A review of things you need to know before you go home Monday; hot new mortgage rate, some TD changes, low volatility, Hong Kong demand crazy, Canada affordability terrible, swaps firm, NZD soft

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

MORTGAGE RATE CHANGES
HSBC today launched a 'limited time' 3.87% eighteen month 'special', the lowest rate for that term ever. SBS Bank has cut -16 bps off its 3 years rate. BNZ has reduced its 2 year rate to 4.69%.

DEPOSIT RATE CHANGES
SBS Bank has launched a new 7 month 'special' at 3.65%. NZCU Baywide has reset its 1 year rate at 4.00%.

RETIRING ON TOP
ASB CEO Barbara Chapman has announced she will step down at Easter 2018. She says time feels right to hand over to next generation of leadership.

TOP OF THE CYCLE
Sydney house values actually fell in September as capital gain growth continues to lose steam across the ditch. That fall was the first month-on-month for this benchmark city, surprisingly pulled lower not by apartments but by detached single-family homes. But median housing values remain 29% higher in Sydney than for Melbourne, according to the latest CoreLogic report.

TURNING POINT?
Three big immediate geo-political risks - Iraq's Kurdish region, the nuclear deal with Iran, and the crisis in Venezuela - could all come to a head in coming weeks. They are all very different issues, but could have the same consequence - disrupted markets and higher prices for oil. Crude prices have risen +25% in the past 90 days but that could be greatly increased if any of all of these pressure become extreme. The situation in Libya is volatile as well (not to mention a Trump miscalculation or any number of other things). Rises in crude oil prices are starting to show up in bond yields, reflecting an expectation of a coming rise in inflation.

DATA ANTICIPATION
This week we have another dairy auction and the derivative market signals are generally positive. We will also get the US non-farm payrolls report for September, a traditionally reliable data signal after an unreliable August. But markets are expecting a gain of only +77,000, less than half the +156,000 rise in August, due almost entirely to the impacts of their various hurricanes. There is plenty of room for market surprises. Tomorrow locally we get the next update on the NZIER quarterly survey of business opinion which has been strongly positive for a long time. The RBA will also review its policy rate, but no-one expects any changes (they do this review far too often over there).

COOL, CALM, COLLECTED
September brought the lowest level of market volatility ever for a September, and the second lowest for any month ever after July. In fact, four of the five lowest volatility months ever have occurred in 2017. We may talk like things are unstable, but markets are acting otherwise. This is a quiet, stable time for western economies with few surprises unsettling investors.

SUPPLY & DEMAND
A giant crush of 13,700 desperate would-be buyers registered for a chance to purchase one of 403 flats in Hong Kong. That's a coverage ratio of 34:1. The average price of a property in the development is over HK$14,000 per sq ft. (NZ$232/m2 leasehold.) If housing supply is not addressed in Auckland, is this our future? Or is this just a reflection of Chinese real estate gambling mania?

WDKHLWA
In Canada, housing affordability is tough, and remarkably tougher than New Zealand (where only Auckland has the issue). The latest update of the RBS affordability measure (pre-tax household income to the mortgage payment) shows that Vancouver is at 80.7%, Toronto at 75.4% and the average national level at 46.7%. These levels are rising. And that is after some well-publicised efforts (including attempts to tax foreigners hard) - which appear to be failing badly. The only areas where it is reasonable are their economically depressed regions.

WHOLESALE RATES UNCHANGED
Local swap rates are essentially unchanged today after a few days of strong rises, but a little bit of firmness is creeping into the long end. The 90 day bank bill rate is down -1 bp, back to 1.95%. (The Aussies are on holiday today; the Americans are still on Sunday.)

NZ DOLLAR SOFT
The Kiwi dollar has started the weka with very low volumes and an air of softness. The NZD is now at 71.9 USc. On the cross rates we are slightly softer at 91.9 AUc and at 61.1 euro cents The TWI-5 is now at 74.6. The bitcoin price is up +5.3% from Friday and now at US$4,412.

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9 Comments

Have you got an NZ spell checker on your computer?

Three big immediate geo-political risks - Iraq's Kurdish region, the nuclear deal with Iran, and the crisis in Venezuela - could all come to a head in coming weeks. They are all very different issues, but could have the same consequence - disrupted markets and higher prices for oil.

It would seem China has anticipated the possibilities and is building domestic infrastructure to offset the risks.

China’s independent refiners burst onto the international oil market scene only a couple of years ago and lifted the nation past the U.S. as the world’s No. 1 crude buyer. Now, a new generation of firms building some of the globe’s biggest plants are threatening to eclipse them. Read more

Furthermore,

For the fifth consecutive month, Russia remains China's top crude oil supplier with July shipments up 54 percent year-on-year.

China bought 4.97 million tons, or about 1.17 million barrels of oil per day (bpd) from Russia last month, according to the General Administration of Customs.

For the first seven months of the year, Russian crude sales to China surged nearly 16 percent year-on-year to 34.22 million tons, or 1.18 million bpd. Read more

New listings on Trademe seem to be roaring into life, though not enough to accommodate the 13,000 in Hong Kong that will be turning up shortly.

The latest update of the RBS affordability measure (pre-tax household income to the mortgage payment) shows that Vancouver is at 80.7%

What is the ratio of after tax household income to mortgage repayments ? Must be approaching 100% which raises some issues of affordability I would have thought.

Possible issues across the ditch noted here.

Holy crap!!!!! That's some ugly data.

"About half of Americans are not able to come up with $2,000 in 30 days, which means that they stand only one emergency or crisis away from really quite dire circumstances. This isn’t picked up in the national economic statistics; this is picked up at a much more local level, at a much more intimate level of what happens inside families."
http://freakonomics.com/2010/11/18/is-america-ready-for-a-no-lose-lotter...

Here's a link to the actual research. In NZ, we don't seem to have data to indicate how much cash at hand they have in the short term.

https://www.brookings.edu/wp-content/uploads/2011/03/2011a_bpea_lusardi.pdf

Using the Canadian comparison for housing affordability is mystifying. Using Fred Dagg or confusing the RBC ,with some other entity,adds another layer.. Is it any wonder New Zealand has such a significant proportion of interest only loans.