What happened Wednesday

A review of things you need to know before you go home on Wednesday; food prices drop, mortgage approvals past their peak, new Rabobank CEO, equity markets all gain, swap rates rise and steepen

13th Jul 16, 3:59pm by David Chaston

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

TODAY'S MORTGAGE RATE CHANGES
No changes to report today.

TODAY'S DEPOSIT RATE CHANGES
No changes here either.

EVERYONE AGREES
Food prices decreased -0.5% in the year to June 2016, influenced by lower grocery food prices which were down -2.3%, Statistics New Zealand said today. This data confirms Countdown's claim of a -1.2% drop. And is reflected in our own grocery price monitoring. We get the June quarter CPI on Monday and most commentators think it will be a low number - about +0.5% pa - but not quite as low as it has been in previous quarters. The 1-3% range is some way off - unless you just focus on non-tradable inflation (the bit the RBNZ can influence).

A SLOWING SIGN?
Mortgage approval data released today gave the first suggestion that the housing market may be finally slowing. The data for last week was the lowest of the year for a week that did not include a holiday. In the 27 weeks since the start of 2016, almost $40 bln of 'new' mortgage have been approved, up 15% on the same period a year ago. The latest similar data in Australia ("housing finance commitments") was up +18% year-on-year to May and industry reports there also record a June and July slowdown.

GOING BACKWARDS FAST
More worrying for Australia, lending commitments for commercial purposes are down sharply. For fixed loans, they were off -14% and for leases they were down -11% in May.

NEW CEO FOR RURAL LENDER RABOBANK
Rabobank New Zealand has announced the appointment of Daryl Johnson as its CEO. Effective immediately, Johnson takes over from Crawford Taylor, who has been interim CEO since Ben Russell left for Heartland Bank last October. Johnson, from Western Australia, was until last year the Asia CEO at BNZ's parent National Australia Bank, leading NAB's operations across seven countries being China, Japan, Hong Kong, Singapore, India, Indonesia and Vietnam.

LABOUR GOING BIG ON HOUSING
The Labour Party says its leader Andrew Little will tomorrow (Thursday) launch a detailed nationwide housing map featuring local information on the housing crisis for more than 2000 areas nationwide. This will include house prices, rent increases, home ownership rates, state house waiting lists and the number of empty state houses, Labour says, adding this will allow New Zealanders to see how their neighbourhood has been affected by the housing crisis.

UNCERTAINTY BITES
The latest Westpac-MI consumer sentiment survey in Australia released today shows a sharp fall - even though it might not be as sharp as some expected.

NZ TODAY'S LAGGARD
Equity markets that are trading today are all up. The NZX50 is one of the low performers at +0.1%. The ASX200 is up +0.4%, Hong Kong up +0.5% and Tokyo is up +1.0%. All these gains come after Wall Street set the standard today at +0.7% and on that basis the NZX is underperforming.

SWAP RATES RISE FURTHER
Swap rates rose and steepened again today taking signals from Wall Street earlier this morning. One and three year terms are up +1 bp, four years is up by +2 bps, five and seven years by +3 bps and ten years by +4 bps. NZ swap rates are here. The 90-day bank bill rate is up by +2 bps today at 2.44%.

NZ DOLLAR STILL IN A RANGE
The Kiwi dollar is at virtually the same levels it was at this time yesterday. The NZD is at 72.6 USc, at 95.6 AUc, and 65.7 euro cents. The TWI-5 is now just over 76.3. Check our real-time charts here.

You can now see an animation of this chart. Click on it, or click here.

Daily exchange rates

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Source: RBNZ

Source: CoinDesk

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25 Comments

by Stephen Hulme | 13th Jul 16, 4:17pm 1468383458

Equity markets that are trading today are all up. The NZX50 is one of the low performers at +0.1%. The ASX200 is up +0.4%, Hong Kong up +0.5% and Tokyo is up +1.0%. All these gains come after Wall Street set the standard today at +0.7% and on that basis the NZX is underperforming.

Hmmmm...

Much of America has still not recovered from the violent consequences of the last yield-seeking bubble the Fed engineered. Now the Fed has engineered another, and has drawn nearly every pendulum to an extreme. We expect $10 trillion of “paper wealth” to be wiped from the U.S. equity market over the completion of this cycle, because it is not “wealth” at all. From an investment standpoint, the value of any security is inherent in the long-term stream of cash flows it will deliver to investors over time. Artificially jacking up financial securities through reckless monetary policy doesn’t change the cash flows that those securities will deliver over time; it only converts future expected return into past realized return, leaving nothing but risk on the table for years to come. Central bank intervention is not a benefit to long-term economic prosperity. It is the head of the snake. read more

All it takes are the words “record high” and all economic or financial sins are forgiven and forgotten. The financial media cannot contain themselves whenever they get the chance to use the term, adding qualifications like “soar” and “sharply” to make sure everyone gets the message. Context need not apply because stocks are supposed to be forward-looking discounting mechanisms.

However, even a small bit of background dispels the sentiment. Dating back to especially QE3, the stock market had been trading on only the economy that “will be” not the growth environment that actually was. We know that given the behavior in prices as they diverged sharply with actual earnings, all on the premise that forward earnings were solid and reasonable based on QE actually working. That was already a somewhat shaky premise in 2013, but by the middle of 2014 it was increasingly negated. Where $140 in EPS for the S&P 500 was expected in CY2015, only $86 occurred. Read more

Records reached this week by major U.S. stock indexes underscore the power of a popular but controversial tool: the corporate share buyback. Read more

And if that doesn't work the state enters the fray.

Recall at the end of January when global markets were keeling over, that Citi's Matt King showed that despite aggressive attempts by the ECB and BOJ to inject constant central bank liquidity into the gunfible global markets, it was the EM drain via reserve liquidations, that was causing a shock to the system, as net liquidity was being withdrawn, and in the process stocks were sliding.

Fast forward six months when Matt King reports that "many clients have been asking for an update of our usual central bank liquidity metrics."

What the update reveals is "a surge in net global central bank asset purchases to their highest since 2013." Read more

by James007 | 13th Jul 16, 6:01pm 1468389664

What do we, small folk in rural NZ, do about it though Stephen?

by Stephen Hulme | 13th Jul 16, 7:18pm 1468394283

Man the guillotines?

Seriously, voting taxpayers have to undertake some tough decisions.

Is this a democracy or is it a plutocracy? Between people and power is a filter through which decisions are made, a filter made of money. Read more

by murray86 | 14th Jul 16, 6:56am 1468436218

The reality is that with people like Key, Little and Clark in charge it is more a plutocracy than a democracy. this is reinforced by the fact that once voted in every three years, there is no way to kick 'em out before that three years is up. Pretty much the same all over the world, although some countries do have an impeachment process.

by PocketAces | 14th Jul 16, 8:06am 1468440388

I'd say that a plutocracy is an inevitable result of great inequality, in a he who pays the piper kind of way. Eventually it leads to those at the bottom taking pretty drastic action to rebalance things.

by Roger Witherspoon | 14th Jul 16, 8:44am 1468442671

What is the common factor between Key/English and Clarke/Cullen? The civil service they rely on for advice.

The civil service dished up the same bag of ideas and options to choose from. The civil service is a sort of academic monoculture who profess to know how the world works. They know best and have a massive sense of entitlement that they should run the country because of it.

Witness the unanimity with which they thought Brexit was a bad thing rather than a rare and special opportunity for NZ to help craft a really functional free trade zone based around Britain's pre-eminent institutional competence. London is the world leader in foreign exchange transactions because of it's institutional competence, not because of the EU civil service.

by steven | 14th Jul 16, 8:42am 1468442563

No I do not agree on the civil service is listened to. All of these pollies do not rely on sound economics or advice instead going with what suits them to a) get re-elected and b) to feather their respective voters pockets.

by Roger Witherspoon | 14th Jul 16, 8:46am 1468442793

The politicians will further their own interests and those of their voter base. The advice they receive all comes from the same place.

by notaneconomist | 14th Jul 16, 10:53am 1468450418

There will need to be a tipping point before any change can occur SH.........

It sometimes seems the populace has been conditioned.........if I am correct it will take some form of chaos to remove the spell of the conditioning.

When a majority of the population abnegates their constitutional rights then we are all screwed and the plutocracy can park its foot in the door and bit by bit the opening gets wider........

by Stephen Hulme | 13th Jul 16, 4:55pm 1468385745

A gigantic, pending spanner in the works?

The Reserve Bank of India is bracing for a fight on proposed changes to the global regulatory framework that would hit the country’s lenders with higher capital charges for the mountain of government debt on their books.

Tighter rules would bite India’s banks, already struggling with surging bad loans and higher provisions. With nearly 30 percent of their assets in state debt, India’s lenders would take a hit if the Basel Committee on Banking Supervision raised capital requirements on sovereign bonds.

“There is a proposal to impose capital requirements on sovereign assets that banks hold,” RBI Governor Raghuram Rajan, who steps down in September, said last month. “We are opposing that tooth and nail at Basel.”

The Basel Committee, which brings together regulators from about 30 nations including the RBI, the U.S. Federal Reserve and the Bank of England, began reviewing the regulatory treatment of banks’ government bond holdings last year. The regulator plans to publish a proposal around year-end, and deliberations could continue for several years.

Most countries currently treat state debt as if it were risk-free, meaning banks don’t need capital to protect against default. Sovereign debt is also exempt from rules that limit a bank’s exposure to any single creditor. Read more

Large US banks certainly have significant exposure. View graphic detail

by scarfie | 14th Jul 16, 10:09am 1468447795

Here is how I explained it in terms to someone in non economic speak:

This of what this is saying in terms of fractional reserve banking. A bank keeps 10% of deposits, and lends out the rest. The 10% is known as reserve capital that the bank must keep. What banks have been doing is buying government bonds with that reserve capital, which means they get paid interest on the bonds, or on their reserve deposits. So in reality they are not reserves at all, they are invested at risk, albeit minor risk. Officially Central Banks have treated the government bonds as risk free, and allowed the practice. What this article is saying, and the warning Stehpen Hulme is giving (he knows this stuff well) is that government bonds are not risk free. That is a paradigm shift.

I had to slow down and think about this for a bit. Bigger news than Brexit IMO, a real paradigm shift.

Just yesterday I was talking to the same person about Exters Pyramid, this action would take out a whole asset class and move what is secure down one layer.

by Cowpat | 13th Jul 16, 5:14pm 1468386882

Abe advisor Honda believes Japanese stocks oversold and helicopter would be risk. Maybe they could drop money with drones ?

by James007 | 13th Jul 16, 5:59pm 1468389576

Direct hits should be possible! Might be some collateral damage though....

by sharetrader | 13th Jul 16, 6:01pm 1468389691

I hope this is not another over crowding fiasco
"The Labour Party says its leader Andrew Little will tomorrow launch a detailed nationwide housing map featuring local information on the housing crisis for more than 2000 areas nationwide"

by solardb | 13th Jul 16, 8:45pm 1468399507

At least he is doing something. Standby for big headlines in the Herald , "Joyce say's it wont work".

by Grant A | 13th Jul 16, 9:13pm 1468401202

Yes solardb, its a bit irrelevant as to whether it would work or not, but at least he's saying something ?

by Roy1 | 13th Jul 16, 9:25pm 1468401917

We also need data of non resident buyer Mr Andrew in public domain.

by AMAM | 13th Jul 16, 9:34pm 1468402443

Yes Labour should release overseas buyer data along with other data.

Can call 10 real estate branch office and get last week sale data or may be month data from each office and can declare the sample survey or can tap last auction of all big company and get result.

New Zealanders know but will like a data to confirm and throw on national. Would then like to see the response of double face party.

by 12000 | 13th Jul 16, 9:55pm 1468403738

Had checked with few office and also attended few auction and asian buyers were 80% to 92% but will include nz resident also as no means to find if resident or non resident but quite a few were bidding on mobile so assume must not even be in nz but based overseas and as were bidding on phone through asian agent must be asian.

Why only labour even media and journalist should try to get the data out as is very important for all national policy of not taking any action on demand specially speculators is based on the faulty data that was announced earlier. Even national knows that data is not correct but as it suited them are hiding behind it and giving speculators more time to create havoc with Auckland housing market. Sooner or later truth will be out and as everyone knows national will blame the agency as is their policy of trying to hide truth and if not possible to hide delay as much as possible and have been succesful in hiding and delay being in power. See panama paper - first denied and delayed as much as possible before taking a U turn and plaing to take action now - giving enough time to people to either sort out at their end or to close their trust and go away to another safe heaven.

by moa man | 13th Jul 16, 11:15pm 1468408529

Speak English. Try using an adverb. Might get you a promotion even.

by moa man | 14th Jul 16, 1:14am 1468415668

http://www.cnbc.com/2016/07/13/investors-keep-record-cash-on-us-electio…

And Brexit.

Cash is King

by solardb | 14th Jul 16, 9:57am 1468447026

It would work , but my point is , Joyce or Key can just say it wont work and get a headline without even explaining why they think it wont work .

by reena | 14th Jul 16, 9:58am 1468447085

Will someone take initiative and bring out non resident data or how the housing market is dominated by one particular community - have doubts, for fear of being termed as racist and it is this fear that national is taking advantage of.

Opposition or/and Journalist should bring the truth out in open without being afraid based on factual data and if otherwise to prove it wrong and put a full stop to this debate and if correct than take action accordingly - Why is it so difficult for the national party unless are trying to cover up something.

by Robt. | 14th Jul 16, 11:43am 1468453402

Perhaps a random sample of recent buyers could be investigated (a bit more thoroughly than according to whether their names sound foreign or not) to determine their nationality. Once a robust statistic is presented the govt could find itself under pressure to find something more credible to dispute it.

by random | 14th Jul 16, 12:04pm 1468454661

I would also like to see a survey snapshot of buyers. Privacy would be an issue and obviously people could simply decline participation.

From a quick look at the numbers it seems even new residents allowed through the Investor Migrant scheme will be having an impact on prices, as per this article re Vancouver:
http://www.scmp.com/news/world/united-states-canada/article/1983336/one…

For comparison, in NZ last year 989 Investors were admitted, with at least $2.5M or $10M minimum depending on category. Ie they have a lot of money. If they all buy 1 akl property thats approx 3% of sales by number, but likely to buy far more than average house, and also likely investment property - so could closer to 10% by value?

So much basic data that is just not collected.