What happened Thursday

A review of things you need to know before you go home on Thursday; Auckland's home loan affordability problem, NZGB yield dives, tourism thrives, new infant formula powder plant, swap rates fall, NZD rises

28th Jul 16, 4:00pm 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 rate changes here either.

CITY OF BROKEN DREAMS?
Today we released the June update of our home loan affordability series. In most parts of the country, first home buyers will find buying now 'affordable' and those that did five and ten years ago have parlayed their initial purchase into an advantageous position. But that is not the case in Auckland. First home buyer households in Auckland will be financially disadvantaged throughout their lives compared to those in almost every other region.

GOVT SAVES INTEREST
The Government tendered NZ$150 mln 2033's and received bids for NZ$348 mln. But yields are noticeably lower, a -40 bps drop on average yield in just one month. There was also a considerably better coverage ratio from the previous equivalent tender. Six months ago, the yield paid for 2033s was 3.31%, today it is 2.56%.

HANDS OFF
The latest release from the RBNZ on its balance sheet today (F5) shows that in June they made no attempt to influence the level of our currency through trading in the fx markets. (And that is consistent with how they say they view the chances of any of that being worthwhile.)

WHERE OUR ECONOMY IS SHIFTING TO
Our tourism sector is going from strength to strength. MBIE released June spending detail by region and the increases over the same month a year ago are impressive. Otago led the way with $3.2 bln in spending by domestic and international visitors, an +11% increase over June 2015. Nelson increased +10% to $300 mln, followed by Auckland with an +8% Increase to $6.7 bln. In addition to Auckland and Otago, four other regions saw expenditure of over $1 bln, with Canterbury ($3 bln), Waikato ($2.2 bln), Wellington ($2.2 bln) and the Bay of Plenty ($1.6 bln) rounding out the six.

MORE NUTRITIONAL POWDER CAPACITY
A new Chinese-controlled infant milk powder plan it being built in Southland and construction will start in October. Mataura Valley Milk's new nutritional powders manufacturing plant, valued at about $200 mln is being funded by China Animal Husbandry Group. 20% of company will be held by Southland dairy farmer suppliers and a bit more than 5% by other local investors. The project will create at least 100 new jobs. China Animal Husbandry is one of China’s largest state-owned enterprises (SOEs) in their agricultural sector. The company claims the Chinese investment investment has already received OIO approval.

GENERALLY LOWER
Equities are lower nearly everywhere today. In mid-session levels, the NZX50 and the Shanghai index are both down -0.2%, Hong Kong is down -0.3%, Tokyo is down -0.7% and Singapore is down -0.8%. The only market bucking the trend is Australia which is up +0.4% so far today.

GETTING CHEAPER
We have done some work looking at the 'real' (ie inflation adjusted) petrol price. What that reveals is that the price today is the same as it was in 2005, eleven years ago. And that is despite taxes rising from about 60c/l to about 90c/l today over that period, a nominal +50% jump. This helps explain some of the deflationary pressure on the CPI from the tradeables sector. Over that same period, our data shows take-home pay has risen +34%. In nominal terms, petrol (including the tax increases) has risen just +21%.

SWAP RATES FALL
Wholesale rates fell by -1 bp at the short end, and by -4 bps at the long end. These moves just canceled out all of yesterday's gains and we are back to where we were on Tuesday. NZ swap rates are here. Ditto the 90-day bank bill rate which is down -1 bp to 2.28%.

NZ DOLLAR RISES
The NZD is currently at 71 USc, 94.5 AUc, and 64.1 euro cents. The TWI-5 is now at 74.8. These are the highest we have seen the Kiwi dollar in two weeks. Check our real-time charts here.

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

Daily exchange rates

Select chart tabs

Source: RBNZ

Source: CoinDesk

We welcome your comments below. If you are not already registered, please register to comment

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

17 Comments

by Stephen Hulme | 28th Jul 16, 4:56pm 1469681786

Over that same period, our data shows take-home pay has risen +34%. In nominal terms, petrol (including the tax increases) has risen just +21%.

Nonetheless, the RBNZ claims, on behalf of Stats NZ, the general decline in wages' purchasing power was 30.5% over a similar period. View details

by Stephen Hulme | 28th Jul 16, 6:05pm 1469685951

The Government tendered NZ$150 mln 2033's and received bids for NZ$348 mln. But yields are noticeably lower, a -40 bps drop on average yield in just one month.

It should be noted the mid-price IR swap quote was a mere ~9bps above the tender yield for this issue. Are we about to witness another market maker balance sheet dislocation where unsecured semi annual BEY conversions of zero coupon FRA stack quotes sport a better credit rating than term government debt?

by SpaceX | 28th Jul 16, 6:59pm 1469689160

I love how you are celebrating more of our factories being owned by the Chinese.

by sharetrader | 28th Jul 16, 7:12pm 1469689935

the 25% local ownership will be watered down through equity raising as they need to expand

by Kakapo | 28th Jul 16, 7:17pm 1469690260

Why are the people who foam at the mouth about Marxism so strangely silent when it's the means of production being taken over by an oppressive totalitarian Communist government?

by PocketAces | 28th Jul 16, 7:43pm 1469691792

Because its their pockets being lined and they figure once said pockets are lined they won't have to, personally, kow tow to said totalitarian regime. It's just too bad for anyone else coming along behind, is all.

by Sheep Shagger | 28th Jul 16, 10:10pm 1469700646

Agree with the sentiments. While the initial capital spend will be good for Gore what are the long term consequences? It means Edendale will be running at less capacity and the net gain of jobs might be not that many to the region as a whole. As CO has alluded, the environmental constraints now hitting Southland make extra milk flow from additional dairy conversions or intensification difficult. While the value add of infant formula is a good thing if the profits thereof are then syphoned offshore where is the gain for NZ inc in that?

by Penguin | 28th Jul 16, 8:08pm 1469693337

BREXIT boost for NZ?

http://www.bloomberg.com/news/articles/2016-07-28/brexit-just-made-aust…

by Stephen Hulme | 28th Jul 16, 10:16pm 1469700980

Along with some downside.

British lamb could be back on the US market by early next year, ending a two-decade ban on British red meat imports, the UK government has said. Read more

by Ralph | 28th Jul 16, 10:01pm 1469700112

"First home buyer households in Auckland will be financially disadvantaged throughout their lives compared to those in almost every other region"

This is over stated in at least two ways.

Firstly, there is no evidence presented that the current state of affairs is proof of its continuing circumstance for the rest of their lives, "throughout their lives", is quite a long time to predict the future. If the editors have found magical powers to see into the future then, of course, I bow to what would clearly be superior knowledge, and understand fully why they might not share the existence of such future predicting skills with the rest of us.

Secondly, are we talking of "disadvantage" in the singular sense? I am sure, if one tried hard enough, every person could think of some way they are singularly disadvantaged, by birth, by circumstance, by stupid choices in life; the list is presumably endless. However, if we were to talk about a *net* position, fully weighing all advantages against all disadvantages the situation might look quite different. Maybe violently so. Auckland is, as is evidenced by statistics laid down for our guidance, the largest economic centre in NZ, by which it qualifies itself as the largest employer. Without extrapolating too far one might suggest this means there are more job opportunities in Auckland than, say, just for comparison, Gore. Can one go so far to moot that the advantage of actual employment might outweigh the disadvantage the long term goal of owning ones own place of dwelling? After the mortgage is paid off of course; one must never forget let the death grip.

I do realise that the cultural mood of our time is that we must all be "victims" of some thing or other and that idea of "advantage" outside the hated and mythical beast, called "the 1%" (of which we, being all the living, must represent in absolute historical terms), may be of natural abhorrence, and so may be disinclined to acknowledge the idea of "advantage" at *any* level.

So I just put it out there. So to speak. As a suggestion. To the minority. The idea that David's statement is bollocks.

I also acknowledge David's point is quite possibly positioned as, what we now might call, "trolling". Not an intellectual position as such, which he has any investment in, but which is for the purposes of 'selling newspapers'. Or 'clicks' online for advertising revenue. Which appears to be the modern equivalent.

What a place our world has become.

by Ralph | 28th Jul 16, 9:25pm 1469697942

P.S. Thanks David. God only knows how you manage this day in and day out.

by murray86 | 29th Jul 16, 7:06am 1469732770

Ralph, you're being unfair. firstly it is not David's statement but a summary of an article on this site by Greg Ninness. Secondly, I feel the statement is quite reasonable, based on a reasonable expectations that wages will follow past historical trends and that having burdened oneself up with debt by buying a first home in AK, the cost of servicing that debt will effectively limit all other activities in life, until the house is sold, and if the bubble bursts, beyond it.

Your criticism delineates your own bias's.

by Ralph | 29th Jul 16, 5:08pm 1469768926

Apologies to David personally, it is Greg statement I do not agree has any weight.

Neville Chamberlain thought he had a "reasonable expectation" his country would not go to war with Germany.

Alan Greenspan thought it a "reasonable expectation" the real estate market would self correct without impact on the wider market.

The limits to reason are in the assumptions that reasoning makes. Which is why it is so important to state those assumptions in support of statements claiming to predict the future.

Given my criticisms were both technical, that is to say no supporting evidence (or assumptions) were presented to support the statement and the use of the concept of disadvantage was so narrowly applied it was unbalanced I can't see what particular bias you refer to. I am bias toward rational argumentation that offers supports to the statements presented. If you can't state your own assumptions or follow your own logic then, yes, I put less weight on your 'argument'. I would go so far as to say, if you don't have any supporting statements then it's not actually even an argument.

Simply stating a thing does not make it true.

You will also point out I did not say the statement was incorrect, I said it was over stated.

by linklater01 | 29th Jul 16, 8:28am 1469737705

Ralph,

Since you have used the word, I feel able to use it as well-bollocks. Most of your post is a barely intelligible mish mash;eg. "one must never forget let the death grip". What on earth does that mean?

It is a fact that in Auckland, the median house price is 10 times the median income and that is among the highest(worst) in the world. That automatically excludes a significant and growing part of the population from EVER owning their own home.

by Ralph | 29th Jul 16, 4:44pm 1469767480

The reference is to the etymology of our english word Mortgage. Old French mort is from Vulgar Latin *mortus "dead," from Latin mortuus, past participle of mori "to die", + gage "pledge".

Or literally a 'death pledge', paraphrased by me to death grip..

by Roger Witherspoon | 29th Jul 16, 4:50pm 1469767840

There was I thinking it meant The Hand of Death.

by Ralph | 29th Jul 16, 5:10pm 1469769042

A similar sentiment perhaps Roger. - :)