What happened Monday

A review of things you need to know before you go home Monday; deposit rate changes; electronic card spending; ANZ monthly inflation gauge; National prices policies; Labour to build homes in Hawke's Bay; local rates up; NZD lower

11th Sep 17, 3:59pm by Suraj Varma

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

MORTGAGE RATE CHANGES
No changes to report here.

DEPOSIT RATE CHANGES
Westpac has reduced in term deposit rates from 12 months through to 5 years for the $10,000 and above tier level by -10 bps. See rates here.

ELECTRONIC CARD SPENDING
Actual retail spending using electronic cards was $4.9 bln, up +4.4% from August 2016. On seasonally adjusted basis, spending fell by -0.2% in August 2017 after falling -0.6% in July 2017. This is the fourth consecutive month of declining retail card spending, which is mainly influenced by lower fuel prices. Spending rose in four of the six retail industries, with consumables, which includes grocery and liquor, being the largest mover, up +$3.3 mln or 0.2%.

ANZ MONTHLY INFLATION GAUGE
Prices in ANZ's monthly inflation gauge lifted 0.2% m-o-m and 2.6% y-o-y. Lifts in domestic air transport made the largest upward contribution but that was purely seasonal. Housing was mixed, with purchase of housing costs rising but rents moving in the other direction. Increases in hospital and accommodation services also made positive contributions. Of the 36 groups in the gauge, 11 rose, 2 fell and 22 remained unchanged.

NZIER CONSENSUS FORECAST
The NZIER consensus forecast released today shows slightly softer growth over the coming year but upward revisions in the following years. The outlook for this year remains positive, despite some softness earlier in the year. Household spending growth has been revised up and investment forecasts have been revised up from 2018. Forecasts for employment growth have been revised down, with annual growth to be less than 1.5% by 2021. However, unemployment expectations have not been revised.

NATIONAL'S UPDATED POLICY COSTINGS
National has priced their policies, released from 12 August up until yesterday, to cost the tax payer $424 mln in the 2018/2019 year. Across the four year period, the amount allocated through their policy announcements equates to 11% or $1.98 bln of the $17.34 bln reserved for new spending in the PREFU. This would mean National are on track to reduce the Government's net debt to $56 bln by 2022 in contrast to Labour's forecast that would increase the net debt to $68 bln in 2022.

LABOUR TO BUILD IN HAWKE'S BAY
In 2016, the populations in Napier and Hastings grew by 700 but only 100 new homes were built. REINZ states that Hawke's Bay has the lowest housing supply in the country. There is a growing homeless problem in the area. The National Government knocked down more than a 100 state houses in the area and sold hundreds more, aggravating the housing crisis. Now National has had to buy motels in Napier and Hastings to use them as emergency housing. Labour will build a mix of 240 affordable KiwiBuild homes for first home buyers and state homes in Napier and Hastings, says Jacinda Ardern.

SBS COMPLETES PURCHASE OF WAREHOUSE FINANCIAL SERVICES
The Warehouse has completed the sale of its financial services business to SBS Bank subsidiary Finance Now for $18 million. The deal, for Warehouse Group Financial Services, includes Warehouse Money and Marble Finance and sees SBS/Finance Now enter the credit card market.

WHOLESALE RATES HIGHER
Local swap rates are marginally higher today with the 2 yr flat, 5 yr up +1 bps and 10 yr up +2 bps. The 90 day bank bill rate is unchanged 1.94%.

NZ DOLLAR LOWER
The NZD is slightly lower from this morning's open at 72.3 USc. On the cross rates we are at 89.9 AUc and at 60.2 euro cents. The TWI-5 is at 74.0. The bitcoin price has fallen to US$4,299.

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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35 Comments

by Stephen Hulme | 11th Sep 17, 4:37pm 1505104668

Here’s something else for policy makers to worry about as they attempt to engineer a soft landing in Australia’s property market.

The country’s lenders could be sitting on A$500 billion ($402 billion) of “liar loans,” or mortgages obtained on inaccurate financial information, according to an estimate from UBS Group AG.

A survey by the firm of 907 Australians who took out a mortgage in the last 12 months found only 67 percent stated their application was “completely factual and accurate,” down from 72 percent the previous year. The most common inaccuracies were overstating income and understating living expenses, the survey found.

These findings “suggest mortgagors are more stretched than the banks believe, implying losses in a downturn could be larger than the banks anticipate,” analysts including Jonathan Mott wrote in a note to clients dated Sept. 11. Read more

by RickStrauss | 11th Sep 17, 4:42pm 1505104961

Strewth...if savers (especially the older ones) lose part of their savings because the AU and NZ governments have allowed banks to go way beyond where they should (allowed by virtue of implicit guarantees) there will be a whole lot of trouble.

by J.C. | 11th Sep 17, 5:26pm 1505107574

Bank deposit holders in Australia are govt-guaranteed up to $200K. NZ deposit holders have zero guarantees. They're like sitting ducks in the event of a bank catastrophe.

by dictator | 11th Sep 17, 4:50pm 1505105459

I wish we had data on the default rate of the liar loans from the last time. They should have a higher than expected default rate due to missing assets, income or expenses. I'm wondering if any of the banks have a higher than expected default rate at the moment. I'm expecting that the answer would be yes but to what extent?

by Uninterested | 11th Sep 17, 6:45pm 1505112341

they could put them onto "interest only terms". Oh wait, they are already on them....

by Didge | 12th Sep 17, 6:24am 1505154265

The very situation that created the global financial crises has been duplicated in Australasia. Far too many persons in the USA thought that house prices would not drop and look how wrong they were. Perhaps it is time for cash under the mattress in NZ. Cash in an Australian owned bank does not feel at all secure. But is Kiwibank any safer from a meltdown?

by Didge | 12th Sep 17, 7:50am 1505159454

Furthermore, how many of New Zealand mortgages are liar liar pants on fire. Perhaps this is why we are seeing so much fear from specuvestor vultures.

by Conrad | 12th Sep 17, 8:26am 1505161569

I'm guessing 15-20%. Based on no particular insight other than I believe that's about the percentage of idiots stupid enough to lie about their income to qualify for a loan they can't afford.

by TainuiBabe | 11th Sep 17, 7:12pm 1505113923

Bankers only care about meeting their sales targets and their bonuses. True story.

by accountingsoft… | 12th Sep 17, 8:24am 1505161440

you have some gold right? thats why you buy it...some land.. you can turn your shares to money and into gold at a touch of a buttom cant you? If you cant you have some work to do to connect in real time.

by dictator | 11th Sep 17, 4:42pm 1505104930

An interesting comparison of the National and Labour budgets with respect to public debt.

However I'm more concerned in the uptick in consumer spending. I don't think my spending accounts for the extra billions. It's also concerning combined with the fact that consumer spending is increasing 1% faster than people's pay packets.

by Ralph | 11th Sep 17, 4:49pm 1505105393

Yes, very important in the light of the plan to fund some of the difference in budgets with more tax.

People with high levels of debt paying higher levels of tax don't add up to greater financial stability.

Assuming Labour win, it will take them at least one term in government to learn their jobs. So it would be good for NZ if there were no sizeable external shocks in that term.

by dictator | 11th Sep 17, 4:54pm 1505105683

David's investigation into where we are sitting in relation to the household debt showed that we should be a in good position. Although there are people still ending up with a mortgagee sale when we have record low interest rates.

There are plenty of factors that could tip the balance but would there be any new taxes, and if so would they matter unless people were already close to being in financial trouble? If people have Australian style mortgages with 50% of their net monthly income going on mortgage payments then any new tax might matter, especially combined with any interest rate increases.

by Ralph | 11th Sep 17, 5:09pm 1505106559

I always try to remember that another name for any government guarantee is a tax-payer guarantee. This highlights to me the system risks with large scale guarantees of tax-payers (through bank guarantees).

I think the risk of any interest rate increases would be very temporary. The greater risk in my opinion is to liquidity, to which Australian banks have significant exposure because so much of their funding is short term and off shore.

Either taxes will increase, which puts pressure on the highly indebted private sector, or public debt risks through off shore government borrowing. Either way going into any crisis with more debt is worse than going in with less debt.

by dictator | 11th Sep 17, 6:35pm 1505111758

The deposit guarantee was removed and OBR became our reality after the GFC. If anything goes badly wrong with one or more banks the bank will be bailed in at a certain percentage of deposits. If there's nothing left of the bank but the remains of the mortgage book those assets will be sold to another bank at a massive discount.

Procedures for a bank meltdown aside you're right liquidity is the big issue. If cashflow goes negative bank capital can disappear rapidly.

by accountingsoft… | 12th Sep 17, 6:53am 1505155987

entirely agree , but if there is a major event with all four majors banks the reserve bank might have to step in dont you think? And then there are the models being used by the BOJ. But our major banks are public companies and we have no history of taking the steps of buying off market securities by our own reserve bank. I think our banking system is exposed to global events and unlike japan , the ECB and the USA we have not tested any mechanisms for our reserve bank to be a on market buyer of last resort that i know of?

by RickStrauss | 12th Sep 17, 9:04am 1505163861

This essentially means banks are able to outsource the risk created via the property market onto those who hold savings in the banks, doesn't it?

by Alter Ego | 11th Sep 17, 5:57pm 1505109462

A Bank Manageress told me in no uncertain manner the other day, that the Government of the day would not allow default by any Bank.

So Savers deposits are sacrosanct.

So thank God and Praise the Lorde we are not in any Government Debt.....eh.

So the Government can handout to whoever they Like....I must get onto Facebook....ASAP.

So in plain English...that anyone can understand...Money is conjured out of plain air.....for any needs, deposits for Houses, Deposits for Savers, Deposits for any crap thing, an English Prime Moneystir can think of...

All money is as safe as houses.......just like in 2008....no repeat of GFC....no sweat equity,...no sweat at all.

So stop worrying about trivia....small deposits are better under the mattress....big uns....in any Bank with so little interest in keeping it SAFE...and Sound. An Aussie Bwanker told me...so .....so There....

by dictator | 11th Sep 17, 6:37pm 1505111828

That may be the attitude that sinks one of the banks when it all goes horribly wrong.

by TainuiBabe | 11th Sep 17, 6:57pm 1505113045

So you haven't heard about the "Open Bank Resolution" (aka OBR) policy then? John Key brought it into legislation so that in a bank failure (particularly an offshore owned bank failure), that the NZ tax payer won't have to bail out those failed foreign owned banks. It is the best piece of legislation he introduced! You can research how the banks will bail in term depositors first on our RBNZ website.

by Uninterested | 11th Sep 17, 7:00pm 1505113253

"....best piece of legislation..."
Ha
Ha
Ha

by TainuiBabe | 11th Sep 17, 7:19pm 1505114398

A tax payer bailout in the US worked well... NOT!

by kiwichas | 11th Sep 17, 10:00pm 1505124004

The OBR gives near retired baby boomers a strong motivation to buy shares or houses, using the logic that if there is a crash, my shares or house may fall by 50%, but my life's savings will be reduced by 99% if left in any NZ bank, or a number of NZ banks, as if one crashes they all will.
Obviously, inflating asset prices has the effect of encouraging an OBR event, as the further they fall, the greater the pain.
Probably why we are the only OECD country to have such a scheme, which protects the banker, not the depositor.

by linklater01 | 12th Sep 17, 8:27am 1505161666

TainuiBabe,

A real issue with OBR is that so few people know it exists and some who do,believe that a government,faced with the issue,would cave in and underwrite depositor losses.
I think that in common with almost all other countries,we should have some level of guarantee-say $25,000-andthat this should be made very clear to the NZ public.

by RickStrauss | 12th Sep 17, 9:05am 1505163936

Guess you cannot openly tell the NZ public you've enacted a law that puts their savings at risk if there's a property risk, can you? More and more people would then be motivated to move their money out of the banks.

by Uninterested | 11th Sep 17, 6:59pm 1505113160

Does your Bank Manageress have any term deposits in her own bank? Probably not.
Probably in debit playing the property market like most other bankers, real estate agents, builders, johnny come lately foreigners etc etc...

by TainuiBabe | 11th Sep 17, 7:23pm 1505114595

She is paid to sell debt and increase profits. Banks buy short term and sell long. That is 30 years "Long"!

by TainuiBabe | 11th Sep 17, 7:24pm 1505114697

LOCK and LOAD.

by accountingsoft… | 12th Sep 17, 6:49am 1505155752

new zealand has not yet shown that it is ready to follow the BOJ...

by accountingsoft… | 12th Sep 17, 6:55am 1505156103

the incoming government has no experience in such matters and would have to consult with the reserve bank,

by accountingsoft… | 12th Sep 17, 8:28am 1505161705

capital ratios were set based on the gold reserves of the banks over a long history. This was usually about 6% as being the reserve that was required in order for the bank to cover daily requirements to its customers. This has worked for a long long time but now that global markets are connected in almost real time this level of capital reserve has proved to be suspect. That is why new capital requirements are being slowly put in place and why bank stocks are swinging wildly in price as the market tries to determine there price going forward and the dividend rate they can afford to pay out while keep adequate capital reserves.

by Cowpat | 11th Sep 17, 6:46pm 1505112390

The fall in retail sales is 'influenced by lower fuel prices'. Sometimes verifying numbers rather than regurgitating paints a different picture. Pump prices up 10 percent since bottoming end of Q2. That is inflationary.

by Sanz | 11th Sep 17, 7:49pm 1505116189

The OBR is not a problem ,it's that the govt won't ring fence NZ against Aussie banks tipping over an using NZ Aussie banks to bale them out ...

by TainuiBabe | 11th Sep 17, 8:13pm 1505117596

And equally I can't find any answers to the scenario of being a New Zealand investor who may have money invested directly in an Australian bank in Australian territory. If there is a bank failure, as an offshore investor domiciled in New Zealand, am I covered by the Australian Governments Guarantee? I would suspect not. But I can't find any legislation on that ruling either!

by Ngrrk | 12th Sep 17, 6:33am 1505154830

I have been trying to find this out for some time but to no avail. Does anyone here have any information on this?