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A review of things you need to know before you go home Thursday; no rate changes, dairy payout risk, micro businesses upbeat, steady rental inflation, growth to continue, swaps up, NZD down

A review of things you need to know before you go home Thursday; no rate changes, dairy payout risk, micro businesses upbeat, steady rental inflation, growth to continue, swaps up, NZD down

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

MORTGAGE RATE CHANGES
No rate changes today.

DEPOSIT RATE CHANGES
None here either today, so far at least.

O'OH
Dairy analyst AgriHQ's milk price forecast for the 2017-18 season has plummeted to $6.36/kg of milksolids (MS) as the outlook for dairy commodity prices has dropped since the forecast was last calculated. The $6.36/kg MS forecast is 24 cents lower than the milk price forecast calculated by AgriHQ a fortnight ago. And it is 39 cents lower than Fonterra’s current forecast for the 2017-18 season of $6.75/kg MS.

STILL FEELING GOOD
Business confidence among small firms eased in September but remains respectable, according to ANZ’s quarterly Business Micro Scope survey. A net +14% of small businesses – down from +17% in the June quarter and +17% in the September 2016 quarter – say they are confident about general business conditions for the year ahead. Within this group, micro firms (0-5 employees) slipped by 4 points and intermediate-sized businesses dropped by 2 points. The ANZ composite measure – a key proxy for growth based on firms’ own activity outlook, hiring, investment and profit expectations – eased slightly to +20, but that’s still elevated. It was +15 a year ago. The composite measure for the agricultural sector lifted to historic highs.

A SIGN ?
The Housing Industry Association of Australia is reporting that “Recent interventions by the government, through APRA, to curb growth in investor activity may have improved affordability for owner-occupiers," as it overall unaffordability appears to have peaked. The improvement is very slight however.

RENTAL INFLATION 'STEADY'
Infometrics is reporting that nationwide rental inflation remained relatively steady, at +4.6%, in the September quarter. Although there are some pockets of rental strength around New Zealand, the average figure across the entire country is being kept down by subdued rental inflation in the Auckland metropolitan area of +3.3%. Even with house price growth slowing, yields are still coming under some downward pressure, they say. Their monitoring of the number of properties let shows them down more than -20%.

GOOD PROSPECTS BEFORE CHALLENGES ARRIVE
Infometrics is also reporting that better growth in 2018 will just be a prelude a more challenging next decade. Infometrics’ latest forecasts show the New Zealand economy still has more gas in the tank for 2018, despite the slowdown of the last 12 months and suggestions from some analysts that all the economy’s key drivers have already peaked. Infometrics’ Chief Forecaster Gareth Kiernan points to a buoyant export sector, increased government spending, and the perennial need to build more houses in Auckland as the key components of GDP growth averaging +3.4% pa during 2018 and 2019.

UP 1%
Average annual household income has risen more than +40% since 2007, increasing at twice the rate of inflation, Stats NZ said today. Over the same period, average annual housing costs increased just over +50%. Those numbers look 'sensational'. But since 2007, average annual household income is up nearly +$30,000, to reach $98,621 (before tax) in 2017. Over the same 10 years, average annual housing costs increased to $16,037. (Inflation, increased +20.2%.) The real takeaway is that households spent an average of 16.4% of their household income on housing costs in 2017, only slightly more than the 15.4% they spent a decade earlier.

TRACKING BETTER
The Aussie unemployment rate has fallen in September to 5.3% (although most other news services will report the seasonally adjusted 5.4% level). Almost +370,000 new jobs were added in the last year, a robust run of job creation. Their participation rate is 65.1%, a rate that has risen little in the past twelve months. (NZ's unemployment rate for June was 4.8% and its participation rate 70.0%.)

RIGHT ON EXPECTATIONS
China's Q3 data hasn't spoiled President Xi's coronation in Beijing this week. Their economy grew +6.8% in the third quarter from a year earlier, official data shows, in-line with expectations and below the previous quarter's growth as fixed asset investment growth slowed slightly. Retail sales rose +10.3%.

IN CASE YOU WERE WONDERING
In case you were wondering, for the past 5 months or so there is no indication of either an El Niño or La Niña weather pattern emerging. The BOM doesn't see either pattern developing soon. The angst that develops when either of these patterns develop quickly fades. We are in 'normal' and uneventful weather/climate times in later 2017.

WHOLESALE RATES INCH UP
Swap rates have risen +2 bps for all terms of 3 years and longer. They are unchanged for shorter terms. The 90 day bank bill rate is unchanged at 1.93%.

NZ DOLLAR SOFTENS
The NZ dollar is trending lower at 71.4 USc. On the cross rates we are also down at 90.9 AUc and 60.5 euro cents. The TWI-5 is still about 74.1. The bitcoin price is up +1% today to US$5,544.

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3 Comments

Property, overseas investments and shadow-banking products have all been targeted by China’s campaign to curb financial risks over the past year. What’s left?

Some analysts are betting that restrictions on other popular investment channels will lure what’s often called China’s giant ball of money back into stocks, which, despite steady gains, have seen a slow take up in volumes since a spectacular boom and bust in 2015. Chinese equity holdings will swell by up to 11 trillion yuan ($1.7 trillion) in the 2 1/2 years through end-2019 amid policies to clean up the financial system, Morgan Stanley predicts. Read more

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Currency markets moving . Has John Key been given the nod.

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Japanese exports grew by double digits for a third straight month in September, as a trade recovery underway this year showed no signs of letting up.

Highlights
  • Exports rose 14.1 percent from a year earlier (forecast +15%).
  • Imports increased 12 percent (forecast +14.7%).
  • The trade surplus was 670.2 billion yen ($5.9 billion) (forecast +556.8 billion yen).
  • Exports of motors were a big contributor, rising 19.6 percent on demand for rail car engines. 
  • Shipments of semiconductors and electronic parts rose 12.3 percent.
Key Takeaways

Recovering global demand has driven growth in Japan’s exports, supporting the nation’s domestic economy. But Japan’s trade surplus with the U.S. continues to irritate the Trump administration. In a report on foreign-exchange policies released on Oct. 17, the U.S. Treasury kept Japan on its monitoring list due in part to its goods surplus with the U.S., which Treasury said was $69 billion over the four quarters through June. At the U.S.-Japan bilateral economic talks earlier this week, U.S. Vice President Mike Pence showed great interest in a trade deal with Japan, but currency was not discussed, according to a Japanese official.

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