Here are the key things you need to know before you leave work today.
MORTGAGE RATE CHANGES
No changes to report today.
TERM DEPOSIT RATE CHANGES
General Finance has cut their long term 4 and 5 years rate offers.
A RECORD, NOT IN A GOOD WAY
New Zealand recorded its largest monthly trade deficit ever of -NZ$1.6 bln for September. Unfortunately that comes on top of a very large deficit in August as well at over -$1.5 bln. The track turned bad starting in early 2018 with export growth falling away while import growth has picked up. We have policy settings to party-on even though our export earnings aren't justifying it. The average rise in imports in each month in 2018 is more than +14% year-on-year, while the average rise in exports is under +9%. That difference is cumulative and catching up with us now. It is true an Air NZ Dreamliner arrived in September ($275 mln). But over the past two years we have had them before (four times) and they tend to come at this time of year. In the past, they didn't cause 'records' to be broken. In 2017 we have only five months with a material negative trade balance. In the shorter nine months so far in 2018 we have had six such months already, and October and November are usually big deficit months as well.
TPP RATIFIED
Speaking of trade, New Zealand has joined Japan, Mexico and Singapore in ratifying the sans-US TPP trade deal, with Australia and Canada expected to follow soon bringing the trade deal into effect.
WILDLY POPULAR
Today's $150 mln NZGB bond tender for April 2025s was wildly popular attracting bids of $836 mln and driving the yield down to 2.19% pa. This is a drop of -5 basis points from the September tender of this issue, and -56 bps lower than the same auction a year ago. There have been 25 auctions for the April 2025 maturity and 2.19% is the second lowest yield ever achieved. (A March 2017 tender for $200 mln of this maturity attracted bids of $1.4 bln so that was even more popular, but the yield was 3.13% then.)
ANOTHER KIWIBIULD BALLOT
Housing Minister Phil Twyford says the ballot will open next week on the first 10 KiwiBuild homes to be built in the Waikato. They are all two bedroom. standalone homes priced at $480,000 each.They are part of the Lakeside development at Te Kauwhata that will eventually include 175 KiwiBuild homes. Construction of the first 10 KiwiBuild homes is expected to be complete by Christmas. Te Kauwhata is 77 kms south of Auckland.
STILL MAKING INTEREST-ONLY LOANS
Banks are still making interest-only loans, mainly because revolving credit facilities are classed as interest-only (even though they come with a sinking credit limit which has the same effect as principal repayment). Of the $4.8 bln on new mortgage lending in September, almost 30% was interest-only (incl. revolving credit). But almost 92% was with an LVR of 80% or less.
LENDING LEVELS MODEST
There is no real evidence of increased lending to first home buyers. In September the level was at about the average for the rest of 2018. Lending to investors is down about -16% on that same basis. In fact, total new lending in September was low, indicating a weak start to the Spring selling season, with the lowest overall amounts lent since February, and only marginally more than the same month a year ago.
RECORD INTEREST PAID
In each of the September years from 2015 to 2017, the annual amount of interest paid on mortgages has been falling. But in new data out today, that trend reversed and the amount of interest paid in the year to September 2018 was $11.9 bln, a record high. That is equivalent to 4.2% of nominal GDP. (Bet you thought it was higher than that.)
MORE RED INK
After Wall Street's -3% dump overnight, Shanghai was opened -1.75% lower and has been softer since.
SWAP RATES DROP
Swap rates are down following international markets. The two year is down -2 bps, the five year is down -3 bps, and the ten year is down -4 bps. The UST 10yr yield is sharply lower at 3.10% and down by -6 bps following Wall Street's steep pullback. The UST 2-10 curve is holding at +27 bps however. Benchmark bond rates are slipping as well. The Aussie Govt 10yr is at 2.62% (down -5 bps), the China Govt 10yr is at 3.56% (also down -5 bps), while the NZ Govt 10 yr is at 2.59%, and down -8 bps. The 90 day bank bill rate is unchanged at 1.90%.
BITCOIN HOLDS
The bitcoin price is now at US$6,457, and still the same as this time yesterday.
NZD SOFT
The NZD is lower today at 65.22 USc. On the cross rates we are also marginally softer at 92.2 AUc, and 57.2 euro cents. That puts the TWI-5 at just over 69.6.
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27 Comments
A note in Asia Times re the increase in the impetus for a US-China trade deal: the stock market correction presently underway. From the ever-connected David P Goldman.
China doesn’t want a fight with Trump. The prospect of a full-dress Cold War with the United States has spooked the Chinese stock market, dominated by retail investors who tend to cut and run at any sign of political trouble.
China has a lot of wood to chop in its own economic policy. Reform of state-owned enterprises has proceeded slower than the leadership intended, and its flagship Belt and Road Initiative is plagued by poor planning and political frictions with China’s trading partners.
The stock market’s misery gives Trump more motivation to conclude a deal with China, and China is likely to make it easier for Trump to strike a deal, by giving the president a resounding propaganda victory. Rather than focus on a 2025 target for high-tech dominance in fields such as semiconductors, China may be willing to push its program back and quietly dig in for the long haul.
No Such Thing As An 80% Boom
https://www.alhambrapartners.com/2018/10/24/no-such-thing-as-an-80-boom/
It's not really a surprise that interest payments on household debt have increased this quarter... when you observe the increase in the total household debt by 12.6% in just 2 years. What should be a concern is that that increase has taken place in a housing market that has largely come off the boil, with a significantly reduced volume of transactions from the 2016 peak. Fewer transactions where a lot more borrowing has been taken on... hmmmh.
When you look at the chart for 2 year mortgages, https://www.interest.co.nz/charts/interest-rates/mortgage-rates borrowers are now paying more interest despite the rates dropping to around 0.94% of where they were last year..... Can anyone spot a buggers muddle for the RBNZ? That current account deficit suggests that an awful lot of Kiwi's are still having a drink 'on the house.'
When do we get to hear from the FMA's nicely nicely, gently gently, let's not upset the 'masters' investigation?
All the while mortgage debt grows at between 3 and 4 billion dollars a quarter or around 4.5% of net GDP per annum, another couple of years of that and we end up in a bigger pickle than they are....
Another $900,000,000 in interest only debt lent to the poor unsuspecting young to prop it all up. I know David will correct me again that it includes revolving credit mortgages.. All I will say is that when you allow buyers to borrow $700,000 (interest only) for the same monthly cost as a $550,000 repayment loan, the chances are that there won't be much credit left to revolve. This is reckless in this environment, particularly given what is occurring over the ditch with the collapse of interest only loans and switch to capital and interest. It's only a matter of time before the bubble implodes and it is the young who have been brainwashed by 'the always go up' MSM who will end up getting stuck, or worse in the coming correction. I have a genuine issue with the morality of it all!
There is zero difference between a standard revolving credit arangement and a standard P&I mortgage. It confuses the discussion to meaninglessness when R/C and other interest-only loans are considered the same thing. When people say "interest-only" they are assuming an arrangement with no principal repayments. That is not what a standard R/C arrangement is.
It would be nice to get some clarity on the percentages though wouldn't it? The true level of interest only that is artificially inflating the market, particularly when sold to the inexperienced FHB? If, as you say there is no difference between revolving credit and P and I, why would they not count revolving credit as 'P and I' then we can have a true reflection of 'interest only' debt in the market for which everyone knows the risks that that creates? See Aussie market.... etc etc.
I am not sure I agree DC.
Standard Revolving Credit loans do not require payment of principal. Some versions of RC have sinking limits, but not most of them (think all the main banks - they all sell pure RC).
EG - Westpac Choices Flexible; ASB Orbit Home Loan; ANZ Flexible Home Loan; BNZ Mortgage One; Kiwibank Revolving credit - all of these products keep the limit for the term, so ARE interest only. The Rapid Repay / Fast Track / Reducing versions of these would be P&I and declared as such on RBNZ returns.
It's more like a secured overdraft. So, it's quite possible that those fully utilizing them fully and never paying reducing the principal could get themselves into hardship.
Of course, banks generally factor that into servicing, as they would with overdrafts and credit card limits.
As you've mentioned before, and the accuity of your observation is beyond reproach.
I guess what I mean is *how*. How are floating mortgage rates higher than fixed rates? What is the mechanism?
The way I see it is that mortgagors are forced to pay a premium for making extra repayments. I allege that it amounts to usury.
We recorded our largest monthly trade deficit ever and are on track for one the worst years in our economic history too.
I thought the plan for devaluing NZD was to discourage imports and boost exports but the transition wasn’t supposed to happen overnight. Also, at the rate business sentiment has decayed in this country, we could witness much worse in the not so distant future.
What next, Orr?
Advisor
We appear to have an entire nation that is addicted to the opiate effect of 'cheap credit'.... Mr Orr will be looking very closely at his crystal ball and may have to be a little less sanguine in his 'forward guidance' about when rates will rise when he addresses the market in his next speech... He can't actually do anything with rates though as that would collapse the economy...first he needs the 60% of borrowers coming up for mortgage renewal in the next 12 months to fix rates and for the banks to take the hit of 'reduced bank margins' before he then actually raises the cash rate in Q3 next year (my forward guidance) . One thing he will now need to do is be a bit firmer with his language and fire his first 'warning shot,' to the highly leveraged. This view on Australia from August this year highlights the predicament our governor also now faces
European indexes are a mixed bag at open today, some up, some down, the Dax pretty flat. But the there are lots of significant earnings reports out before the open tonight in the US.. if they hit/exceed expectations the US markets might rally, and then we'll see what Amazon, Intel and Google do after the close.
AMP have been the first financial provider to call a bigger crash in Australian property prices 20% down by 2020, shares tanked 14% today while they offload their life insurance division. Some of the other banks are already stuck at 5-10% housing market correction predictions. When Sydney is already down over 7% already those figures spark of lunacy, which is why ANZ and Westpac 'em full of interest only' have both fallen today -2.55% and -1.05% and both sitting below their 2 year lows....
https://www.news.com.au/finance/economy/australian-economy/amp-downgrade...
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