A review of things you need to know before you go home on Wednesday; six year low house sale volumes, food prices up +2.3%, teachers win more funding, LGFA gets strong demand, swaps and NZD stable

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

No changes to report here.

No changes here either.

As per the November figures from REINZ, the number of homes sold, at 6283, was at its lowest level for a November since 2011, down -9.2% year-on-year. There were some pockets of solid growth in the provinces. But in Auckland, the number of homes sold was down -16.7% year-on-year to 1910. While the volumes were down, prices generally held with the median prices at $540,000, up +10% compared to October 2017 and just below the March peak of $542,500. In Auckland, median prices were $880,000, down -$25,000 since March 2017.

Overall food prices were up +2.3% year-on-year, pushed up by substantial increases for fruit and vegetables (+6.4%). Annual rises have been above +2% for seven consecutive months now, but this follows six years of increases that averaged only +0.4% pa. 

The Government has prioritised $9.5 mln to address immediate pressures in the teaching system and promised to consider the need for further initiatives in Budget 2018. The Government says this funding will support more graduates into permanent teaching positions, support experienced teachers back into the profession and recruit new graduates into teaching.

The average remuneration increase for Public Service chief executives in the 2016/17 year was +2.0%. The average increase for Tertiary Education Institution and District Health Board chief executives was +2.7%. The average increase for Crown Entity chief executives was +4.1%. Over the same period the average salary increase for Public Service staff was +2.2%. For the first time the Commissioner has identified Crown entity Boards that chose not to follow the Commission’s advice and gave remuneration increases above recommended levels: Guardians of NZ Superannuation, ACC and Telarc. The Government has signaled that changes to legislation may be required to curb the high pay levels of some State sector chief executives.

The LGFA tender issue #52 saw a different mix of bonds being offered today and these were met with strong demand, with a weighted average coverage ratio of 3.9x. The April 2025 (which did not have sufficient demand at the previous auction) had a coverage ratio of 4.6x. The weighted average accepted yield for the issues ranged from 2.33% to 4.26%, with the weighted average for all issues reading at 3.34% (2.92% at the prior auction.)

In Australia, Fonterra as increased its milk payout for their 2017/18 season by +AU$0.10/kgMS, taking the average milk price to AU$5.62/kgMS, and "incorporating changes to seasonal curve and milk composition". At today's exchange rate, that is NZ$6.13/kgMS and compares to NZ$6.40 it is paying its NZ suppliers. (NZ shareholders get a dividend on top of this.) At the same time Fonterra Australia "has also revised its forecast closing milk price range, [down] to AU$5.62 to AU$5.70/kgMS, and noted that whilst currency has weakened, there had also been some softening in the global market".

In his speech today, RBA Governor, Philip Lowe, has discussed the idea of electronic bank notes for Australia. He was not specific about the technologies that may be used to enable this, as they are still developing. The electronic notes may be issued by the RBA or a private entity but there would be a requirement for some entity to stand behind the liability. The history of private issuance is one of periodic panic and instability and, as such, it would be better if the electronic currency was issued by the central bank, he said. While this may be technologically feasible, Lowe does not see significant public benefit from this change and therefore it is not about move in this direction. However, the topic will remain under review at the RBA.

Swap rates were marginally higher and flatter today, with the 1 yr though 4 yr rates up +1 bp and longer duration rates unchanged. The 90 day bank bill rate is holding its new record low of 1.88%.

The NZ dollar is unchanged from this time yesterday to 69.4 USc. On the cross rates it is at 91.7 AUc and 59.1 euro cents. This puts the TWI-5 at 72.7. The bitcoin price is holding high at US$16,726. It hit another all-time record high of US$17,632 eight hours ago.

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Source: CoinDesk

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As it turns out, banks have been buying the feathers out of UST’s at the very same time their Economists expect rates to rise if not skyrocket. Though interest rates have nowhere to go but up according to the Primary Dealers, the banks themselves have been lining up to buy those very bonds their own Economists tell them are the worst investment of our lifetime. Read more

Yes, that does seem to be quite high.

Before teachers go all goo-gah over the measure, read the Cabinet Briefing Paper. Pure virtue signalling - 20 places for the Auckland Beginning Teacher Project in 2019 - and no mention of Housing...

Read it - and weep into yer Pinot Gris....

For the U.S., the specter of cooler Chinese demand comes at an inopportune time, with the Federal Reserve tapering its portfolio of Treasuries and Congress debating a tax-overhaul plan that could increase the federal deficit by $1 trillion over the next decade. The U.S. debt burden was already forecast to swell by $10 trillion in that period even before any tax changes.

“It puts Treasury in a tough spot,” said Thomas Simons, a senior economist at Jefferies LLC in New York. “We have two very big domestic forces putting pressure on the market, and at the same time, our biggest global subsidy is pulling back.”

China owns almost $1.2 trillion of U.S. government debt, more than double the level from a decade ago. The bulk of the buildup came as the Chinese boosted foreign-exchange reserves to help offset a strengthening yuan.

The U.S. could rely on that appetite as the Treasury market soared above $14 trillion this year, from less than $5 trillion in 2007. Read more

Forecast US government Interest rate rises are an act of collective, domestic, delusional, groupthink.

Can the crowding out effect" be called upon as a cause for less than effective global bank lending volumes?

Time for government to be out of our lives?