What happened Tuesday

A review of things you need to know before you go home Tuesday; some rate changes, primary export growth falls short, strong car buying, skill shortages & capacity constraints, swaps fall, NZD holds

4th Apr 17, 3:59pm by David Chaston

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

MORTGAGE RATE CHANGES
NZ Home Loans also followed the Kiwibank's +10 bps rise for a one year fixed rate.

DEPOSIT RATE CHANGES
The Co-operative Bank cut -5 bps from their 9 month TD offer and added +5 bps to their one year offer, taking it to 3.75%.

SLIPPING BEHIND
Our primary sector exports will reach $37.5 bln in the year to June 2017 despite summer weather impacting some production. MPI has raised its forecast and next year exports from this sector are expected to grow by +9.7% to $41 bln. But this year is likely to be more challenging for the sheep meat sector with market volatility and the UK’s exchange rate fluctuations. The Government has set itself the goal of doubling primary industry exports in real terms from $32 bln in June 2012 to over $64 bln by 2025. By today's data it looks like they are two years behind schedule.

MORE CAR BUYING RECORDS
New vehicle registration data for March was released today, although we may have to wait a little longer for the level of used imports. Following the recent trends today's data was strong with passenger vehicle sale up +12.7% above the same month a year ago with SUV's now accounting for 57% of all car sales in the month. But the star selling in the month came for commercial vehicles which reached a new all-time monthly high of 4,639. On a 12 month basis, we added 105,800 new cars, and 46,300 new commercial vehicles. When the used imports data is available, that will likely add another 150,000+ for the year. (In a typical year we scrap or export about 150,000 vehicles).

SKILL SHORTAGES & CAPACITY CONSTRAINTS
Headline business confidence slipped to a net +16% of firms expecting the NZ economy to improve over the coming six months, from a net +26% at the end of 2016. However, firms' outlook for their own trading was more positive and stable. On the inflation front is an increasing number of firms are expecting to put prices up over the coming quarter, and more firms followed through on price hikes at the start of 2017. Skill shortages and capacity constraints are quickly coming to the fore now. In fact capacity utilisation hit a record high. Investment activity is rising and some economists are contemplating higher GDP forecasts.

PLEASANT SURPRISE
The Aussies reported a much larger than expected trade surplus in February or +AU$3.6 bln, about double the level anticipated. Services were a wash, but the goods surplus was helped by gold exports in the month of AU$1.4 bln. Currency traders basically yawned however.

WHOLESALE RATES DROP
Following the unravelling of the 'Trump trade' in the US, interest rates are falling locally as they respond to falling UST benchmark yields. Wholesale swap rates are down -4 bps for two year term, and down -6 bps for five and ten year terms. The 90 day bank bill is unchanged at 2.00%.

NZ DOLLAR UNCHANGED
The NZD is unchanged from this morning at 70 USC. On the cross rates, against the AUD and EUR we now trade at 92 AUc and 65.6 euro cents respectively. For the TWI-5 we are still at 75.1.

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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8 Comments

by Stephen Hulme | 4th Apr 17, 4:16pm 1491279404

Global debt rose to 325 percent of the world's gross domestic product in 2016, totalling $215 trillion, an Institute for International Finance report released on Monday showed, boosted by the rapid growth of issuance in emerging markets. Read more

The head of the International Monetary Fund has issued a stark warning that living standards will fall around the world unless governments take urgent action to increase productivity by investing in education, cutting red tape and incentivising research and development.

She highlighted a poor global record on productivity growth in recent years and said IMF analysis suggested GDP in advanced economies would be about 5% higher today if the pre-crisis trend had continued for total factor productivity growth – a broad measure of what goes into production, such as research spending.

“That would be the equivalent of adding another Japan – and more – to the global economy,” the IMF managing director in a speech to the American Enterprise Institute.

Legarde warned the world could not afford to leave productivity growth in the doldrums.

“Another decade of weak productivity growth would seriously undermine the rise in global living standards. Slower growth could also jeopardise the financial and social stability of some countries by making it more difficult to reduce excessive inequality and sustain private debt and public obligations.

“Leaning back and waiting for artificial intelligence or other technologies to trigger a productivity revival is simply not an option.” Read more

by Yvil | 4th Apr 17, 4:29pm 1491280142

Wholesale swap rates are down again, surely NZ interest rates are about to follow suit... lol

by THE MAN 2 | 4th Apr 17, 5:10pm 1491282605

I thought that U.S. Interest rates are meant to be going up?
We keep getting told this, but doesn't appear to be happening and it won't!
U.S. Can't afford to have higher rates, and they know it.
The Banks here have been fractionally moving rates up to entice the borrowers to lock in long term.
Interest rates are still lower than they were 2 years ago and on the face of it I still beleive that rates won't hit 6 per cent again for 1 or 2 year fixed as Imhave stated previously, but was rubbished by some!!!!!!

by Andrewj | 4th Apr 17, 5:25pm 1491283533

cheap interest rates are leading to poor use of credit, mainly in housing bubbles. Shit happens.

by Leverageup | 4th Apr 17, 6:15pm 1491286531

Hello TM2. Just thought I would try and help clarify a few things for you. Interest rates are very broad, both in terms of the underlying instrument and term. In the case of the article above, it is refering to long term (10 year) rates. Despite falling recently, they have risen significantly from their lows in July last year of 1.2ish %, practically doubling! On a long term instrument this is a truly massive move, that generally will fluctuate less than short term (less than 3 years).

Maybe it continues to come back, but people will often talk about short term rates (fed reserve rate most common) going up.. which is going up and the market expects to continue to go up.. another 2 hikes this year are priced in.. which means a fed funds rate not too far off NZ's OCR. I think this will happen.

In terms of your thoughts around the banks moving rates up to entice borrowers to lock in that is entirely false. If anything, the bank wants as many ppl as possible on floating as that is where they get the best margin. Rates have risen because underlying swaps and costs of funding have risen. Have a look at the graphs on this site for the moves in the first, and you only need to look at deposit rates to get an idea of the cost increases in the latter. The majority of NZ'ers lock in for 1-2 years, and as this is the most competitve space the margin can get as low as 0.80% which is very low internationally (the new zealand banking scenes net interest margin (ie the banking systems business margin and measure of how competitve it is) is also low in comparison to banks globally.

As far as your comment about rates not hitting 6% again for 1 or 2 years, you could well be right. But my general view about making sweeping "we will never see" comments is foolish as no one knows. There could well be a point in time where rates are higher, in which it would be cause for celebration. The economy would be going well, and capital would be allocated more efficiently (less speculative housing purchases for example). Do i think this is going to happen, probably not.. but never say never.

by Stephen Hulme | 4th Apr 17, 6:54pm 1491288856

There could well be a point in time where rates are higher, in which it would be cause for celebration. The economy would be going well, and capital would be allocated more efficiently (less speculative housing purchases for example)

Exactly, economic growth opportunity returns will force investors to forgo rental accommodation rewards and sovereign bond coupon payments.

Nonetheless, those invested in a continuation of the status quo can only defend higher interest rates as an opportunity, despite the risk of capital cost for greater fools.

Australia’s biggest banks would find new demand for their debt if the country loses its top credit score.

That’s the view of Eva Zileli, head of group funding at the nation’s fourth-largest lender by market value, National Australia Bank Ltd. Australian banks receive sovereign support for their credit scores and while a downgrade of the country’s AAA rating would force lenders to pay more to tap debt markets, it would also deepen their investor pool as higher-yielding paper lures new investors, she said.

“Fundamentally, the risk profile of the banks hasn’t changed but now we’re offering a greater return,” Zileli said. “I think that will actually bring more interest into the Aussie domain.” Read more

by THE MAN 2 | 4th Apr 17, 7:42pm 1491291723

Leverageup, you made some points that on the face of it is fair.
However, I firmly beleive that there is no way that the U.S. Is financially prepared for much higher rates as it would severely dampen any growth into the future and as we all know they are so highly indebted as a country.
They also have a problem with welfare due to the size of the population and expenditure.
Yes rates here have gone up slightly over the last 6 months but as I have stated they are still lower than 2 years ago.
Recently fixed 2 loans at a rate approx. .65 per cent lower than previously.
Should rates happen to go much higher then there is obviously high inflation, and things are going great but can't see that in the next few years or ever to be honest!!!!

by J.C. | 5th Apr 17, 12:25am 1491308744

Should rates happen to go much higher then there is obviously high inflation

Nope. Not necessarily. Don't assume that the cost of debt for the punters and home buyers is solely dictated by overnight cash rates or by monetary policy.