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A review of things you need to know before you go home on Friday; no rate changes, factories expanding solidly, no food inflation, no credit stress, linkers spike up, swap rates jump again, NZD down

A review of things you need to know before you go home on Friday; no rate changes, factories expanding solidly, no food inflation, no credit stress, linkers spike up, swap rates jump again, NZD down

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

MORTGAGE RATE CHANGES
Banks are keeping all the OCR cut this time. They [rightly] claim the RBNZ doesn't mind; Wheeler said so explicitly, yesterday.

DEPOSIT RATE CHANGES
All quiet on this front too.

THE EXPANSION GOES ON & ON
Manufacturing in New Zealand is still expanding very solidly. That's 19 consecutive months of expansion. And that is despite the elevated currency level, which has a minority of them endlessly complaining. In fact, although 'new orders' were a little softer this month, manufacturers' opinions about their business is strong enough to record their highest employment intentions in almost a year, and their highest employment intentions for an October in almost two years.

NO PRESSURE I
Food prices increased +0.6% in the year to October 2016, influenced by higher prices for restaurant meals and ready-to-eat meals (up +2.0%) and fruit and vegetables (up +1.2%).

NO PRESSURE II
The level of credit stress as measured by bankruptcies and NAPs was unusually low last week, low even by the low standards of recent months. In fact, we haven't seen levels this low in 19 weeks. (Of course, rising interest rates might change that ...)

LINKER YIELDS SPIKE HIGHER
Today's tender of $100 mln worth of 2035 NZ Govt inflation-linked bond attracted some heavy bidding with the issue being covered over 4.5x. The weighted average accepted yield rose sharply from 1.90% at the last tender to 2.25% today. That is +7 bps higher in just one day. Westpac in their pre-tender note expected solid interest in the tender for a number of reasons, none of which is the relative attractiveness of NZ's real yields and the fact that our real yield has cheapened against the likes of the US and UK equivalents.

A SMALL GAIN
There is a desperate shortage of hotel rooms in Auckland. Many motels and hotels have been converted to apartment housing to address the residential pressure, and that has left tourist accommodation very short. (Thank heavens for AirBnB.) Now a 19-level office tower in Auckland CBD is to be converted into a 250-room, internationally branded hotel. The strategically positioned property on the corner of Queen Street and Mayoral Drive - formerly the location of the popular Queen’s Head Tavern – has been purchased by The Russell Property Group and associated investors for the purpose of conversion. But of course, that will leave second-tier office space even shorter, and that type of space has also seen many conversions to residential.

WHOLESALE RATES UP YET AGAIN
Another day, another sharp rise in longer term rates with the curves steepening sharply. Today they are up +4 bps for 2 years, up +11 for 5 years, and up +13 bps for 10 years. The 1-5 curve is now +66 bps, its steepest since June 2014. The 2-10 curve is now +98 bps, its steepest since April 2014. The speed of this change is surprising traders. The 90-day bank bill is down -1 bp to 2.08%.

NZ DOLLAR SOFTENS
The Kiwi dollar is now at 72.1 USc which is about 1c lower than this time yesterday. On the cross rates, it is trading at 95.1 AUc, and is at 66.1 euro cents. The TWI-5 is at 76.5. Check our real-time charts here.

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3 Comments

But of course, that will leave second-tier office space even shorter, and that type of space has also seen many conversions to residential.

In a property boom where every other large city in Australasia constructs apartments, office space and hotels at record rates.

Auckland City has a policy of inflicting the highest possible land costs to strangle the life out of constructive development in Auckland. Land supply restrictions, the gift that keeps on giving - giving away our future to Sydney, Melbourne, Brisbane, Tauranga.

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More mention of NZ as a home in the Washington Post.

https://www.washingtonpost.com/news/worldviews/wp/2016/11/10/after-trum…

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I would just like someone to explain to me why our interest rates should be so much higher than overseas?

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