Here's my summary of the key events from over the weekend that affect New Zealand, with news the Aussies may have under-estimated the trouble interest-only mortgage lending may create.
But first, a US Fed survey in October 2016 and just published over the weekend found that most American consumers were doing better financially, but one group, adults without any college education, lost ground for the first time in three years. Another more recent survey for 2017 shows that things have improved from there, and the pace of improvement is quite remarkable, with some key anxieties falling by as much as 10%.
In Vietnam overnight Asia-Pacific trade ministers have agreed to resuscitate the Trans-Pacific Partnership trade deal, despite the US pull-out. Ministers from the 11 remaining countries are planning implementation by November this year which will bring tariff savings of over NZ$200 mln per year. One estimate by Japan says the deal without the US will increase New Zealand’s GDP by +3.4% and is worth an additional NZ$2.5 billion to our economy after 10 years. The US was at the same APEC meeting and reports are that the issue brought a "heated" exchange between them and the other members, especially over the new American view of 'protectionism'.
In Australia, their embrace of interest-only home loans is facing a fast and potentially painful reversal. APRA flagged the issue in March and now the main banks are implementing the reversal. The core shift is requiring at least 20% equity which will stress many borrowers who took out their loans recently. A respected Melbourne institutional investor, JCP Investment Partners, has warned that "Irish-style housing losses" for the bigger-than-recognised pool of riskier borrowers could wipe out half of the banks' equity capital.
In New York, the UST 10yr yield was unchanged at the end of last week at 2.24%. In China, the rate inversion for their Government bonds has gotten steeper with their five year now at 3.69% and their ten year at 3.64%. This is market inversion signal is that trouble is coming. (Just prior to the GFC, New Zealand had a similar inversion.)
The price of oil is firmer today by more than US$1. The US crude benchmark is now just under US$50.50 a barrel, while the Brent benchmark is just under US$53.50. The US rig count is now over 900, its highest in two years. It had gotten as low as 404 a year ago. Rig counts in the rest of the world are rising too.
Gold is up today by US$6 to US$1,252/oz.
The Kiwi dollar is a little higher today and is now at 69.3 USc. On the cross rates the Kiwi is at 92.9 AU¢, and 61.8 euro cents. The TWI-5 index is at 73.5.
If you want to catch up with all the changes on Friday, we have an update here.
We should also note that on Friday night, our own editor, Gareth Vaughan took out the award for best business reporting at the 2017 Canon Media Awards as the Business Journalist of the Year.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».