A review of things you need to know before you go home on Wednesday; no rate changes today but major drama in jobs, inflation expectations and wholesale rate data. NZD rises strongly, & more

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
No changes here either.

TOO GOOD TO BE TRUE?
Stats NZ says our unemployment rate is now 3.9% and now its lowest since June 2008. The employment rate at 68.3% is highest since the series began 30 years ago. But wage growth remains subdued. This result is a big positive surprise and many analysts are sceptical. In the year to September, we added 69,700 full time jobs. But as good as that is, it is lower that what we added in the year to June and the lowest gain since the year to March 2016. In fact, in 2016, we added 123,600 new jobs so the latest data is pretty tame. The low jobless rate is driven by a surprise rise in the participation rate to an impressive 71.1%.

RENTAL YIELD INDICATOR
In our exclusive review of rental yields to October, we have found that house prices and rents are mostly up but rental yields are moving sideways. There has been little overall movement in rental yields for residential property investors - and there are particularly low returns in Auckland, Tasman, Queenstown-Lakes.

BYE-BYE
Our oil exploration sector is packing it in, in the face of a Government who have signaled they are not welcome. The majors are going elsewhere, leaving minnows to pick up the current assets. A lack of investment will follow. TAG Oil has sold all its NZ assets to Tamarind Resources for US$30 mln. They are following Shell who cashed in their chips for US$578 mln earlier. Our energy options are getting more brittle by the month - and purposefully. Warm feel-good now, consequences later.

INFLATION EXPECTATIONS RISE
The RBNZ survey of inflation expectations one year out has jumped to 2.09%, up from 1.86% three months ago. This +25 bps jump came from survey conditions that predate today's jobs data and is the highest jump since June 2011. The one year expectation is now above the two year expectation and that is the first time this has occurred also since 2011.

LOCAL GOVT PAYS MORE
The LGFA bond tender today sees an average yield of 3.20%,for the $200 mln offered and a coverage ratio of 2.3x. That compares with a weighted average yield of 3.06% for the $210 mln offered at the last auction, which had the same set of maturities. Last time the coverage ratio was 1.8x.

HOUSE PRICES DECLINE, HOUSEHOLD DEBT RISES
In today's RBA chart pack release, the extent of their house price retrenchment is starkly illustrated on page 7, even as total household debt continues to rise.

SWAP RATES LEAP
Swap rates are up strongly today, driven by the HLFS result. This has added +9 bps to the two year swap, +14 bps to the five year swap and +11 bps to the ten year. In this market these are big moves, but will only be significant if they hold. Uncertainty will continue until Adrian Orr gives his assessment tomorrow morning. If these rises hold or firm from here, mortgage rates may have hit their cycle lows. Going the other way has been the US bond market, frightened into a risk-off mood temporarily. Bond prices rallied strongly late in the day, and yields tumbled. The UST 10yr yield was down to 2.99%, a -23 bps drop over a few hours. But the UST 2yr hardly moved as the UST 2-10 curve has slumped to just +4 bps. We hadn't seen it that low since June 2007. Then it equally suddenly recovered back to prior levels. Other benchmark bond rates are not as volatile. The Aussie Govt 10yr is at 2.72% (down -2 bps today), the China Govt 10yr is unchanged at 3.56%, while the NZ Govt 10 yr has leaped +9 bps to 2.76%. The 90 day bank bill rate is up +1 bps to 1.97%.

BITCOIN UP
The bitcoin price has started to rise just as the US mid-term voting closes. It is now at US$6,524 and up +1.5% on the day.

NZD JUMPS
The NZD leapt today after the dive in the unemployment rate was announced. It is now at 67.4 USc and up by more than +¾c to its highest since August 2018. On the cross rates we are also much stronger and up to 93.2 AUc (the highest since June), and at 59 euro cents (highest since June as well). That puts the TWI-5 at just on 71.7.

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Source: CoinDesk

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18 Comments

Capital ratios are meant to help define a “good bank” for the public. The thought being a bank widely recognized and accepted as a good one will be far less susceptible to a run. But it’s the run regardless of capital ratios that destroys good banks as well as bad. The issue is, by and large, liquidity.

Officials have erred in one part because of how they view the banking system. To them, it’s still 1930 and depositors are the biggest bank concern. Bank regulation remains devoted to convincing the public the system is sound.
https://www.alhambrapartners.com/2018/11/06/still-dont-get-it/

Remember Twyfords absolute commitment that no one would lose their jobs as a result of the ban on oil and gas exploration other than onshore Taranaki.

I wonder how true that will be by year end 2018 - we should ask Tag Oil !

Tag Oil, shortened from the German phrase “Schönen Tag” which means “Have a good day”.

BBC: Mid-term elections 2018: US Democrats win House in blow to Trump!
https://www.bbc.com/news/world-us-canada-46120373

Not exactly a blow to anyone. Don’t fall prey to partisan media’s false claims.
History tells us that the party that wins the presidential elections end up losing the house in the next midterm election.
The party of the incumbent president tends to lose ground during midterm elections: over the past 21 midterm elections, the President's party has lost an average 30 seats in the House, and an average four seats in the Senate; moreover, in only two of those has the President's party gained seats in both houses.

https://en.wikipedia.org/wiki/United_States_midterm_election?wprov=sfti1

Is the record turnout also a media beatup?

Good for the fact that this could mean a resurgence in democracy as its usually high income older folks who vote in the US. Neither side is winning by a huge margin as everyone is bleating to be. I am not a fan of either party because both contain different shades of evil in them.
The stupidity with which leftist media is claiming moral victory as they are the “good” guys gets to me.

Just happened to take a look at realestate.co.nz Auckland listings. Hit it just right, exactly 14000 listings.

Well timed Sir.
It's 14,014.. That leaves me with 48 days left to add 986 listings to win my bet with 'Hardly.'
Nationally we've gone well through 37,000 as well today.

Hey Nic,

Watching the life changing bet with interest – stakes are indeed high.

Don’t know if you really have 48 days up your sleeve – maybe only another week or so – after all, who is really going to create a new listing in December – not enough real stress out there to do otherwise?

I’m going out on a limb and say you won’t make the 15,000 – can’t afford to play and gamble loose with you big boys so sadly will accept I once again have no skin in this one.

After summertime fun though – it’s all on once again – interesting times.

Well Custard - Looks like the housing shortage was a load of old tosh after all, can't give em away at present. Todays numbers have seen the most dramatic daily rise that we've seen!

National unsold housing stock (realestate.co.nz) has risen from 36,775 yesterday to 37,220 today. A rise of 1.2% in 24 hours
Auckland Unsold housing stock (realestate.co.nz) has risen 13,795 yesterday to 14,040 today. (BUSY EVENING) A rise of 1.7% in 24 hours.
Auckland rental stock (Tradme) has risen from 4,277 yesterday to 4,354. A rise in availability of 1.8% in 24 hours.

Hi Custard

Stress? Or FONGO? both are big drivers here. We may see listings all the way through to Christmas... Why would you wait to get your cash out when everyone is going to be selling after the holidays?

Don't forget how much of this was speculative gambling on capital gains... There may be gains now, by March they may have evaporated for the later arrivals.. They've likely disappeared already for anyone who bought since 2016 in many suburbs........ And the start of the baby boom splurge is upon us. how many can wait until the upturn.... Japan it took 20 years?, Australia is heading for mess.... Ireland still not recovered from 2006 ... If you have a bit of time watch this as it will help to think about why the 'everything bubble' is over.... (Just ignore the Bitcoin, Blockchain rubbish at the very end)....

https://www.youtube.com/watch?v=5OFaZcC0lRU

Another 5 of the Kiwibuild Papakura 4 bedroom places open for ballots. Hope they found some more applicants.

These ones might be a bit nicer.. 4 bedrooms over two levels, instead of the single level of the original 4 bedroom (Three + study). But no floor plans or details on the McLennan website.

Now that Twyford has relaxed the rules around speculating on Kiwibuild properties, I think many more people will sign up!

relaxed the rules? What did i miss?

Really good report on Australian 'Mortgage Stress' from DFA, nice to get some more info to accompany the 'official' data in the above article.

https://www.youtube.com/watch?v=7EXkXjPZsrs

Does anyone want to really understand more about 'credit creation' by banks and where the money supply for everything really comes from?

https://www.youtube.com/watch?v=MechH0ebs_c&t=3s

Housing slump set to be the largest in nearly 40 years, Macquarie says
Macquarie Bank says the downturn in Australia’s housing market will be larger than it first thought, with price declines of between 15 per cent to 20 per cent likely in Sydney and Melbourne.
“In June, we revised our expectations to be for a 4 to 6 per cent peak-to-trough fall in national housing prices and for a decline of around 10 per cent in Sydney,” say Justin Fabo and Ric Deverell, members of Macquarie’s Australian economics team.
“Fast forward to now and it’s becoming clear that the extent of price declines is likely to be even larger.
“The overall decline is now likely to approach 10 per cent… the largest peak-to-trough decline in nominal housing prices in almost 40 years.”
https://www.smh.com.au/business/the-economy/housing-slump-set-to-be-the-...