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US tariffs effective today; China will respond; Fed watching; US job growth hits bump; BIS warns on low rates; air travel in strong growth; RBA eyes housing turn; UST 10yr at 2.84%; oil and gold down; NZ$1 = 67.8 USc; TWI-5 = 71.2

US tariffs effective today; China will respond; Fed watching; US job growth hits bump; BIS warns on low rates; air travel in strong growth; RBA eyes housing turn; UST 10yr at 2.84%; oil and gold down; NZ$1 = 67.8 USc; TWI-5 = 71.2

Here's our summary of key events overnight that affect New Zealand, with news the trade wars are about to start in earnest.

For months, talk of a trade war between the United States and China has been everywhere. That talk will become reality at 4pm NZT when major US tariffs against Chinese goods come into effect.

China says it won't move first, but is ready to respond almost immediately after they are imposed. Game on.

The release of the US Fed minutes of their last meeting in June shows they discussed whether recession lurked around the corner, and are concerned how those global trade tensions could hit their economy, which by most measures looks strong at the moment. They say they are on track to raise rates, however.

How strong their employment situation is will become clearer tomorrow with the latest update to the US non-farm payrolls report. Today, the precursor ADP Employment report showed growth that was lower than expected, and its second lowest expansion in the past eight months.

Further, the latest jobless claims report came in worse than expected - an improvement was forecast by analysts.

There were two reports out on the state of the US service sector overnight, giving different views. One has it slipping a little from a healthy level; the other still expanding. Take your pick. Worldwide, however, the whole service sector expansion is gathering pace.

German factory orders for May came in much stronger than expected, a positive surprise for markets.

A report at the Bank of International Settlements (BIS) is saying that leaving interest rates too low for too long could lead to a surge in inflation that forces central banks into dramatic rate hikes, pushing the world into another recession.

New data for air passenger travel has brought another very good level of growth, up +6.1% in May from the same month a year ago. That is a small improvement in the growth rate from April. International traffic didn't grow as fast however - the star was domestic growth in India (+16.6%) and China (+11.9%), but international growth in the Asia/Pacific region was up a very impressive +8.0%, the strongest region worldwide.

The China-led Asia Infrastructure Investment Bank (AIIB) has hit back against accusations it is failing to live up to its commitment to green investment, arguing that its support for projects involving fossil fuels is needed to achieve the long-term goal of sustainable energy.

In Australia, a senior RBA official says the regulator is watching their housing market more closely these days for signs of price retreats and the drag that could impose on their consumer sentiment and economic growth. They are pointing out the retreat in the past two years. But it is only a 'watch' at this stage, not a 'concern'.

The UST 10yr yield is up +1 bp at 2.84% after the US holiday. The Chinese 10yr is at 3.52% (unchanged) while the New Zealand equivalent is now at 2.81%, also unchanged.

Gold is down -US$2 at US$1,255/oz.

US oil prices have slipped a little, now just under US$73/bbl. The Brent benchmark is now just under US$77.5/bbl. Rising US crude and petrol stocks are behind the small shift.

The Kiwi dollar starts today a little firmer at 67.8 USc. On the cross rates we are also marginally firmer at 91.9 AUc and at 58.1 euro cents. That puts the TWI-5 at 71.2.

Bitcoin is now at US$6,473 which is down -3% from this time yesterday.

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32 Comments

If air travel keeps growing at this rate, when we look to the sky, all we will see are Chemtrails
http://www.abc.net.au/science/articles/2011/07/28/3278883.htm

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If you look at Boeing and Airbus order book projections of over 35,000 new aircraft that's exactly what's going to happen as we all get richer and in particular Asian economies continue strong growth.

Then add in China's new narrow body and J/V wide body already with back orders over 500 units.

Then add in Bombardier, Mitsubishi, Embraer, Sukoi, Irkut, ARJ regional jets and we will continue to see very strong growth in regional travel as well.

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Might well see those numbers scaled back if oil prices don't level off soon.

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JB - no, we might see strong growth in aircraft manufacturing for a short while.

But not in total travel. The fleet isn't getting much more efficient, and the fuel supply is heading for EROEI's which suggest no more net energy available.

But it's a moot point whether people not having discretionary spend, comes first - courtesy of the same curtailment.

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Indeed, NZ feeds 20million (ish) but only by using oil and Ngas. I wonder how airlines will be able to afford bio-fuel priced similar to food per calorie. Simple answer it wont, not as a mass transit medium. For the uber rich and elites andd some Govn officials, yes OK, but those few thousands of flights per year does not sustain the likes of boeing and airbus.

Meanwhile I note china is building rail like crazy to ship goods to the EU across the "old silk road". It takes 3 weeks but is way cheaper than air today and quicker than ships on 6weeks (ish). Also Russia is building rail lines that might well cross the Bering straight in the coming decades so potentially no need for (bio-) bunker fuel either.

and who owns and controls these? not the USA, not the EU and pretty much not any "developed" nation. In fact if anything the "developed nations" seem to be trying to stop it, they will fail.

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exactlly powerdownkiwi.

Its amazing how pervasive sir Shon Key's "as we all get richer..." motivation speak is ... when indebtness
piles up everywhere....

But then who knew Debt is wealth. It is 1984.

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I wonder what those staff would consider to be a rip off mortgage?

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Anything over 8 times DTI...

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With a 3 year interest only period

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How do you calculate DTI? Do you use income before tax, or after tax?

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pre tax.

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As borrowers face financial stress, expect them to make claims against banks under the Responsible Lending Code. Especially those who have low levels of financially literacy ...

Here's a case out of Perth - http://www.abc.net.au/7.30/interest-only-home-loans-under-scrutiny/9540…

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When we bought our first home last year I found the Responsible Lending code was a massive hurdle to get past, it really limited the amount we could borrow to basically 3 x my salary. Now that my wife is back at work we are now sitting at 1.5 our household income, so a blessing in disguise really.

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It's funny how they apply the stress test at 8% lending rate. Consider what happens when your debt servicing commitments increase while your income stays the same. You start curtailing household spending, right? You cut Netflix, get rid of internet, slash the grocery bill, stop using the oven/home heating etc.
When you apply for a mortgage, make sure you consider what you would actually spend if your household budget got squeezed, and use that as your basis for your your household spending.

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Thanks CN
That's a good watch and lovely to see Martin North make another appearance. So while the heavily indebted nurse with 11 investment properties was claiming ignorance to her stupidity and blaming the banks, she had cleverly gone to half a dozen different banks to get funding for her portfolio.
Good to see Westpac at the fore of the debacle again, as I've said before my money is on them to be first bank in the queue for a government bail out.

it was funny looking at her filing system it made me think of some of our fellow commentators and how they may be managing their portfolios...

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She must have borrowed for the first one against the equity in her home, then went to the next bank and borrowed against the house (again) and the 1 rental without disclosing the the security, rinse and repeat. What an absolute idiot.

CLAIRE MOODIE (voiceover): At 71, Linda Schmidt should be enjoying retirement. But for the past two years, she's been fighting the banks.

LINDA SCHMIDT: Yeah, I'm pretty angry about it all, really. And it's quite humiliating as well, 'cause I've always paid my bills on time and I've never been like this before.

CLAIRE MOODIE: In total, the Perth-based nurse owes about $3.7 million to half a dozen lenders. Some loans cover her own home: and not one, but 11 investment properties around Western Australia.

But some of them are now in arrears and she's being swamped with demands.

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There is also loan application fraud (LAF) - most likely by the mortgage broker. She just signed the last page of the loan application, then the mortgage broker filled in the remainder of the loan application form. You can see that she obtained a copy of the loan application form that was received and used by the bank. About 500,000 worth of assets in the self managed super fund were overstated, and then her liabilities were understated. This behaviour is driven by the financial incentives to the mortgage broker to get the loan approved - if the loan is not approved, then the mortgage broker does not get paid anything for their time spent on the loan application.

Her level of financial literacy is low as illustrated with the following comment "But I relied upon the banks to work this out. I relied upon the banks to sit down and work it all out with me."

CLAIRE MOODIE: One of her most recent loans was taken out with Westpac four years ago, through her self-managed super fund. Despite already owing that bank close to $1 million, she managed to secure another loan for $360,000.

She says she only signed the back three pages of this loan application form, supplied by an independent mortgage broker. And when she applied recently for a full copy of the application form, she was shocked by the contents.

(Linda indicates section of contract to Claire Moodie)

LINDA SCHMIDT: First of all, that didn't exist any longer.

CLAIRE MOODIE: The money in your self-managed super fund?

LINDA SCHMIDT: Mm. There wasn't...

CLAIRE MOODIE: It says $500,000 there.

LINDA SCHMIDT: Yeah. But there wasn't.

CLAIRE MOODIE: And she says her existing loans are understated by tens of thousands of dollars.

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Ouch. Wonder how big this liar loans thing is going to truly get.

2018, biggest mass emigration of Mortgage Brokers in Australian history?

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what a muddle.. I'm sure that nothing like that has happened here?

I wonder how many questions Andrew King is fielding from NZPIF members each day about the funding advice they've been given?

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There will be a lot more than this I'm afraid. LTV's have been well and truly abused in NZ but it all gets hidden in such a quick rise in the market.. When it starts going the other way is when you really witness how big the issue really is. We have the added joy of 1/ 3 of our lending being interest only so that will really throw the cat amongst the pigeons. i

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But i thought people could go on Interest Only mortgages forever?

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...she might look like an idiot know, but plenty used the same technique and it worked.

Luck plays a big role. I know someone who flipped 200 houses in aucks, but it all fell over when he got caught with a leaky build. It was before the big rises...but only just. If he was in same situation 18 months later, would have survived and made a killing.

Which is what the spruikers like the Boy overlook. Luck worked for them, not any great wisdom.

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Over 5000 Auckland properties currently for rent in Auckland on Trademe website.Are "investors back out buying" or is unsold property hitting the rental market,or Aucklanders and new migrants fleeing

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Unsold properties hitting the rental market I would say

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'Competition between landlords was ferocious as they desperately tried to attract tenants to cover the astronomical mortgages they'd taken on. Oh what silly prices they'd paid for these leaky shedvestments, were there any greater fools to take them off their hands?'.

Housing shortage? Nope, just lots of silly people who paid too much for houses that they can't rent out to cover the debt. Capital gain.. not anymore!

A race to the bottom who will get there first, Auckland or Sydney?

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The Tron - Trademe. For sale today 677; last year 13/7 605. Rentals 350 now; last year 462.

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Watch as the duopolists faces off against monopolists, claiming unfair practices - irony!

https://www.stuff.co.nz/business/105284112/air-nz-slams-auckland-airpor…

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Hat's off. Someone in MSM has woken up and done some work...

"MSD began investigating her in 2010 after a tip from her ex-partner. The probe found that in the five year period (after 2005), about 140 payments from unidentified sources, totalling $181,000, had been paid into her various bank accounts".

https://www.stuff.co.nz/national/politics/105285096/msd-loan-cases-ms-f…

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