What happened Friday

A review of things you need to know before you go home Friday; Westpac offers hot 3yr rate; factories humming; WMP watch, ABS confounds again, RBA stays on song, swaps soft, NZD up, bitcoin takes off

13th Oct 17, 3:58pm by David Chaston

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

MORTGAGE RATE CHANGES
Westpac has launched a 4.94% three year 'special', one that beats most rivals.

DEPOSIT RATE CHANGES
No changes here today.

SOLID SEPTEMBER
The manufacturing sector in New Zealand is in great shape. The factory PMI hit an unadjusted score of 58.3, its highest September level in fourteen years. It was also higher than for August. Driving the result were strong results for production, new orders, and deliveries. Employment scores were pretty average however (and that may be the price of rising manufacturing productivity).

THE NEXT TEST
The New Zealand derivatives market for WMP futures got a bit of a black eye at the last auction by over-signaling. It might be making the same mistake going the other way now. The latest USDA monitoring of WMP has average pricing at US$3,075/tonne which is now a -13.7% discount to European pricing and a -5.4% discount to South American pricing. However that is higher than the last auction. But the NZX market is pitching it at even lower levels and about where the last auction settled at. The next auction is due on Wednesday morning.

A DIFFERENT TAKE
The Australian Bureau of Statistics is known for its independent take of Aussie data, often infuriating its politicians, and others with a firmly held view. For example, it debunked the idea that inequality is getting worse in Australia recently. Now it is reporting that people with mortgages are actually spending less on housing now than previously. There will be some sceptical readers when they learn that in 2005-06, owners with a mortgage paid 19% of their total household income on housing costs. By 2015-16 this had fallen to 16%. The same Aussie data shows that households are entering into a mortgage at older ages. The proportion of younger households (under 35 years) represented 69% of first home buyers in 1995-96 which dropped to 63% by 2015-16.

MEANWHILE ...
In its Financial Stability Review out today, the RBA says the number of investors with five properties grew by 7.5% in one year, and the number of investor borrowers over 60 has doubled to just over 20% of all mortgages in ten years. They have "likely contributed to higher risk".

WHOLESALE RATES DOWN
Local swap rates are down -1 bp for all terms of three years and longer. They are unchanged for shorter terms. The 90 day bank bill rate is back off its low, up +1 bp to 1.93%.

NZ DOLLAR RECOVERS
"Normal service" is being restored with the NZ dollar up to 71.3 USc. On the cross rates we are up to 91.1 AUc and up to 60.2 euro cents. The TWI-5 is now at 73.9. The bitcoin price has taken off higher today and surging up to a new all-time record. It is up +17.6% in the past 24 hours and is now at US$5,691 and that is +14% above its previous record high (on September 1, 2017).

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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6 Comments

by bw | 13th Oct 17, 4:21pm 1507864862

"There will be some sceptical readers....." Indeed!
For instance:

The September US payrolls report recently produced by the Bureau of Labor Statistics (BLS) “showed” a large annual increase in Average Weekly Earnings at 2.9% – well above the 2.5% reported for August.
But sharp-eyed Andrew Zatlin of South Bay Research noted that, while the Total Private Average Weekly Earnings line for August had posted an increase of 0.2% month over month, the component parts didn’t add up to the total.
Thus, Component 1 (Goods-Producing Weekly Earnings)declined -0.8% from $1,118.68 to $1,109.92; and Component 2 (Private Service-Providing Weekly Earnings declined -0.1% from $868.80 to $868.18.
More bizarre still, the new BLS September data shows the August number as the same as July (zero increase) thus making the September number look more impressive.
I do not doubt that the Bureau will dismiss this as human error.

by David Chaston | 13th Oct 17, 5:51pm 1507870285

er, the data referred in the story is for Australia, not the US.

by Stephen Hulme | 13th Oct 17, 4:21pm 1507864873

Private equity firms doing buyouts in Australia are turning to a kind of financing used in the U.S. and Europe that gives them more flexible terms, even as it may introduce new risks for creditors.

There have been at least four deals Down Under this year where private equity firms including KKR & Co. have used so-called unitranche loans, which fuse senior and subordinated parts of traditional leveraged transactions, to finance acquisitions. Non-bank lenders typically put up the funds for unitranche debt and because there is no need to negotiate separate senior and junior facilities, deals can be done faster. There had been few such funding deals announced in Australia before 2017.

The funding structure is already popular in the U.S. and Europe, but Australia is becoming a testing ground for such transactions in the Asia-Pacific region, where deals are virtually non-existent. With banks globally facing stricter capital rules, institutional investors are playing an increasing role in providing leveraged finance to private equity firms. Read more

by Stephen Hulme | 13th Oct 17, 4:32pm 1507865573

There will be some sceptical readers when they learn that in 2005-06, owners with a mortgage paid 19% of their total household income on housing costs. By 2015-16 this had fallen to 16%.

I guess this RBNZ data is nearly comparable, other than it seems to just estimate debt service costs rather than housing costs and clearly states disposable income.

by dictator | 13th Oct 17, 10:40pm 1507887644

It's a statistic. Those with aged mortgages will be in a better position with the lower interest rates. Some of the newer and much higher mortgages will be in a more precarious position. On average we can be happy for Australia, until interest rates rise.

It's not that far different from here in that people should be taking advantage of low interest rates and low inflation to rapidly reduce debt. However as David noted the other day the wealth effect is powerful and a lot of people view debt as free money.

by profile | 13th Oct 17, 8:08pm 1507878523

Does "normal service" in the dollar reflect National led coalition?