A review of things you need to know before you go home on Thursday; no rate changes, food prices stable, MPB on lifestyle blocks now, investors confident, swaps slip, NZD holds lower

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

MORTGAGE RATE CHANGES
No changes today.

TERM DEPOSIT RATE CHANGES
None here either.

FOOD PRICES STABLE
Higher prices for takeaway foods and restaurant meals pushed the food price index up +0.2% in the year to June 2018. Prices for restaurant meals and ready-to-eat food increased +3.0%. Lunch meals (up +3.8%) led the way, along with a wide range of takeaway food options. Food is currently not putting pressure on our CPI. Our own grocery price monitoring confirms that.

SCHEDULED
For those readers who follow house prices, the REINZ has advised that their June data will be released on Tuesday, July 17, at about 9am.

NEW 10 YEAR
Today's tender for NZGB 2029s for $250 mln offered (the first time this duration has been offered) brought a weighted average yield of 2.86% and a modest coverage ratio of 1.85x. This is a good reference for the NZGB 10yr yield.

GETTING AWAY
Mycoplasma bovis is being identified on lifestyle blocks now (Canterbury, Southland, Taranaki). These owners are quite unprepared and under-resourced for appropriate bio-security control. They are a very weak link in the system of control of the disease.

CONFIDENT BUT NOT KNOWLEGEABLE
An FMA survey
of investors shows that most investors have confidence in our financial markets, but it is not unanimous. 66% of investors said they were confident in them, slightly down from 69% a year earlier. The score remains higher than the surveys carried out from 2013-2016. Confidence was highest among investors who have a managed fund or shares at 82% and 77% respectively. The data also shows that investors, particularly KiwiSaver members, have a long way to go to be regarded as knowledgeable about their investments.

DEFIANT
Wall Street closed down sharply today in reaction to the trade war over-reaction by the US Administration. The S&P500 was down -0.7%, the Dow down -0.9%. Hong Kong was down -1.3% yesterday and Shanghai down -1.8%. Early trading today has all these key exchanges trading higher with the Shanghai up +1.6% in their mid-morning session.

IRRIGATION ESSENTIAL
New data out in Australia shows that a quarter of all their agricutural production relies on irrigation. For dairy, the proportion is 44%. For sheep it is less than 4%. For beef it is 5.6%. All up, Aussie agricultural production was worth AU$60 bln and that is only 4% of their economy. (NZ equivalent data is 6% of GDP.)

GOING UP
And staying in Australia, AMP is the latest lender there to lift mortgage rates, noting it can no longer wear the impact of soaring funding costs.

SWAP RATES SLIP
Local swap rates have slipped back -1 bp for some key terms today. The UST 10yr is now at 2.86%, up +2 bps. The Aussie Govt 10yr is at 2.63, up +1 bp, the China Govt 10yr is at 3.56% (unchanged), and the NZ Govt 10 yr is at 2.90%, up +4 bps, although this is likely to revert to the 2029 soon (as per above). The 90 day bank bill rate is unchanged at 1.95%.

BITCOIN HOLDING
The bitcoin price is now at US$6,345 which is little changed from this time yesterday.

NZD HOLDS LOWER
The NZD fell by more than -½c last night after the Trump tariff extensions but has stabilised at the lower level today and is now at 67.5 USc. On the cross rates we are at 91.6 AUc and 57.9 euro cents. That has the TWI-5 at 71 even.

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USD 
NZD
End of day UTC
Source: CoinDesk

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15 Comments

"GOING UP
And staying in Australia, AMP is the latest lender there to lift mortgage rates, noting it can no longer wear the impact of soaring funding costs."
Both OZ and NZ are sitting around the 4-6% interest rate, where is this going to take us? 6-8%?

How long will it be before the big boys follow suit?

Additional 2 points on a $1,000,000 loan? Ouch. Has anyone got any idea what percentage of the mortgage market is up for re-financing over the next 12-18 months?

It won't be too long before the cherry-picking of debtors begins.. Headline rates will purely be about trying to capture loans that are backed by proper equity.... The cash-flow cowboys could be in for a bit of a shock. Reckon the days of on-line valuations by the banks could also be coming to an end.

If we look at Interest Only lending, RBNZ's C32's data goes back to June 2015. Back then roughly $2.4 billion per month of new lending (40% of total) was Interest Only. From January 2017 onward Interest Only lending averaged around $1.4 - $1.5 billion per month (30% of total) of new lending.

What's the average length of an Interest Only term?

2 years... 2019 could present a perfect storm!

If someone has a $350,000 Mortgage on a rental property in Auckland at Interest Only, they're paying $336.54 per week in interest (5% p.a.) Assuming 40% equity (because they're an investor) it's a $583k house, and assuming 4% gross yield (which is what Auckland is averaging) the rent is $450 per week. That's cool, because that extra $114 per week should cover most of the rates, insurance etc.

They get bumped onto P & I and are now paying $433 per week over 30 years. I suppose they'll just up the rent to cover the massive shortfall? Maybe they decide it's time to sell up.

Would be interesting to see. There are plenty of Auckland rentals available on TradeMe at the moment, to the point I've been seeing more offering no letting fee and a week's rent free.

You haven't factored in the lost opportunity cost of the 40% equity ($233,000)

$233,000 x 3.25% (term deposit rate) = $145 dollars a week that they could be getting for doing absolutely nothing. Sounds like quite a good cash flow investment to me. Compounded over 30 years at 3.25% = $375,215 interest and a total balance of $608,215.

Likelihood of average interest rates being higher than 3.25% over the period? Pretty high.

Hmm, lets see where my landlord would be on this place (if it was his only, which it isn't)
in round figures
$920k sale price = 552k mortgage @ 40% deposit.. we pay $570/week
5% interest only, hes got $40 a week to cover rates, insurance etc.
5% P+I for 30years he's $113/week short on the mortgage.
5.5% interest only our rent doesn't cover the mortgage payment (-$14), with a 30year P+I hes short by $153/week on the mortgage payment

I sure hope he's got more equity than the minimum across his portfolio.

so at 5.5% he has to find how much over 30 years?
What would be the interest return on his current 'equity' (remembering that this has entered a diminishing phase for now) over 30 years at say, a conservative 3.25% compounded?

Is maths still taught in schools?

His parents were landlords, he's a landlord, probably had it drummed into him that property never loses.

He should be good at maths, considering his profession :)

Please, don't tell me he works in mortgages for Westpac!

No, not a banker. But another profession that is all about banging numbers into excel and spitting out other sets of numbers for clients.

NZ house prices are predicated on 4-5% interest rates. Move to 6-8% and we will see those 20-30% drops people have been predicting.

How do you get a 2 % "retail" rise , from a .2% wholesale rise?

The Continuing Budget Assumption series:
TWI - 72.67, Treasury BEFU assumption 'around 75'
WTI - 70.86 Treasury BEFU assumption 'around 60'