What happened Wednesday

A review of things you need to know before you go home on Wednesday; minor rate changes, volatility rises, rents up in Auckland, 'more investors leaving', AU CPI undershoots, swaps stable, NZD strengthens, bitcoin under US$10K

31st Jan 18, 3:59pm by David Chaston

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

MORTGAGE RATE CHANGES
Housing NZ has raised their 1 and 2 year fixed rates by a few basis points.

TERM DEPOSIT RATE CHANGES
TSB has made some changes to three term deposit rates. (If you read our story late yesterday, please note that the rate for 18 months was supplied incorrectly and that story has now been updated.)

VOLATILITY RISES
The main index tracking market volatility started the year at a record low index level of 9. But today it hit 14.8 in a sharp rise, half of which was in the past two days. Sharp rises in benchmark bond yields (falls in bond prices) are driving this, and expectations of a more aggressive stance by the US Fed on future rate settings is in turn driving that. The S&P500 was down -1.1% in New York today. The Dow was down -1.4%.

AUCKLAND RENT RISES SLOW
Auckland's largest real estate agency says average rents in Auckland increased by about +4.25% in 2017, down from about +5.5% in 2016 and 2015, leaving some landlords out of pocket.

NO FUN NOW
The Property Institute predicts rising mortgage rates, flat house prices and more investors leaving the market in 2018.

NEAR RBA TARGET
Consumer prices rose +1.9% in Australia in December 2017 quarter, up from +1.8% in the September quarter, but below markets expectations of +2.0%. Adelaide prices rose +2.3% while prices in Perth were only up +0.8%. For Sydney and Melbourne they each had a +2.2% rise. (New Zealand prices in December were up +1.6% pa.)

IN BALANCE
Household deposits at banks rose +$1.5 bln in December from November. That makes a +$11.1 bln rise in all of 2017 to $166.8 bln. That compares with housing and personal borrowing from banks of $252.9 bln, a rise of +$13.4 bln. Business bank account balances rose +$8.4 bln, while business borrowing rose $7.3 bln in 2017. So that means overall bank deposits rose +$20.1 bln while bank lending rose +$21.7 bln. So bank borrowing from offshore needed to be very minor in 2017. To some extent this explains why pressure on banks to raise interest rates to depositors is low - overall they don't really need much additional funding. (Households are saving too much at banks!)

BENCHMARK INTEREST RATES
The UST 10 year is holding at 2.71% although down -2 bps from this morning. The Aussie 10 yr is at 2.80% (-6 bps), the Chinese 10yr is unchanged at 3.96%, and the New Zealand 10 yr is now at 2.93 (-1 bp). There is little movement on wholesale swap rates; if they have changed it is -1 bp for 2 and 3 years. The 90 day bank bill rate is up +1 bp at 1.89%.

NZ DOLLAR RISES
The NZ dollar is up +½c from this time yesterday at 73.7 USc. We are up against the Aussie dollar too, now at 91.3 AUc (after their CPI undershoot) and at 59.3 euro cents. This puts the TWI-5 up at 74.3.

BITCOIN SLUMPS BELOW $10K
Bitcoin is now at US$9,890 a drop of -US$1,350 in the past 24 hours and its lowest level since late November 2017. Today's drop is a -12.1% tumble. (In Asian markets, gold is virtually unchanged at US$1,338.)

Daily exchange rates

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Source: RBNZ

Source: CoinDesk

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9 Comments

by moneyphobe | 31st Jan 18, 4:28pm 1517369306

The S&P500 was down -1.1% in New York today. The Dow was down -1.4%
Why not report on the NZX or the ASX?

by Smalltown | 31st Jan 18, 6:12pm 1517375527

Exactly - NZ50 was up 1.7%, what gives - just a swoon up from the action on Friday??

by dictator | 31st Jan 18, 6:18pm 1517375928

The NZX50 was down -0.5% around midday. The +1.7% is just the trades that are still open.

Whereas in the US they are getting worked up because there is a full blown bull market mentality where the market only ever goes up (you know like NZ houses). Goldman have talked about buying a 5% dip, but in reality if you track stocks that you are interested in a 5% drop isn't a big deal and happens regularly. Ignore the dialogue that the media create as behind the scenes there are people needing to exit their long positions before the market crashes in the US.

by Stephen Hulme | 31st Jan 18, 4:48pm 1517370493

Consumer prices rose +1.9% in Australia in December 2017 quarter, up from +1.8% in the September quarter, but below markets expectations of +2.0%.

Hmmmm....

Inflation is no trivial matter, though it is often characterized that way. After all, are consumers and businesses suffering unduly with a 1.4% PCE Deflator rather than 2%? It seems at most small issue.

The inflation problem, though, has undermined a great deal more than the remnants of the Greenspan put. To put it another way, if the Fed has shown it can’t achieve its goals with four QE’s and years of “accommodative” interest rates, what does that say about our overall economic and monetary condition?

Monetary policy in the future doesn’t just become harder and less routine, the more immediate problem is what we find in the curves; massive and hardening, or fully hardened, economic/monetary doubt. If the Fed can’t fix it, can anything? Read more

by J.C. | 31st Jan 18, 7:57pm 1517381835

Not a big fan of Numbeo, but what the heck. Based on Numbeo's "sources", consumer prices are 17% higher than in the U.S. Once again, that is based on the Numbeo basket and I am not claiming that on fact.

Intuitively, if a country has relatively high consumer prices, you would expect that the impact of the increase in general prices to have a greater impact on the consumer or h'hold, particularly in there is no difference in individual or h'hold incomes or if income growth is benign.

by Stephen Hulme | 31st Jan 18, 4:50pm 1517370618

BOJ Unexpectedly Boosts Bond Buying Operation To Halt Rise In Yields

by custard | 31st Jan 18, 9:05pm 1517385903

I’ve got to say – worried about breaking 0.10% seems ridiculous in the extreme.
Is this a test case of historical bubbles gone mad,
I remember as a young lad, when it was all Japan, Japan, Japan - and there was no inflation??
I thought "why don't they do something" - it simply made no sense to me at the time.
And now many decades later, here we are - what gives?

by custard | 31st Jan 18, 9:37pm 1517387827

“Investors leaving the market”.
Still puzzled - did the residence leave the market with them – I would assume not.
Am most curious as to how this plays out – without investors does it all fall apart – or does the market revert to private home ownership realities.
Do new builds dry up, or do land and build costs adjust to a new reality.
I do believe there is a role for the private investor to play – but the “holier than thou” nonsense I would be happy to see the end of.

by accountingsoft… | 31st Jan 18, 10:06pm 1517389563

yes not a lot of information but rest assured if in three years the house of auckland prices have dropped 20% and CPI is flat to nothing then its a country in deflation for sure.....but labour voters will be very happy ....at that point the currency will drop like a very large rock..