A review of things you need to know before you go home on Wednesday; no rate changes, dairy prices jump, trucking activity softens, commodity prices softer, landlord sanctioned; swap rates flatten; NZD soft, bitcoin tumbles

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

MORTGAGE RATE CHANGES
No changes to report here.

TERM DEPOSIT RATE CHANGES
No changes here either.

TWO RISES IN A ROW
Dairy prices took a good jump in today's GDT auction. Overall they were up +4.9% on a weighted average basis in USD (although only up half that at +2.45% in NZD). But most individual key components recorded good gains; WMP is up +5.1%, SMP up +6.5%, cheddar cheese is up +5.2% and butter is up +8.8%. The reason is the lower volumes on offer. Fonterra advised a -6% fall in milk production in December although total season milk volumes will only be down -3% in New Zealand. That brought out the bidders - there was the highest number in more than three and a half years. But before we get too carried away, prices are only back to where they were in early November and are now -3.7% lower than at this time last year.

A SOFTER END TO 2017 - I
ANZ tracks trucking activity as a proxy for economic (GDP) growth. This data is much more current than the official data. The two ANZ Truckometer indexes fell in December: the Heavy Traffic Index by -4.2%, and the Light Traffic Index by -1.7% month-on-month. Despite the December falls however, the indexes are providing a positive signal for GDP growth in Q4-2017, due to earlier strength. However, the Light Traffic Index is giving a mildly softer signal for growth in mid-2018. Annually, the Heavy Traffic index is up +2.8% and the Light Traffic index is up +4.1%.

A SOFTER END TO 2017 - II
The ANZ Commodity Price Index also ran out of puff in late 2017 with prices falling a further 2.2% in December. While dairy led the decline broader based weakness has started to creep in too, with nondairy components also slipping in December. The double-whammy for NZD returns was an increase in the NZD TWI. This saw NZD commodity prices slide -3.0% in December from November. This was the largest fall in world and local prices since the current upward cycle in commodity prices began in early 2016. Year-on-year however, prices are up +3.0% in world price terms, and up +6.4% in NZD terms.

LANDLORD OBLIGATION ENFORCED
An Auckland landlord, Aire Peter Sterk, has been ordered to pay $2,000 in damages after he was successfully taken to the Tenancy Tribunal for failing to install smoke alarms. And he was ordered not to commit the same offence within six years or he will face further legal action.

CAR INSURANCE SCAM
Major insurers Allianz and Suncorp have been caught in a bald car insurance scam in Australia. Together they will refund a combined AU$65 mln in premiums to more than 100,000 customers, after selling insurance via car dealers "that was of little or no use", according to ASIC. Allianz will refund AU$45.6 mln to 68,000 customers and Suncorp will refund $17.2 mln to 41,200 customers. (In Suncorp's defense, the offending happened in a brand it bought, before it bought them in 2014.)

AIR NZ PRETTY CLEAN
The same organisation that discovered the VW diesel cheating scandal has published a ranking of airlines that serve the US across the Pacific, in terms of their fuel efficiency. Air NZ ranked third of 20 behind first equal Hainan Air (yes, them) and Japan's ANA. The bottom spot was taken by Qantas who burned an average of +64% more fuel per passenger-kilometer than Hainan and ANA in 2016. Air NZ burned +3% more than the top two on this basis.

WHOLESALE RATES FLATTEN
Local swap rates are flatter today today, with no change in the 2 year, -1 bp for the 5 year, and a -2 bps fall for the ten year. The UST 10yr is now at 2.54%, a slip of -1 bp. In China, their sovereign 10yr yield is holding at 4.03% but with a firming tone. The NZ Govt 10yr yield is lower at 2.88% (-4 bps). And the Aussie 10yr is now at 2.75% (-2 bps).

NZ DOLLAR LOWER
The NZ dollar lost its recent gain overnight and has been steady today at 72.7 USc. We are ½ softer against the Aussie at 91.1 AUc and still at 59.2 euro cents. This puts the TWI-5 down at 74 even. But the big action has been for bitcoin, in fact for all cryptocurrencies. Bitcoin fell by almost 25% at one point getting as low as US$10,130 although it has since recovered some of that and is currently at US$11,235. Still that is an eye watering loss of US$1,765 or -13.6% in 24 hours. (Many other cryptocurrencies have seen -30% losses in the same time period.)

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USD 
NZD
End of day UTC
Source: CoinDesk

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45 Comments

Banks showing signs of loosening up their LVR parameters
http://www.nzherald.co.nz/personal-finance/news/article.cfm?c_id=12&obje...
Good news for FHBs?
Perhaps there would be too much of a slowdown in lendin* volume otherwise?

World Bank launches minimum NZ$300 million five-year Kauri transaction

Recently, it would seem foreign supranationals have obliged the local banks' foreign debt funding binge by offering cheap NZD to facilitate X-CCY basis swaps to hedge each other's debt offerings which are better suited to local loan demand.

The joys of World Bank entities credit wrapping NZD bank debt.

Ah yes, it seems there has always been a banker willing to entertain the debt addiction. Medieval kings fell for it, Italian merchants profited from it and even sovereign states have fallen foul of it.

Now it seems it is the turn of the NZ mortgage holder.

I wonder if there’s a few investors with interest only mortgages up for renewal this year and the banks don’t feel comfortable extending another 5 years but know when they turf them into P&I it could get messy when they try to sell so bring in the low desposit purchasers to bring buyers to the market.

They’d be helped more by a drop in prices.

What is better, the opportunity to take on more debt or a lower purchase price and less debt?

As a potential FHB, you are absolutely right.
It's not the deposit I'm struggling with it's the huge debt that I would need to take on to buy even at lower quartile Auckland prices.

You could always pay high rent, e.g. $1110 per week
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=1197...
Or join a bidding war to gain a rental.

Wrong city...

According to ANZ mortgage calculator, $1110 per week will service a $750k variable loan for 25 years. That probably doesn't buy much in Auckers without a chunky deposit. That's before rates, insurance, maintenance...

It's not about 'the banks' loosening LVR parameters, it was THE bank (RBNZ) that did so. That obviously flows down.

I think the trading banks still have some autonomy to decide how far to go within the overall RB parameters.
Previously they have been conservatively well inside the RB rules.

Sure, on paper. But you miss the point - I think you'd find if you review the RBNZ stats, the banks all go as close as they reasonably can (i.e. within a few percent, since if they exceed the limit they lose their license). Why wouldn't they? It was never Banks limiting that lending, it was RBNZ rules.

The article is just a drum up of business by Brokers, who pretend they're the only ones who can get low deposit lending. The only thing that's changed is the speed limit was increased by 50%, so no duh, the capacity did too. Servicing requirements stay the same though.

Not according to figures posted on here a while back, the banks were only lending around half of what they were permitted to low deposit buyers.

If you look at the RBNZ C30, it was always around 10% mark before exemptions and 6% after exemptions (vs MAX of 10% after exemptions)... so perhaps they dont want to rely on the exemption clause (after all, they lose their license if they go over)

The point still is that banks havent loosened per se, they're just passing on the RBNZ new limit.

Debt serfdom demands cause women to join the workforce?

Australia’s economy is on track to create the most jobs on record in 2017, with women a major factor behind that growth. About 180,000 roles were taken by females in the first 11 months, almost 12 percent more than men, reflecting greater access to childcare and more flexibility in work hours and location. But stretched finances are also a key factor, particularly in Sydney and Melbourne where it isn’t feasible for families to survive on one salary for too long. Read more

Stephen Hulme, indeed.

And if you track house price inflation, it was fairly moderate until women joined the work force as the norm (in the late 80 and 90s) from there, the climb in values was far steeper. But of course, such a huge factor as 50% of the population joining the work force couldn't possibly be one of the most monumental structural factors to change in western economies in modern times. Couldn't possibly be one of the biggest factors to house price inflation since the 90s etc and doesn't require any consideration into the future, now that, well, incomes have essentially doubled, and unless we all cultural adopt polygamy or group marriages, that propulsion has peaked ;-)

I’m not sure it’s peaked as females are still closing the salary gap and the couples I see seem to partner with equally educated partners. A couple of professional 30 year olds with household incomes around $240,000 have formidable buying power, if they choose to go that way, plus their parents are likely to be well educated so well paid and in a position to help with a deposit.

What fraction of the working population earn over $120,000?

Corporate professionals with 7 plus years in the work force in Auckland’s CBD could reasonably expect that. There’s a reason we can’t get past the Auckland issue by moving elsewhere. This is where the high paying jobs are.

I agree these jobs exist and they permit fairly easy buying of a decent house. Under $100,000 and it will get harder - add in children and make that almost impossible. My point is that if say 3% of 30 year olds are corporate professionals then our current housing market caters for about 3% plus whoever is inheriting.
Take regular jobs essential to any society such as experienced social worker, experienced senior teacher, experienced policeman - they used to have no problem buying a house but in Auckland now?

Isn't the Government going to resolve this by building 100,000 affordable homes? I have no idea how it's going to actually resolve itself. It's expensive to build and I suspect boomers like myself won't be selling up to make way for others. In fact we are actively planning to keep the family home for the next generation.

Ex Expat, I would think the glacial pace that salaries are growing in general worldwide, might rather offset the inflationary impact of female increased earnings/gender pay gap closing (which is also not particularly speedy). There is also the knock on effect across the female wage spectrum, where childcare is still predominantly a female dominated, yet low earning profession. So for women who have children, return to well paying jobs and therefore a family who require childcare, there is invariably another woman, on low earnings.

Multinational businesses keen for a slice of the world’s fastest-growing consumer market are finding they have to increasingly conform to China’s world view if they want to stay in Beijing’s good graces.

Companies from Marriott International Inc. to Qantas Airways Ltd. are scrambling to fall in line with China’s stance on the treatment of territorial disputes, or risk missing the biggest market opportunity some of them have ever known. In the past week, they have been checking the wording on websites and other material for references -- some of which have been in public view for years -- that might cause offense, while also offering apologies and acknowledgement of China’s sovereignty. Read more

Is the price of doing business in China the relinquishing of free speech?

Yes. Although if you keep your head down maybe the piper won't appear to be paid.

The US and Australia hardly responded well to our nuclear free policy.

When the cabinet refused to accept the Buchanan, the US and Australia declared their alliance with New Zealand "suspended". The US froze New Zealand forces out of future military exercises and made Lange unwelcome in Washington.

The American reaction turned public opinion in New Zealand strongly behind the anti-nuclear policy. By the time legislation was passed in 1987, establishing the nuclear ban in law, New Zealanders regarded it as a test of their right to make the decision. Read more and more

China’s military is filling the vacuum throughout the Pacific

LOL, there's a cheery thought.

NZ - so naive.
Who would we "keep peace" with while joining with China militarily?
Rogue fishing boats? US submarines? Join arms while we allow China to take over the Antarctic /Fiji / etc?
This is very clever (of China) ,and ensures that NZ loses it's independence, autonomy, and weakens its ties with the West.

This is very clever (of China) ,and ensures that NZ loses it's independence, autonomy, and weakens its ties with the West.

Are you impugning the NZ agricultural lobby who can only rationalise product sales to any willing country buyer? This is so because the US agricultural lobby categorically prohibits industrial size NZ land product exports in any form.

Are military decisions and liaisons now made on the basis of favourable trade deals?
I thought military decisions were made primarily on security issues and shared values with partners.

I'm pretty sure military decisions and liaisons have always been made on the basis of favourable trade deals. Kiwi kids go off to fight to support expand whichever empire protects our trade...

I don’t think the ANZACS and WW2 Vets saw it quite like that.
We fight with those with whom we share value, heritage and authentic ties.

Emphasizing shared values, heritage and authentic ties is usually done for propaganda purposes. Ultimately wars are waged for resources. The wars against Germany and Japan were waged to stop them having economic hegemony in Europe and Asia. The US, Britain and even Russia had strong historical ties with Germany yet that didn't stop them having an almighty war that started in 1914 and didn't really end until 1945.

Japan claimed shared values with other Asian nations and Germany claimed shared values with European nations in order to push their agendas. Former enemies can become best friends practically overnight suddenly sharing the same "values". This happens all the time.

Incidentally Germany and Japan probably did more than anyone else to help free nations from their colonial masters as after the WW2 the British, French and Dutch lost most of their possessions. Not without a bitter struggle though. Read about the Battle of Surabaya where the British slaughtered thousands in their bid to keep Indonesia under European control. The British even used captured Japanese soldiers to help them fight people seeking independence. The French used former SS soldiers in Vietnam. However the wars with Germany and Japan had greatly weakened their ability to retain control. It was also very hypocritical to drive out the Japanese and then seek to dominate the area themselves again but of course it wasn't about freedom but about resources and power.

Ultimately WW2 saw the end of European domination and the collapse of the British, Dutch, French and Portuguese empires.

Then NZ is going to be caught in the middle between China/NK conflict/ (trade interests) and our traditional allies USA, Australia etc.

Yes we are likely to remain neutral in such a conflict.

The unrelenting sell-off in China’s $9 trillion onshore bond market last year caused deep angst among investors. That performance is far from enticing as the country aims to further open up this market, the world's third largest, through initiatives such as the Bond Connect program. For now, foreign investors account for less than 2 percent of the onshore market, though it is likely to be included in major bond indexes in 2018. If that happens, foreigners' exposure may become mandatory. Read more

I have, as a former TLA CFO, been Interested to see what effects the SALT deduction limitation aspect of the Trump Tax Reset, is having. Forbes has a good take on that very question...'Sinkhole States'

It's gonna hurt the high-taxing blue states most. Quelle surprise.

It seems that there is a serious change in the bitcon postings of late. Just a few weeks ago, some were jeering at nocoiners. Life was great when there were heady days of 30% gains. Life gets a bit more serious when there are days of 30% losses. All for the chance to purchase something that has zero utilitarian value, and has serious slippage every time one makes a transaction. The unique aspect of blockchain tech is that the slippage is guaranteed to increase with time. Just a week or so ago, people were considering $12k as a hard floor. Today, some are hoping that $10k may be the hard floor. I'm thinking that $1 may be a reasonable long term value.

Ah, BitCoin and its ilk; this high-pitched electric whine, inaudibly belch-screaming carbon dioxide into our atmosphere, might be the siren song of a desperate middle class, seeing its impending demise at the hands of authoritarian capitalism, and not knowing what else to do but invest in libertarian wank tulips.
https://michaelochurch.wordpress.com/2018/01/12/how-i-ruined-programming...

So much for $10k being a floor for bitcon... now testing $9k. The level of volatility is unprecedented. There are only so many days that 30% losses can occur!

Yes, Im not regretting leaving my money in a nice diversified ETF based fund. Up a percent here and there, down half a percent every now and then. Much as I enjoy roller coasters they aren't what I want my money to be doing.

There are only so many days that 30% losses can occur!
Infinite