Here are the key things you need to know before you leave work today.
MORTGAGE RATE CHANGES
NZ's largest home loan lender - ANZ - has raised rates for almost every term, including a +10 bps hike of their floating rate. HousingNZ also raised fixed rates today, but these remain well below those offered by ANZ.
DEPOSIT RATE CHANGES
ANZ also raised a few selected longer term TD rates, while cutting a few short term rates minorly.
MANUFACTURERS HAPPY
The BNZ-BusinessNZ's December PMI still finished off the year at 54.5 and well above its long term average of 53.2. It caps off a positive year for the manufacturing sector where the PMI averaged 56.0. Indeed, since the survey started in 2002, last year’s average has only been surpassed by 2004’s 57.5. The positive sentiment is supported by the latest QSBO from the NZIER where most key manufacturing indicators were above long-term averages (and even more so for the economy wide indicators).
CONSUMERS EVEN HAPPIER
Consumer sentiment rose impressively in January, according to the ANZ-Roy Morgan survey. A lift is typical for this time of year, but it’s more than that – the index is at its highest since April 2015. Economic momentum appears to have started 2017 on a similar footing to how 2016 ended – strongly. Inflation expectations rose, while house price expectations fell.
ENDING THE YEAR ON A HIGH
November residential building consent data was out today and these revealed a big jump in Auckland housing consents which pushed up the national totals to an 11 year high. For Auckland, it was a 12 year high. The strongest rises were for townhouses, followed by consents for apartments. Consents for houses remained on an upward track.
A BUMP IN THE ROAD
The value of non-residential consents in November was $411 mln, -23% lower than November last year. Results for the December quarter are coming through weaker than expected. But given that the economy is still accelerating, analysts are still expecting positive growth in non-residential building consents in the months ahead.
HIGHER RATES HIT GOVT BORROWING
Today's Government bond tender brought noticeably higher yields - despite less interest from bidders. The average weighted accepted yield was 3.13%, up from 2.88% at the last event, reflecting the recent rise in global yields, and the highest these 2025s have ever yielded.. However the coverage ratio dropped significantly with a low average bid size.
SOME GOOD, SOME BAD IN AUSSIE
Across the ditch, the Australian jobless rate rose slightly above expectations in December, rising to 5.8% on November's 5.7% level. That's its highest level in six months. However, at the same time, more new jobs were created than was anticipated, adding 9,300 full-time roles and 4,200 part-time positions. Their participation rate inched up to 64.7% (NZ's is at 70.1%.)
AIR NZ EXECUTIVE TO BE HEARTLAND'S NEW CFO
Heartland Bank has named David Mackrell as its new chief financial officer. He joins on February 15 from Air New Zealand where he has been deputy chief financial officer. Mackrell succeeds Simon Owen whose departure was announced before Christmas.
BAYCORP MANAGER SHIFTING TO THE WAREHOUSE
Donna Cooper has been named CEO of The Warehouse Group Financial Services Ltd, effective March 13. Cooper is currently general manager of Baycorp NZ and has previously worked for American Express. Cooper is effectively replacing Hadyn Halls, chief operating officer of the business, who is leaving.
WHOLESALE RATES RISE, STEEPEN
Following a good rise in UST benchmarks (pushed by strong US CPI data, and a key Yellen speech), our wholesale rates have jumped today in a strong steepening bias. The one year is up +1 bp, the two year is up +4 bps, the five year is up +6 bps and the ten year is up +8 bps. The 90 day bank bill is unchanged at 1.99%.
NZ DOLLAR HOLDS HIGH
Our currency has eased off yesterday's highs but is still strong. The NZD is now at 71.3 USc. On the cross rates, we at 94.9 AUc, and at 67.1 euro cents. The TWI-5 index is at 77.2. Check our real-time charts here.
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2 Comments
Following a good rise in UST benchmarks (pushed by strong US CPI data, and a key Yellen speech), our wholesale rates have jumped today in a strong steepening bias.
Hmmmm...
It is oil that drives the CPI more than any other factor, and the subcomponent for energy prices rose 5.4% in December. That was the highest gain since February 2012, as the base level for the current measure is now at the lowest points of the past few years.
The problem for extrapolating CPI inflation pressure as a matter of economic analysis and monetary policy is obvious, as that would mean an overemphasis on oil (which is one reason the Fed prefers the PCE Deflator to the CPI). In terms of oil prices alone, the effect on the CPI is still looking to be fleeting more than durable. The WTI futures curve not only remains in a noticeably narrow range, the outer years have coalesced very tightly around $55. Read more
ANZ made a similar observation - "But these factors are expected to be increasingly usurped by traditional demand-pull forces and the simple mechanics of falls in oil (petrol) prices being replaced by increases. Read more
Yellen said: - As you may know, the interest rate that we target is the federal funds rate, the rate banks charge each other for overnight loans.
The Problem With Fed Funds
The fed funds market is an overnight market for non-collateralized bank lending. Participants include banks, thrifts and the GSEs. The size of the market has shrunk considerably since the beginning of the financial crisis – from trading around $200 billion a day in 2007 to about $60 billion a day in 2012 and down to $40 billion recently. One reason for the dramatic drop in volume is the IOER. When the Fed started paying an above market rate for excess bank reserves, cash naturally moved straight into the Fed. However, not all fed funds market participants have access to the Fed. The Federal Home Loan Banks (FHLBs) are left out and stuck in the fed funds market, while the other banking institutions can deposit cash directly at the Fed. That leaves the cash lending side of the market dominated by the FHLBs and the borrowing side dominated by foreign banks. Shockingly, much of the foreign bank volume is attributed to the arbitrage between the fed funds market and the IOER – borrowing cash in the funds market and depositing it at the Fed; earning a spread in the process. Read more
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