contingency will be used and whether more debt will be required.
LEVELLING OFF
The latest figures suggest the number of new homes being completed in Auckland could be levelling off.
UNDERINVESTORS
Reserve Bank says thematic review of banks' compliance with its liquidity policy highlights gaps in banks’ liquidity risk management frameworks, and 'widespread underinvestment' in core systems.
FARMGATE MILK PRICE WILL RISE
Encouraged by a strong global dairy auction this week, BNZ economists have raised their milk price pick by 50c to $8.30. Also, see this.
FACTORY SALES EXPANDING
As we close in of the Q2-2021 GDP data release next week, more component data is flowing through. Today manufacturing sales delivered a good result, far above the pandemically affected June 2020 result and +4.3% higher than June 2019 on a 'real' inflation-adjusted basis. Before those price adjustments, Q2-2021 was +7.4% higher than Q2-2019.
FILLED JOBS UP
Filled jobs rose +15,000 in Q2 from Q2, according to more StatsNZ data. (Presumably Q3 data will be stunted.)
WE ARE HIRING
Are you a full stack developer? You should check this out.
RISING FAST
Local authority rates and regulatory income is back rising fast again, up +6.6% in a year, and up +7.5% from June 2019. It's not enough for users of their services, too much for payers.
LOSING SOME DRIVE
Traffic flows plummeted in the latter half of August as the country was plunged into level 4 lockdown restrictions, according to ANZ's Truckometer series. The Light Traffic Index fell -27% in August from July, while the Heavy Traffic fell -18%. That is a way larger change than what the overall economic impact will be however, so this Truckometer monitoring isn't a good current guide of how the economy is fairing. Down to be sure, but not that much. (The Truckometer monitoring was developed to give an early indication of overall economic activity, but it doesn't handle extreme shocks well - few models do.)
DEMAND UP, YIELDS UP
Today's Government bond tenders were particularly popular with $1.675 bln chasing the $500 mln in three tranches. Only 21 bids were successful of the 80 bids received. Yields for investors rose across the board. The $220 mln May 2024 issue saw the yield rise from 1.12% pa two weeks ago to 1.31% this time. The May 2031 issue saw the yield rise to 1.88% pa from 1.65% last time. And the April 2037 issue saw its yield rise to 2.35% from 2.16% two weeks ago.
INFLATING LIKE A ROCKET
The carbon price is now up to $65.80/NZU, an increase of one third since early August.
FILING
Auckland's water storage dam levels are now up to 75% full. That is, 100% full in the Waitakeres, and 70% full in the Hunuas. Nationally our hydro lakes are now twice as full as this time last year, fuller than the 90 year average. Inflows are still well above both comparatives as well.
CHINA'S TWO-SPEED TRAJECTORIES
Consistent with a slowing domestic economy, consumer inflation fell to under +1% in August in China. But factory cost pressures rose. On the household front, the cost of milk and beef is holding, but the price of lamb is slipping. All of these had large run-ups over the past few years. On the factory front, the rises were more than was expected.
"STOP DIRTYING MY AIR"
And Beijing has told key steelmaking provinces to cut production during their upcoming winter to curb pollution that is now spreading to the capital. It's a move likely to cause the iron ore price to fall further.
PANDEMIC PRESSURE INTENSE BUT EASING A LITTLE
In Australia, there were another 1405 new community cases in NSW today with another 1300 not assigned to known clusters, so zero improvement there. They now have 27,941 locally acquired cases. Victoria is reporting another 2324 new cases today, so it is getting worse there, particularly in Melbourne's north. Queensland is still reporting no new cases. The ACT has 15 new cases. Overall in Australia, more than 40% of eligible Aussies are fully vaccinated, plus 25% have now had one shot so far. There were two new cases in New Zealand at the border, and 13 more in the community, all in Auckland and all but 6 within existing isolated bubbles. So far, 32% of eligible Kiwis now have both shots, another 30% the initial shot.
GOLD DROPS
Compared to where we were yesterday, the gold price is -US$9 lower at US$1790/oz in early Asian trade. Earlier it had closed in New York at US$1789, and earlier again in London at US$1786/oz.
EQUITIES ALL LOWER
The NZX50 is down another -0.5% in late trade today. The ASX200 is down -1.5% in early afternoon trade in a steepening sell-off. Tokyo has opened lower, down -0.5% in early trade. Hong Kong is down -1.5%. Shanghai has opened down -0.1% in their early trade. The S&P500 ended its Wednesday New York session down -0.1%.
SWAP & BONDS RATES SOFTEN
We don't have today's closing swap rates yet. We expect them to show a minor fall. We will update this if there are significant changes when the end-of-day data comes through. The 90 day bank bill rate is up +1 bp at 0.52%. The Australian Govt ten year benchmark rate is now at 1.28% and down -1 bp from this time yesterday. The China Govt 10yr is now at 2.89% and marginally firmer. The New Zealand Govt 10 year rate is now at 1.90%, and down -5 bps, but now below the earlier RBNZ fix for that rate at 1.92% (-2 bps). The market conviction that the RBNZ will hike rates in 2021 remains. The US Govt ten year is now at 1.34% and it has lost -3 bps today.
NZ DOLLAR SOFTENS MARGINALLY
The Kiwi dollar is now at 70.9 USc, and lower again from where we were this time yesterday. Against the Aussie we are firmish at 96.4 AUc. Against the euro we are little-changed at 60 euro cents. The TWI-5 is just under 74 and at the top of the 72-74 range we have been in for most of the past ten months.
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BITCOIN DROPS AGAIN
The bitcoin price is now at US$45,861 and down another -2.9% from where we were this time yesterday. Volatility in the past 24 hours has been moderate at +/- 3.1%.
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27 Comments
Nobody can 'make money' from carbon, so it must be being done (if successful) by displacing something/someone else.
I can track real energy going into the system, add in real resources, and tell you how much debt is underwritten. Already, a growing percentage of it isn't. But you want to 'make' More? Hmmmmmmm ........
Carnage in China at Evergrande, the largest property developer. Some referring to it as possible Lehman Bros-esque. Is this a moment of truth?
Evergrande's dollar bonds are falling to fresh lows, after a report that the firm plans to suspend loan interest payments and Fitch moved to cut its credit rating.
The developer’s dollar bond due 2025 fell 1.5 cents on the dollar to 24.2 cents, after REDD reported Wednesday that Evergrande plans to suspend interest payments on loans from two banks due Sept. 21. and asked a lender to wait for instructions about an extension plan.
https://www.bloomberg.com/news/articles/2021-09-08/evergrande-dollar-bo…
I see their share price on the HK exchange is down to about 3.40HKD...down from about 25HKD about a year ago....
An impressive collapse!
Unfortunately there is no shortage of greater fools:
Morgan Stanley Raises $3.1 Billion for Global Real Estate Bets
The most frequent way that investors come to believe in impossible things is that they fail to impose “equilibrium.” They neglect to examine how output and securities come into existence, the arithmetic that dictates how they have to add up, and who ends up with what after each exchange. They imagine that what might be true for an individual investor or sector must also be true for the financial markets or the economy as a whole.
Discussions of economics and finance typically reflect little consideration or even understanding of the “stock-flow equilibrium” that necessarily relates various real economic outcomes – output, savings, investment, and government spending – with the issuance of various financial objects like Treasury debt, base money, and stock shares. Equilibrium is like conservation of mass – every purchase is also a sale; every security that’s created must be held by someone until it is retired; securities are created to memorialize obligations; output that’s not consumed has been saved; the shortfall of one sector must be the surplus of another. Once you insist on thinking in terms of equilibrium, it becomes obvious how many discussions in economics and finance are incoherent.
Notably, the lack of equilibrium thinking obscures a critical fact about investing: every security, once issued, must be held by someone until it is retired. As a result, the only thing that a security will ever provide to its investors, in aggregate, is the stream of actual cash flows that it delivers between the point that it is issued and the point that it is retired. The price changes called out by Mr. Market are not changes in aggregate wealth – they mainly provide varying opportunities for wealth transfer between one investor and another. There’s an increase in aggregate wealth only if there’s an increase in expected value-added output and deliverable cash flows. Otherwise, a change in the valuation of a given stream of cash flows merely reflects a change in the expected rate of return. Link
From high yield to no yield: Real yields on European junk debt have fallen below ZERO for the 1st time, highlighting the chase for yield, BBG reports. Link
...the iron law of investing is that a security is nothing but a claim on a future stream of cash flows. Valuation is a crucial determinant of long-term returns. The higher the price an investor pays for those cash flows today, the lower the long-term rate of return earned on the investment..
The corollary is also true. The lower the long-term rate of return demanded by investors, the higher the price moves today. So clearly, changes in investors' attitudes toward risk will strongly affect short-term returns. If investors become more willing to take market risk, it is equivalent to saying that they are demanding a smaller risk premium on stocks (that is, a lower long-term rate of return). Prices rise as a result. Now, the fact that current stock prices are higher also implies that future long-term returns will be lower, but that's part of the deal. Courtesy of Hussman Funds
Remember that scene in The Big Short when Steve Carrell realizes the housing market is f***ed when he meets a stripper with 5 home loans? Well, I just had a similar moment. Can't go into too much detail, but has anyone considered a. How many mortgage holders depend on income from boarders to pay their massive mortgages and b. What the effect of no international students, lockdowns, and greater location flexibility due to WFH is going to have on the demand for boarding accommodation? From what Im hearing, this could be a problem.
Anyone know how to short the NZ housing market?
Jump onto the property investor pages on FB and look at the chatter there about the number of homes/mortgages that people own - can't say they're strippers, although some could be, but the quality of character on display is hardly indicative of high personal income (via wages) to support the amount of debt they have levered against the property market.
As you say, many, if not almost all, are completely reliant on taking the income of the lower socioeconomic classes of New Zealand to pay their debts.
I think people need to get it into their heads that we will be opening up early next year regardless of the Covid situation. The Government will announce a date in advance and that will provide all the remaining fear required for the last people that are holding out to get vaccinated in time. 80% vaccination rate is the critical mass. Anyone with an international airport in their town like Auckland, Wellington and Christchurch who have the most traffic and are at the highest risk will get the final push. A few people may die as a result, but more than a few die on our roads every year and I don't see the government spending billions on our roads to save perhaps 50 deaths a year so why should we spend billions on endless lockdowns. Jacinda doesn't need to go back on her word on making the vaccination compulsory, they will instead issue a "Passport" which will make your entire life so difficult without one, it will basically force you to get vaccinated if you ever intend to get back on a plane and go anywhere ever again.
The latest figures suggest the number of new homes being completed in Auckland could be levelling off.
Superb! High materials cost, a slowdown in building rates, a hold on raising the OCR... everything is coming together for the next sharp increase in house prices.
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