A review of things you need to know before you go home on Wednesday; mortgage rates sink, no inflation, low dairy prices, more aid, huge capital gain, swap rates dive, NZD falls

A review of things you need to know before you go home on Wednesday; mortgage rates sink, no inflation, low dairy prices, more aid, huge capital gain, swap rates dive, NZD falls

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

TODAY'S MORTGAGE RATE CHANGES
SBS Bank came back again today with a second set of lower home loan rate 'specials'. Westpac also tweaked its 2 year rate down after a tweak up on Monday. ANZ tweaked its one year rate higher too.

TODAY'S DEPOSIT RATE CHANGES
There are no rate changes to report today.

BRUSHING DOWN TO ZERO
Markets punished NZ interest rates and the exchange rate following a weaker-than-expected inflation report for December. Basically there is no inflation and markets don't like to see that. For reasons I can't quite get my head around, low price levels (+0.1% pa) with positive wage growth (+2.3% pa) is considered bad form by markets. Perhaps their concern is that the RBNZ doesn't seem to have any influence on our economy via their monetary policy settings. Or perhaps they think the RBNZ will now 'have to cut' the OCR. But neither RBNZ cuts or hikes seem to have done much in the past. Doing more of what doesn't work hardly seems good policy. But what would I know? (See David Hargreaves' view here.)

LOWER YET?
Talking of low prices, petrol prices keep falling. MBIE says they are now down to NZ$1.751/litre after discounts (January 15) for unleaded 91. Only because the difference is huge, it is interesting to see an Australian report that U91 fuel costs have fallen below AU$1/litre over the ditch. Perhaps petrol price declines have a lot further to go here in the near future.

LOW AND STICKY
Lower prices are affecting the dairy industry too. Today's auction result did not bring any indication of the long-expected rise in prices that will be needed to support the $4.60/kgMS payout estimate Fonterra has on the table. But remember, these auction prices are in USD; today's result in NZD actually flagged a rise. The fall in the NZD later in the day following the CPI data will have made the increase larger in NZD: +3.5% by my count.

EXTENDED HELP
ANZ is extending its "assistance package" to South Island farmers affected by extreme dry conditions. The bank will commit another $20 mln to their assistance package on top of the $50 mln they committed last year, but will extend that if demand for help from farmers is high. Other banks are likely to follow. ANZ launched their assistance package a year ago.

TWO TRACKS, THE OTHER WAY
The housing market remained reasonably buoyant in December, especially outside of Auckland according to the latest figures from the Real Estate Institute of New Zealand. Throughout the country 7,313 homes were sold in December which was down -9.1% compared to November but up +3.5% compared to December 2014. But Auckland went against the trend, with just 2,225 homes selling in December which was down -11.5% compared to November and down a whopping -18.6% compared with December 2014.

MONEY FROM THE SKY (TAX FREE)
The only thing we have in our economy that is rising in price is real estate. The RBNZ today published data that shows the total value of all our housing is now 'worth' NZ$862.3 bln. That is a gain of NZ$117 bln or almost +16% in a year. (Yes, that is a rise of +NZ$320 million per day !! +NZ$13 mln per hour.) Nothing compares in our economy. Our total exports are NZ$47 bln per year. The total of all payrolls in the country is about NZ$85 bln per year. But these are both taxed. The untaxed housing gain of $117 bln in the past year stands alone. 'Rational' people respond to the signals offered, even if the signals themselves are not 'rational'.

WHOLESALE RATES DOWN SHARPLY
Swap rates fell with a thud today following the weak CPI data. Rates are lower by -7 to -9 bps for all terms 1-5 years, down just a little less for longer terms. The 90 day bank bill rate is unchanged at 2.74%.

NZ DOLLAR FOLLOWS
The New Zealand dollar is also sharply lower today for the same reason. It is now at 63.8 USc, at 92.4 AUc, and at 58.4 euro cents. The TWI-5 is now at 69.3, its lowest since early October. Check our real-time charts here.

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USD 
NZD
End of day UTC
Source: CoinDesk

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The only thing we have in our economy that is rising in price is real estate.

Surely by design - state redefinition of inflation to affect a redistribution of wealth via monetary policy was not an error of omission.

Yes, but by whose design? It seems unlikely it's the highly educated twits in the bureaucracy (who subscribe to consensus views, there is no room for those difficult disruptive original thinkers in any bureaucracy) or the pollies, who rarely seem to understand much more than where to buy lunch.

Where I was employed in London there was absolute cohesive precision in respect of who and what was to be relieved of wealth and how it was to be achieved. And of course money was no object. Victims certainly included central banks.

Something I've noticed: 'Good news' property articles in the NZ Herald always go straight to the top of their 'Most Read' list, whereas not so good or bad news articles don't even make that same list at all.

I guess Kiwis aren't interested in reading anything about property unless it's saying only what they most want it to.

Perhaps they are trying to please their advertisers. I mean, maybe.

"Compared with the amount of yuan sloshing around in the economy, a proxy for potential capital outflows, China’s firepower seems limited. The dollar reserves account for 15.5 percent of M2, a broad measure of money in circulation. That’s the lowest since 2004 and is less than levels in most Asian economies including Thailand, Singapore, Taiwan, Philippines and Malaysia, according to data compiled by Bloomberg."

As the above suggests, if the proverbial really hits the fan in China there's not much hope of the PBOC stopping a stampede to dump the Yuan.

Hope nothing bad happens.......

The global financial system has become dangerously unstable and faces an avalanche of bankruptcies that will test social and political stability, a leading monetary theorist has warned.

"The situation is worse than it was in 2007. Our macroeconomic ammunition to fight downturns is essentially all used up," said William White, the Swiss-based chairman of the OECD's review committee and former chief economist of the Bank for International Settlements (BIS).

The warnings have special resonance since Mr White was one of the very few voices in the central banking fraternity who stated loudly and clearly between 2005 and 2008 that Western finance was riding for a fall, and that the global economy was susceptible to a violent crisis.

http://www.telegraph.co.uk/finance/financetopics/davos/12108569/World-fa...

"“Look how many countries in Africa, for example, depend on the income from oil exports,” Schwab said in an interview ahead of the WEF’s 46th annual meeting, in the Swiss resort of Davos. “Now imagine 1 billion inhabitants, imagine they all move north."

http://www.bloomberg.com/news/articles/2016-01-18/wef-boss-schwab-warns-...