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.
EMPLOYMENT CONFIDENCE SAGS
The latest Westpac MM employment confidence reports: "Overall confidence in the labour market eased slightly in September, but it remains fairly buoyant compared to other measures of confidence. However, what really stands out are workers growing concerns about their incomes. The number of workers reporting a pay increase has fallen to a three year low. Workers have also become very pessimistic about their chances of a pay increase over the coming year. Workers still remain confident about their chances of finding work. Employment confidence has firmed in Otago and the central North Island, but has fallen sharply in the upper North Island, especially in the Waikato."
DUBIOUS RECORD
New Zealand's August trade deficit was the widest monthly deficit on record. It was driven to this dubious record high by rising costs of crude oil and diesel imports. But these were high by the unusual dual shutdowns of the Marsden Point refinery for maintenance, and the Methanex gas plant, also for maintenance.
BACK FROM THE BRINK
Business confidence recovered somewhat in September from its recent plunge. ANZ says latest results of its Business Outlook Survey suggest that while 'the economy may have hit a pothole, the wheels are not falling off'. Despite that, the latest data doesn't change the trend lower. Only agriculture didn't get a bounce in September.
A REMINDER TO REAL ESTATE AGENTS
There are potentially significant consequences that a licensee may face if they withhold information from their client and lose sight of their fiduciary obligations. In the recent High Court decision Pangani Properties Limited v Lloyd, there was an award of a large sum to a vendor ($750,000 compensation and the refund of commission) because of this failure.
TINY RETENTIONS
Co-operative Westland Milk Products has set its 2017/18 final milk payout of $6.12/kg/MS, a reduction from their previous indication. In addition they have declared a -$0.05/kgMS retention, making the cash payout $6.07/kgMS. For the 2018/19 year they have also trimmed that back to a range of $6.50-$6.90/kgMS, a drop of -$0.15. This is more in line with Fonterra's new year indication. In the 2017/18 year Fonterra retained nothing. Farmers may like that, but it is very unhealthy for the co-operative.
TINY EXPOSURE TO HIGH LVR INVESTOR INTEREST-ONLY LOANS
It is common these days to worry about the level of interest-only mortgage lending. That is because of issues with that type of lending in Australia. But in New Zealand, mortgages using revolving credit arrangements are all classified as 'interest only' even when they have a sinking limit that mimics the principal repayment plans of P&I deals. Data out today from the RBNZ shows that 31% of the $5.4 bln of new home loan lending in August was interest-only. But 75% of that was for owner occupies and 23% for investors. And only 1.3% went to investors in a LVR >80% situation. Still, that 1.3% was the highest allocation to investors in more than 2 years. (The highest ever was 1.8% over 80% LVR in July 2015.)
RECORD LOW DEATH RATE
Australia reported a record low death rate of 6.5 people per 1000 population in 2017. New Zealand's equivalent rate is 6.95/1000.
TRADE WAR SCORECARD
While the S&P500 fell -0.1% today, Shanghai is rising today, up a strong +1.1% in mid-day trading.
A RECOMMENDED READ x2
If you haven't already done so, this is a worthwhile perspective of the long-term problems of running external deficits, something even the most powerful countries can't escape the consequences. And as a followup, this article also shows what can happen, even when the cost of servicing the cumulative debt is at record low interest rates. Higher interest rates could be devastating.
THAT -30% HOUSE PRICE FALL FORECAST AGAIN
In Australia, UBS analysts expect further credit tightening there, and given the RBA's lack of willingness to cut rates, they expect to see the longest house price downturn in decades. They say there's a risk that home loans could fall by as much as -30%, potentially seeing credit growth fall to zero. Under such a scenario, that could also see home prices decline more than their previous current forecasts of -5 to -10%.
SWAP RATES LITTLE CHANGED
Swap rates are up +1 bps for terms 4 years and longer. The UST 10yr is unchanged at 3.10% with the UST 2-10 curve under +26 bps. The Aussie Govt 10yr is at 2.75% (unchanged), the China Govt 10yr is at 3.70% (also unchanged), while the NZ Govt 10 yr is at 2.72%, and up +2 bps. The 90 day bank bill rate is down -1 bp at 1.91%.
BITCOIN STABLE
The bitcoin price is little changed today at US$6,390.
NZD FIRMER
The NZD is up +½c at 66.8 USc. It reacted very little to the trade deficit, but rose strongly on the better-than-expected business confidence readings. On the cross rates we are unchanged at 91.7 AUc, and a little firmer at 56.7 euro cents. That puts the TWI-5 at 70.3.
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Daily exchange rates
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31 Comments
Oh dear, Winston and Jacinda haven't managed to sort out the current account deficit (and the low exporter profitability it causes), as yet.
New Zealand's August trade deficit was the widest monthly deficit on record.
There was I thinking they might, either by accident or design.
"Brazil stands as one of the most obvious cases of the fallacy of the multiplier effect of Keynesian public spending. In the past ten years, every $1 spent in government projects has generated zero or negative results."
https://www.dlacalle.com/en/brazil-faces-significant-challenges/
The fact that Brazil has messed up its spending does nothing to undermine Keynesian economics. Our government should have been borrowing for infrastructure projects for several decades and socoety and the economy is now paying a heavy price for their short-sightedness.
Brazil, eh? www.stuff.co.nz/world/americas/107678959/brazils-farright-candidate-jai…
Bye bye Amazon if this guy gets his way
"Thus instead of the central banking narrative that lower rates lead to higher growth, the empirical and verifiable reality is that higher growth leads to higher rates and lower growth leads to lower rates. If rates are the result of growth, they cannot be the cause."
This raises some new questions. Firstly, if it is not interest rates that drive growth, what then? And secondly, why do central banks keep insisting that they are using interest rates as their main monetary policy tool, when this is simply impossible? Recently, central banks have been lowering rates, while proclaiming that this is a measure to stimulate the economy. But the empirically verifiable fact is that they lowered rates, because economic growth has decelerated. Falling growth means interest rates must follow down. And what has been the role of central banks in the growth slowdown preceding the lower rates? We may presume that they had not used their vast powers to engineer economic growth – powers they worked hard to obtain in previous decades, in the form of independence with little meaningful accountability.
Trillion dollar questions. I’ll take a punt and try and answer your queries. Firstly, my guess is it would be saving and investment that drive growth, producing more than you consume. Secondly, interest rates are effective in the short term at getting a result/stimulating activity. Lowering rates stimulates activity, not necessarily growth.
Regarding central banks, I think they follow flawed theology as you’ve pointed out. They are counterproductive to the point of conspiracy theories.
actually evidence points to lower rates causing asset inflation and speculation.
https://pbs.twimg.com/media/Dn92d6zXUAE0lL_.jpg
The fallacy is the belief that capital is not available for viable productive projects. The evidence is that capital is freely available but that productive viable projects are already funded. That is what lower interest rates tell you. If there was competition for capital from lots of viable projects it would push interest rates up. The central banks merely drive capital into low productivity or negative productivity projects.
The problem is they thus take the pressure off the political process to figure out what is wrong. Heads need banging together, but instead we spend capital on a building party and borrow money to pay for the drinks, all the while telling each other how clever we are because the "value" of our houses has gone up. Meanwhile the Aussie bankers keep serving us more debt and they party on the proceeds, laughing in amazement at our collective stupidity.
And yet another $5.5 billion was borrowed this month for purchasing things that we already had here. The country will be bled dry to spare the Aussie bankers woes and then we'll have a proper headache ahead of us, yet it appears the entire nation has either been brainwashed by this madness or are too uninformed to understand.
A small anecdote, but I had a chat with a teacher at one of my kids old schools the other day. She can't be on much more that 65k. She's got five buy-to-lets that have all been purchased in the last 4 years to help fund her retirement. No offence to her, she's a very nice lady, but she wouldn't last a day in productive enterprise and yet somehow she's a genius investor. The first loan taken out was against what I would describe as an ambitious view of it's value and equity. Now, I may be a cynical sod but I just can't see anything other than a subprime type crisis on the horizon for NZ and our regulators have been sleep walking into it.
Buffet's comments on continuing external deficits are relevant:
Countries running continuing external defects will end up a share cropper not a shareholder society.
As he stated: Goodbye happiness - Hullo Pain .. couldn't be simpler and NZ is right up there having run C/A deficits now for 47+ consecutive years.
Financed by selling our houses to foreigners.
How else could our Net Foreign Investment position remain unchanged over the last 10 years despite racking up a cumulative ~ $ 70 billion in C/A deficits.
You really do have to question the accuracy of the RBNZ data - it just doesn't stack up.
Having read all the responses so far I am amazed that what i see as the basics are not mentioned.
Surely it is demand that drives growth? This being based on some change that requires an increase in production of an item. Reduced interest rates may help to stimulate growth, but if there is no demand, the end result will be negative.
On many levels the core question is then how to stimulate demand? John Key's answer was immigration. Another would be to increase incomes so people have more surplus to improve their living circumstances and lifestyle. Apple did it by inventing a new product and creating a market for it.
"31% of the $5.4 bln of new home loan lending in August was interest-only but 75% of that was for owner occupies and 23% for investors"
This shows how little people understand finance. As an owner-occupier you want to pay your mortgage back asap because interest is not Tax deductible and the interest cost comes out of your back pocket. As an investor, it's fine to have interest only as this expense is tax deductible and the tenants are paying for it.
Hi David
How many purchasers of houses have massive amounts of credit available to off-set in the revolving credit account after the purchase?
My brother in law had a revolving credit mortgage... traded up recently, still has a revolving credit mortgage with no credit in it...
Something to think about because I would guess that of the 31% of revolving credit mortgages, 95% will be scratching their arse in a month if they lost their job
The reason for interest only/ I mean revolving credit is so that buyers can get an en-suite on their two bed apartment at 700k debt. rather than having just one bathroom for the equivalent repayment amount at 4.5% over 30 years that 548K buys them.
Now that's an investigation to be done. Of the revolving credit mortgages in the country (and there are lots of them) how many people have more than 5K in the revolving facility.. I'll wager less than 10%.
I have a large overdraft facility secured against property, on my cheque/ transaction account. If I go into overdraft it essentially is an interest only mortgage, where I pay the current floating mortgage rate less discount. The account has not been drawn down for more than 3 years, but whenever the bank works out LVR etc, they work on the policy that the overdraft is fully drawn down and use interest only at 7.5% pa in their affordability calculations. I'm sure this overdraft facility, would appear as an interest only mortgage for banking calculations.
True. I did miss your point about both arrangements being lumped in together. It’s a bit of a shame for transparency to consider the two the same. I am kinda surprised so many people using revolving credit though. I consider offset a superior option but maybe I have different priorities.
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