Here are the key things you need to know before you leave work today.
MORTGAGE RATE CHANGES
No changes to report.
TERM DEPOSIT RATE CHANGES
NZCU Baywide has trimmed -5 bps from its 9 month rate, taking it now to 2.55%.
AUCTION SALES STRUGGLE
It is mid winter and there are big variations in residential auction results. Auckland's Barfoot & Thompson is an example. No sales were achieved at their Manukau auction but there was a 59% sales rate at an Auckland central suburbs auction.
SUMMER SURGE, WINTER BLUES
The early indications from equity market trading in Asia today is one of strong rises. Hong Kong and Shanghai are both up about +1%. Tokyo is up about +0.5% and Sydney is similar. However the NZX50 can't seem to perform as well, barely moving.
FEWER GAINS
Japan's factory sector is expanding at a slower rate, according to the latest PMI reading for July out today.
CANADA GETS A TICK
The 2018 OECD Economic Survey of Canada finds the macroeconomic situation to be broadly favourable, with low unemployment, inflation on target and growth expected to remain solid over 2018-19..Canada is one of the OECD economies delivering the best outcomes for its citizens, they say and scores highly in all dimensions of the OECD’s Better Life Index, especially in regards to self-reported well-being, personal security and health status.
US GETTING ISOLATED
The EU is moving to tax profits as the result of economic activity, ignoring the vagaries of transfer pricing and other tax-dodging techniques. The issue is being highlighted by the way the big internet companies earn their income (and report their taxable income). This is putting them on a collision course with the US. Australia looks like it will be siding with the EU on this one.
THIS CYCLE IS COMING TO AN END
BNZ is warning that the main external risk to the New Zealand economy is the prospect of tightening global monetary conditions, especially as it affects asset prices which they say are "already looking fully (or over) valued". They point out that tightening is on the cards at the US Federal Reserve who has already raised its cash rate seven times to 2.0%, and another four rate increases are penned in, the Canadians have raised rates four times, the UK has started its tightening cycle, the Europeans are talking about moderating QE, the Japanese are moderating QE, and the Australians have a tightening bias. Our official rate may be going nowhere, but that doesn't mean rates will be unchanged here.
SWAP RATES TURN UP
Local swap rates are rising at the long end today. The two year is unchanged but the five year up +3 bps, and the ten year is up +4 bps. This is following the UST 10yr which is up to 2.95%, a +6 bps rise. The Aussie Govt 10yr is at 2.72, up +5 bps, the China Govt 10yr is at 3.56% also up +5 bps, while the NZ Govt 10 yr is at 2.86%. The 90 day bank bill rate is unchanged at 1.92%.
BITCOIN UP
The bitcoin price is now at US$7,750 and up another +1.7% in the past day.
NZD UNCHANGED
The NZD is down to 67.9 USc on a slightly stronger greenback. And it is holding on the cross rates at 92 AUc, and the euro at 58 euro cents. That puts the TWI-5 basically unchanged at 71.3.
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8 Comments
The better life index is something, huh? According to the measure, an average Kiwi spends the highest proportion of their income on basics such as housing, utilities, etc. Gentle reminder this is an index that includes South Africa, Turkey, Russia and Brazil - countries that have been in geopolitical and economic turmoil for several years now.
"THIS CYCLE IS COMING TO AN END"
". . . the main external risk to the New Zealand economy is the prospect of tightening global monetary conditions, especially as it affects asset prices which they say are "already looking fully (or over) valued"."
Similar comments are being heard from a number of commentators. While it is easy to brush such comments aside, after a long period of a good run from assets (especially houses and share market) post GFC, I think that most prudent investors will be reviewing the likelihood of such comments, their current position, and medium term investment strategies.
At risk are those - especially recent FHB - who are highly mortgaged who could face a conservative 1-2% rise in interest rates in the next few years on that $500,000 ($5,000 to $6,000 pa/$100 to $200 per week) with at best minimal increase in house prices.
Investors who have done particularly well in either the housing or share markets will probably also need to look at their investment strategies with a likelihood of at best flat returns generated by capital gains, but especially if they are highly leveraged.
I am not trying to be a merchant of doom and gloom, but we have had an extended period of ideal investment conditions for the past 10 years but the signs are there that these conditions may not be the continuing norm. .
A good question Uninterested.
The following is my view only, and you or anyone is welcome to have different opinions and rubbish it.
Conservative/cash funds have been performing relatively poorly (3% or less) against active/growth funds (10% or more) in recent times (i.e. 5 to 10 years). So in hindsight those in growth funds have gained 7% more - or three times - the interest (compounded!) over conservative funds.
However, there are plenty of comments and indicators (from the the Fed, NZRB, economic commentators, to every man and his dog) on the medium term future of both assets (e.g. property and shares) and interest rates. From the widespread sentiment being expressed there is a very good likelihood of the future medium term being different to the recent past.
There is no short considered answer to the question.
As with any investment, factors that each person needs to identify are:
1. How much credibility, the timing, and to what extent do we place on the future changes in both asset markets and interest rates. For example, are in fact interest going to increase; the Fed have had 7 increases in their cash rate whilst RBNZ have been stable signalling that any change may be a year or more off although some NZ commentators disagree and expect it a little earlier. What is going to happen to (espec Auckland) property prices?
2. What is one's risk tolerance is; are you prepared to take a bit of a gamble (especially on a KS fund high in international equities) or do you want more (but not absolute) security remaining in a conservative fund heavily weighted in cash, and
3. What is your personal situation; factors such as age (e.g. young or close to retirement), length of time before drawing on funds, as well as any other and type of investments - if any - that you may have. These factors are important on their own, but are also likely to affect your risk tolerance 2 above.
When you have ideas in answering these questions, then you should look at your provider's range of KS fund investment profiles. Typically most providers have about five funds; from a cash heavy conservative, to a more equity heavy active or "growth" fund. (Take care of interpreting "growth")
My feeling about the future is that while growth finds have performed three times better than conservative funds in the past (10% vs 3%), however, I think that the mood expressed by the commentators is that in the medium future (three years or so) the difference may only be between a few percent although as much as 4 or 5%. It is also conceivable that growth funds could even have a negative return.
If there is a likelihood of a lesser difference; is possibility of an extra few percent make the most active growth fund worth it.
You could be a little conservative accepting that the future is going to be a little different. If you feel that the difference between growth vs conservative is only going to be a few percent, you might opt for a fairly moderate fund which COULD give a better return compared to conservative without the risk of a possible negative return with a growth fund.
However, you might want to take a more optimistic view accepting a greater degree of risk and go for a balanced fund with greater exposure to Australasian and international equities.
A really important feature of KS compared to managed funds is that there is usually no entry fee for KS but this may be 0.5% or more managed funds. So unlike managed funds, with KS you have the opportunity to transfer from one KS fund to another (and from one provider to another) without a fee.
This means that if you are in a fund, recognize that it isn't doing as well. or things didn't pan out as you thought (e.g. there was/wasnt a crash in the share market as you thought), then you can transfer funds without penalty.
It is a concern that many people have remained long term in a conservative/default fund. There is a need for greater financial literacy and seeking advice. This is most important in future as people's KS funds grow considerably in size ($50,000 or even $100,000 and more) as the difference of even a few percent return will have a significant dollar value; even 3% each year on $100,000 is $3,000 each year (and this additional money will be compounded).
I think that issues currently being raised about inappropriate KS funds, is a start, but there is an increasing need for greater financial literacy for each person to monitor their considerable investment. I don't think anyone would think advisable for someone to put $100,000 into a certain stock and then turn their back on it; nor do I think it advisable to put $100,000 in a KS account and turn one's back on that either.
BBC China moves to support economy amid trade tensions
https://www.bbc.com/news/business-44933512
China is trying to support the economy as trade tensions escalate and risk spilling over into currency markets.
The government will focus on introducing deeper tax cuts and step up efforts to issue special bonds for local government infrastructure plans.
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