A review of things you need to know before you go home Wednesday; no rate changes, housing markets turn down, commodity prices up, strong car sales, job ads high, strong LGFA tender, swaps slip, NZD holds

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

MORTGAGE RATE CHANGES
No changes to report today, so far at least.

DEPOSIT RATE CHANGES
No rate changes here either.

SURPRISE TURN
Weaker than expected prices at latest dairy auction suggest that Fonterra may be forced to drop its current milk price forecast of $6.75 for the current season. However ASB economists remain bullish.

HOUSING MARKET TURNS
House sales transaction data out today from Barfoots in Auckland shows them having the weakest September since 2008. Prices may be holding, but the level of transactions are surprisingly low. In fact, the September volumes were the lowest of any month since February. Meanwhile, QV data for September shows that prices in the Queen City are almost back to where they were a year ago. Nationally they are up +4.3% year-on-year, but prices are mostly lower than three months ago.

COMMODITY PRICE GAINS
ANZ reports: "The sun shone on the ANZ Commodity Price Index for the first time since June, with the index lifting +0.8% m/m in September (+12% y/y). All of the six major groups lifted in the month. At the sub-component level, 11 of 17 components rose, two were flat, and four fell in the month. Local returns received a +1.7% m/m boost (+13% y/y) as the NZD fell against most major peers for the second month in a row."

TOP LEVEL
There were more than 9,800 new cars sold in September, which we think is a new all-time record for that month in data going back to the 1970s. Ditto for commercial vehicles. But it seems clear that we are peaking. It will be hard for a market of our size to continue to take new cars at this rate (100,000 per year, plus another 160,000 used imports). We should expect a leveling off at these numbers; all the exposure is to the downside.

TOPPING OUT
Also plateauing at a high level are job ads. The latest ANZ job ads series indicates job ads in Auckland have fallen for five months straight and this region is almost at the bottom of the national table in annual growth terms. Labour demand is flattening off somewhat in line with the broader economy as key growth drivers such as construction, migration and tourism top out. However, the labour market remains very tight.

POPULAR TENDER
There were another $120 mln of LGFA bonds tendered today although the tenor this time is not strictly comparable with the previous tenders. But the 2020 element of the offer is, and that shows the accepted yield is virtually unchanged at 2.49% and still a very low cost of borrowing for them.

WHOLESALE RATES SLIP AGAIN
Local swap rates are down -1 bps across the board today. The 90 day bank bill rate is unchanged at 1.94%.

NZ DOLLAR HOLDS
After slipping -40 bps on the weak dairy auction, the Kiwi dollar has found its feet, climbing back to where it was at this time yesterday at 71.9 USc. On the cross rates we are slightly softer at 91.4 AUc but we are up a bit at 61.0 euro cents. The TWI-5 is now at 74.6. The bitcoin price is -2.5% lower today at US$4,310.

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4 Comments

Australia’s record of 26 years without a recession flatters to deceive. The gaudy numbers mask serious flaws in the country’s economic model.

First and most obviously, the Australian economy is still far too dependent on “houses and holes.” During part of the typical business cycle, national income and prosperity are driven by exports of commodities -- primarily iron ore, liquefied natural gas and coal -- that come out of holes in the ground. At other times, low interest rates and easy credit boost house prices, propping up economic activity. These two forces have combined with one of the highest population growth rates in the developed world (around 1.5 percent annually, driven mostly by immigration) to prop up headline growth.

Yet a significant portion of housing activity is speculative. Going by measures such as price-to-rent or price-to-disposable income, Australia’s property market looks substantially overvalued. Read more

As are the debt fabricating banks.

There were more than 9,800 new cars sold in September, which we think is a new all-time record for that month in data going back to the 1970s. Ditto for commercial vehicles. But it seems clear that we are peaking. It will be hard for a market of our size to continue to take new cars at this rate (100,000 per year, plus another 160,000 used imports).

This would be consistent with the "wealth effect" and can be described as a product of our success, depending on the messenger. It will be riding in tandem with consumer spending in the Auckland economy, which was up 4.8% yoy to June.

Party on.

Collectively, we have to gratefully accept prime land sales to benevolent foreigners, called upon to soak up excess NZD deposit accounts accumulated by international vendors of Yen etc..

Indeed it is so,