What happened Tuesday

A review of things you need to know before you go home Tuesday; NZCU Baywide tweaks rate offers, CPI tame, houses rise $344 mln/day; dairy signals good, swap rates and NZD down then recover

18th Jul 17, 3:59pm by David Chaston

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

MORTGAGE RATE CHANGES
There are no changes to report today.

DEPOSIT RATE CHANGES
NZCU Baywide reduced their six and nine month rates, and raised their 3, 4 and 5 year rates.

STILL NO PRICE PRESSURE
Flat prices in June quarter bring annual inflation rate back to 1.7% pa as cheaper petrol, domestic airfares offset rising rent, food and electricity prices. That data was lower than markets were expecting (which was north of 2%) and both the bond and currency markets reacted to the news.

MONEY FROM THE SKY
The latest valuation of all housing in New Zealand shows it at NZ$1.031 tln as at March 2017. That is a rise of +13.9% in a year, or a massive $125 bln rise in 12 months (or $344 mln per day !!). That may be a lot, but actually it is the slowest rise in over a year. More here, for perspective.

A RISE TOMORROW ?
There is another dairy auction tomorrow morning and the derivatives market is signaling that WMP prices may rise by another +2.3% on top of the +2.6% they rose at the last auction. The same derivatives market suggests SMP will fall by another -1% on top of the -4.5% at the last auction. That suggests the demand for dairy fats will remain strong, so a rise for butter and cheese may be indicated.

A GOOD DEAL?
BNZ is making a new $100 mln retail bond offer. It is for "unsecured unsubordinated fixed rate" notes which means they will rank just like retail savers. They will have a margin over 5 year swap rates of "1.06 – 1.12 percent per annum". Today's 5 year swap rate is 2.81%, so if that is the rate when it is fixed on Friday (July 21), they they will yield somewhere between 3.87% and 3.93%. Today, a five year BNZ term deposit can be had for 4.25%. Go figure. I suspect the difference goes to your trusty financial adviser and the issue managers.

LACKING TRADE CRED
In a statement of intent, the US Trade negotiator says it wants better access for US dairy products (among other targets) in its renegotiation of NAFTA. This comes with no small level of irony for TPP ex-partners because the US wanted protection for its own dairy industry. Canada conceded some of the dairy points in the TPP but will no doubt not respond well in these NAFTA re-negotiations.

IMPORTS UP, LOCAL MAUFACTURING FLAT
The new US Administration's negotiators are going to be busy if the goal is to reduce their (actually quite small) trade deficits. Cargo imports surged at American seaports in June, with gateways on the Pacific and Atlantic coasts reporting record monthly volumes at the start of the shipping industry’s peak season for demand. Total container import volume is up +5.3% from a year ago. That is sure to boost their trade deficit.

THEY LIKE WHAT THEY SEE
The RBA minutes were seen by the currency markets as 'hawkish' and the AUD has risen. Basically that interpretation hinges on the Aussie central bank seeing a positive international economic situation ahead of it, more than an expectation it will be raising rates there anytime soon.

NEXT IS US ?
Vacancy rates are rising and asking rents are falling in Sydney.

BUT NOT HERE
China’s home prices rose in more cities in June, pointing to strength in the property industry even as officials persist with curbs to limit bubble risks. New-home prices gained from the previous month in 60 of 70 cities tracked by the government, compared with 56 in May.

WHOLESALE RATES FALL
Following the weak CPI data, wholesale swap rates fell by -3 bps for both two and five year terms, and by -4 bps for ten years. Also, the 90 day bank bill rate is down again, by just -1 bp to 1.94%. Then markets had second thoughts and the drop has been pared back now to just -2 or -2 bps

NZ DOLLAR DROPS THEN RECOVERS
The Kiwi dollar also reacted to the CPI data, dropping to 72.5 before rising back close to yesterday's level. It is now at 73.4 USc which is actually higher than this time yesterday. On the cross rates have remained lower, now trading now at 92.9 AUc and at 63.6 euro cents. That puts the TWI-5 at 76.5. Bitcoin has risen today to US$2,219, up +11.2% from this time yesterday to US$1,995.

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.

12 Comments

by dictator | 18th Jul 17, 4:26pm 1500351990

Here's an example of what's happening in the Canadian property market. People are agreeing to buy a house and then trying to back out of the purchase because both the price is falling and they can't get a mortgage to cover the agreed price.

http://www.greaterfool.ca/2017/07/11/it-could-be-worse-2/

by Stephen Hulme | 18th Jul 17, 4:58pm 1500353926

Australia’s central bank said the nation’s economy was improving and estimated a neutral interest rate about two percentage points above the current record-low level. The currency soared to a two-year high.

In minutes of the Reserve Bank of Australia’s July meeting Tuesday, members said the level of the neutral real interest rate -- where output growth is at potential and inflation stable -- had dropped since 2007 to around 3.5 percent, which included well-anchored inflation expectations of 2.5 percent. The central bank added “there is significant uncertainty around this estimate.” [my emphasis]

“The RBA minutes had a pretty positive tone and they’ve thrown out this idea that the neutral cash rate is 3.5, so people are like, well we’re at 1.5 so that’s super-accommodative and so forth,” said Sally Auld, head of fixed-income and currency strategy for Australia at JPMorgan Chase & Co. In addition, “two more Republican senators have decided not to vote in favor of this new health care bill repeal, so that’s seen the U.S. dollar weaken quite a bit.”

The Aussie dollar climbed to 79.01 U.S. cents at 1:24 p.m. in Sydney, compared with 78.09 cents before the release. Traders are pricing in a more than 60 percent chance of a rate increase in May next year. Read more

I cannot help but laugh - back in September 2015 the RBNZ came out and claimed:

These estimates suggest the nominal neutral 90-day interest rate sits between 3.8 and 4.9
percent currently. The mean of these indicators is 4.3 percent. The Bank currently judges that the nominal neutral 90-day interest rate sits at 4.5 percent - within the range of estimates and close to the mean of these estimates. This implies that current monetary policy settings are expansionary, although these models highlight some emerging risk that the neutral interest rate is falling further. Read more

by Stephen Hulme | 18th Jul 17, 5:13pm 1500354799

Some officials at the Bank of Japan are increasingly concerned about the sustainability of the BOJ’s purchases of exchange-traded funds, according to people familiar with discussions at the central bank. But the chances of any change at this week’s policy meeting are low, they said, with no need for an immediate change to the program.

Concerns include the risk that the central bank could end up owning such large amounts of the free-floating shares of some listed companies in the Nikkei-225 Stock Average that it could seriously distort the market, according to the people, who declined to be identified because the talks are private. Still, they say it’s unlikely the matter will be discussed in detail at the two-day policy meeting ending July 20. Read more

By comparison the PBOC is running on the fumes of 'animal spirits'.

by Hardly | 18th Jul 17, 7:39pm 1500363580

Wow, I did not know they were doing that.

by dictator | 18th Jul 17, 7:47pm 1500364071

If you think what Japan is doing is bad have a look at China. Their central bank owns 90% of the shares on the stock market.

by Cowpat | 18th Jul 17, 5:17pm 1500355041

I crunched a few of last weeks Barfoot's auction numbers. Given they are contemporaneous and a reasonable sample of sales. Out of the 48 Auckland homes that sold, sufficient data was readily available for 42 in regards to Trade me estimates/ RV's. Of the 48 , average $981 , median $ 865 . 2 sold below RV. Only 9 sold above Trade me mid estimates. 30 sold below, 10 were 100K below. There were outliers on the other side including property at Northpark and Glen Innes. . 4 properties previously purchased circa 2015 saw the vendors come out with coffee money.

by Zombie ponzi | 18th Jul 17, 8:21pm 1500366106

Good info, thank you

by MortgageBelt | 18th Jul 17, 5:31pm 1500355873

If you're on a floating mortgage, or about to drop off a fixed term to floating, then consider switching to a smaller local bank who are now more competitive with short term fixed.
E.g. TSB 4.49 2 yr carded. Or Kiwibank 4.45% 1yr carded.
Now is the time to switch, or threaten to switch if the Aussie banks can't/won't match.

by James007 | 18th Jul 17, 6:01pm 1500357689

It is good to go to more than one bank and get offers from both - then ask each for their best offer. Don't get emotional, it is only your hard earned dollars that will pay the loan back - so go with the lowest interest rate. Don't take prisoners.

by kpnuts | 18th Jul 17, 7:14pm 1500362099

in taht happy place - have deliberately got all loans of fixed term 8 sep - sent a brief out to the banks of needs - Kiwibank first to reply - and very competitive - nothing extra on teh 1 year - but decent bits of the carded rates on teh longer terms!

by Tom Joad | 18th Jul 17, 6:01pm 1500357686

That is a rise of +13.9% in a year, or a massive $125 bln rise in 12 months (or $344 mln per day !!).

So $344 million extra collateral each day for the banks to lend against and fuel the ponzi. Then cream off a handsome profit on the mortagage repayments and export it to Australia. No wonder they've just given Sir JK a gong

We've been well and truly shafted.

by kiwichas | 18th Jul 17, 6:38pm 1500359917

With the BNZ bonds, you could sell them if you needed, but you might not be able to break your 5 year term deposit. Having said that, I don't think those bonds are a starter for many, keep us posted on the result.