Eyes on RBNZ; Wall St lives with US Midterms; US mortgage applications drop sharply; China fx reserves slip; PBoC to fund desperate private companies; UST 10yr at 3.20%; oil and gold hold; NZ$1 = 67.9 USc; TWI-5 = 72.1

Here's our summary of key events overnight that affect New Zealand, with news China is hunkering down more with a new private company rescue package on the way.

But first, all eyes will be on Adrian Orr and the RBNZ's Monetary Policy Statement at 9am this morning, especially after yesterdays dramatic surprise with our labour market data, and the sharp rise in inflation expectations.. We will have full overage of course.

Elsewhere, Wall Street is rising and is up +1.6% in afternoon trade as investors piled into technology and healthcare sectors after their midterm elections led to a divided American Congress as expected. This is raising expectations that tighter regulations would be harder to push through Congress now making it easier for the dominant to remain with those market advantages. Investors seem to be able to live with a deeply divided country, even as the US dollar fell and there was a shift to bonds in a risk-off mood.

US mortgage applications fell more than expected, down -4% in a week. That puts them at their lowest level since December 2014. The average contract interest rate for a standard 30-year fixed-rate mortgages backed by the FHA rose to 5.15%, a +7 bps jump in one week.

We are awaiting US consumer credit data from the US Fed for September and markets expect a small slowdown from August. When that data lands, we will update this note here. Update: This data came in slightly lower than forecast, but August was revised higher.

On tariffs, Gary Cohen, the recently departed Trump Administration chief economic adviser, has described tariffs as a "tax on Americans", saying what all economists know but what a financially illiterate President (and many voters) can't get their head around as they pursue short-term jingoistic trade policies.

China's foreign exchange reserves were lower in October by -US$34 bln, but still managed to stay above the psychologically important US$3 tln level, just.

And China's central bank has launched another fund to supply equity finance for companies not longer able to get it from investors in the normal markets. This is an indication of the seriousness of their current credit crunch and lack of confidence in their economy by investors. Apparently forced takeovers by SOEs isn't enough to prevent many private enterprises from going under. One sector particularly hard hit is property development, where S&P is warning of a rising default risk. Belt-tightening stories for consumers are starting to appear.

In Australia, the new sport for economists seems to be outdoing each other in calling the size of their housing market declines. Macquarie analysts now say the overall decline could be -10% in nominal prices with Sydney and Melbourne being more like -20% from the peak. At those levels, that would make it the largest housing market retreat in 40 years.

The UST 10yr yield is down -1 bps at 3.20%. Their 2-10 curve is now under +26 bps. The Aussie Govt 10yr is at 2.73% (unchanged), the China Govt 10yr is at 3.52% and down -2 bps, while the NZ Govt 10 yr is at 2.77% and up a remarkable +10 bps today.

Gold is up +US$2 overnight to US$1,228/oz.

US oil prices are still under US$62/bbl, while the Brent benchmark is now just over US$72/bbl.

The Kiwi dollar is starting today much firmer at 67.9 USc which is up more than +1c in a day and up +2½c over the past week. On the cross rates we are up to 93.3 AUc and a five month high, and the same at 59.2 euro cents. That puts the TWI-5 at 72.1 and also near its five month high.

Bitcoin is now at US$6,527 which is +1.3% above this time yesterday. This rate is charted in the exchange rate set below.

This chart is animated here.

The easiest place to stay up with event risk today is by following our Economic Calendar here ».

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54 Comments

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11

realestate.co.nz 14,158 for Auckland. Up 158 in one night. FONGO has to be driving it. It's not an "if" our market will fall, its' how much.

I've generally been calling a 10% fall from peak, but it might be more like 15-20%. My dad found out the latest cv on his Wellington property this morning - a whopping $1.4 million

What was it previously, Fritz?

Circa $1 mill I think

LOL 1.4 million for wellington. Are the walls insulated?

It's located on a road wide enough to accommodate 2 lanes of flowing traffic inclusive of on street parking (on 1 side).

yep. The house is only 5 years old. And bathed in sun.
But yeah, the prices there have got pretty stupid

Found this about Wellington, I am sure there is one for Palmerston North

http://shittownsofnewzealand.blogspot.com/2018/07/wellington.html?m=1

I checked my house value as well. It's only gone up 50% in 4 years. Pretty typical for Wellington as the Council tries to limit residential consents as much as possible.

Folk were wondering whether TradeMe would go over 13,000. I see it's now at 13,228, another 200+ listed in the last couple of days.

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But as Tony Alexander says, there's next to no chance of a big drop in NZ. We are diffrunt

...it's always a shortage on the climb to the peak. FONGO commences, vendors then chase the retreating buyers. NZ's been teetering at the top, supported by ever cheaper credit and for way longer than most anticipated. It will not last.

There is only place that give TA any public work these days - NZ Herald / OneRoof.
Someone who stays in the same job for 24 years isn't a dedicated employee; they are someone who can't get a job elsewhere. Never truer than with Tony Alexander.

4 years max, isn't it? Or you aren't going any higher....

Why the harsh words about TA...?? I dont think he is any worse than most other economists..

hahaha.
Funny.

Alexander was the reason so many other bankers had their job description changed from economist - to preserve their personal integrity. He does a good job of sound bites and bank promo but accuracy of forecasting? Yeah Na.

I wonder what the job adverts look like for positions at "OneRoof".

Must possess a vivid imagination and not more than five brain cells?

The only thing left between NZ and rising interest rates is Mr Orr.

Not really. Id be keeping an eye on the US Fed. They've already raised interest rates and have signaled more rises.

If borrowing costs become higher, who do you think will pick up the tab for that?

16% of bank funding is from Overseas so i'm told.

I thought it was 20%, but still not an insignificant amount that banks are paying more on. Apparently about a third of AU banks funding is overseas, those costs have risen already, do the big 4 prop up the mothership? Having worked for many years in global businesses with regional head offices in AU, NZ is entirely irrelevant/amusing until such time as AU starts feeling the pinch, then it's all eyes on NZ to save the day.

When I worked for a Multinational Corporate we had this exact issue. Some Desalination Plants in Aussie got deferred a few years back leaving a gaping hole in their budget forecast. That same year, we secured some big supply contracts here in New Zealand.

Australia, being our 1 up, were talking about transacting the projects through Australian profit centers while using our New Zealand manufacturing and supply facilities. The hard work done in New Zealand to secure these contracts would have impacted on our bonus entitlements.

Didn't happen this way in the end, so we smashed budget in New Zealand, Aussie tanked and then Head Office in America decided to consolidate the overall Australasian results into an average which massively weighted down our bonus payout.

As I said " the only thing standing between NZ and increased interest rates is Mr Orr". Every other indicator shows an upwards bias. You are correct, among other drivers of our rates is the overseas funding costs and they are going up as well as potentially attracting that money back home to US which would indirectly push our rates up. The only hold out is the RBNZ. We will now see how much effect they have on the real economy - the market is pushing swaps the other way.

Why are our four Aussie owned banks forecasts so miserable. The three hard data market movers in the past month are CPI, GDP and yesterday's Unemployment data. The group forecasts for GDP at 2.5% short of the actual 2.8 % and helped by a downward revision, CPI 1.9 % on expectations 1.7% and yesterdays stonker also helped by a revision. When stripped back to the 4 Aussie banks their forecasts were poorer than average. As David Hargreaves has noted, the soft Bank sponsored and in- house surveys simply are not matching actual numbers. The RBNZ has a real problem today,, are the Aussie banks simply leading the RBNZ by the nose ,or is the RBNZ so worried that the mention of raising rates will crush the faltering real estate market and with it the Aussie banks.

Your last sentence sticks out to me.

Have we been a market of speculation or a market of hope?

It's a leedle beet diffrunt dis toime.

It oilways is :)

I am really not sure what accent that's supposed to be.

'leedle beet' seems australian, then 'diffrunt' seems kiwi, and then you go irish with 'dis toime'.

Give us some footnotes.

FONGO happened during the Asian financial Crisis happened in the late 90s, interestingly sparked from a credit bubble. Clearly remember a bunch of 50ish (at the time) guys at work stressing trying to dump housing in Grey Lynn, that up till that point they spent every lunch time bragging about how cool their capital gains. Very similar dynamic to now. Underlines the amount of speculators vs true investors in the Auckland market.

If that story is true averageman, then the point is that there was absolutely no reason for them to have worried about that blip, prices in Grey Lynn have probably quadrupled, if not more, since the late 90s. I guess too, you are now a 50ish guy who can boast about the capital gains you have made in recent years.

Agreed. Lots of stats show that Awkland lags Sydney. Why would it be any different here?

"What happens in Australia happens here"

Like a massive oversupply of appartments?

I've read your link, there's not 1 reference to Auckland.

Hmmm Chinese buyers signing contracts allowing apartments to get funding to start construction, and then vanishing at settlement. Last I looked there are cranes and apartments coming out of the ground everywhere in central Awkland.

@Yvil,
Here in Aust, it's common knowledge that some Mainland buyers bought their apartments at off-the-plan stage for 10% deposit. At near completion, if the market price doesn't stack up they simply walked away from the deal. Many developers gave up suing them and only a handful managed a win in court

Agreed

Hi AJ...Thanks for the link....sad, but true to life...

Just another "Bought and Paid for Hypocrite."...with delusions of adequacy.

Labour...nah self indulgent....just a means to an end. Never laboured in his life.

All talk, wrong actions.

Pity the deeds of power via Pollyticks..kill people, yet make themselves rich via the backdoor..

Was the Taxpayer Salary not enuff....when mixing with the other Powers That Be...or did he just follow the path of most ...gorn before....

Power corrupts, absolute Power, corrupts absolutely...the Pollyticians and Bwankers Dream.

Just one example of many over the years....from the dawn of time.

And we pay em, subsidize em, from the cradle to the grave.

HI Alter Ego, it's two dollars to download, thinking about sending it to people I don't like as a Christmas present.

That is cheaper than a stamp to UK plus a card as well...or America...maybe we could split the difference...

Or just send a link via email...being the tightwad ..I am.

Food for thought.....Have you got Anthony's email address.....He might like a copy to forwards to his Multi-million Dollar mates in USA...as a reminder of times ..gone..buy....sorry..by.
I often get simple words mixed up..Bush, Shrub, ...that sort of thing....Damn crossword puzzles are a hoot at my time of life. Words are meaningless...when mixed up....

I do like most of the links you put.....up. Keep em coming.

Here is the full doco on The Killing$ of Tony Blair

https://www.youtube.com/watch?v=4zkXZQ3862U

The Govt knows if house prices fall too much they will be blamed. The banks are freaking out about there exposure Orr is being squeezed from every angle, this wont end well. Obviously all that cash printed in the last 10 years will come back to bite.
Expect real estate listings to head through the roof as vendors start to realise all the "property articles" they have been reading in the herald were actually just REA ads. As soon as i saw the front page Herald article a couple of weeks ago stating it's not if the market drops its how much it's going to drop. I think that was a turning point. I expect the run of listing to turn into an avalanche. From there it's self fulfilling? Hang on to your hats

Seems like there's a steady tide of new listings coming onto TradeMe in Auckland.

This is an interesting one: https://www.trademe.co.nz/property/residential-property-for-sale/auction...

A 3-bedroom townhouse (not standalone) on 162sqm of land, out in Hobsonville...for $1.35 million?

It's a typo and they've put the decimal place in the wrong spot...

And on a separate yet related note, the marketing of homes, REs really do need to find a dictionary - the word "luxury", for example, to me says things like gold, platinum, butler service that kind of thing, not a cupboard with a toilet in it.

In this instance the word "icon" - evokes Big Ben, Eiffel Tower, Statue of Liberty, on a human level Marilyn Monroe, James Dean - not an end terrace box in the arse-end of nowhere.

The next term being rocked out for any house that has a major issue or defect is "Astute buyers will...", "...one for astute investors".

That and Apartment Specialists constantly posting pictures of fruit bowls as if they're a selling point.

“Nest or Invest”

"Sun-drenched" is a common one that irks me. What does that even mean, it gets a bit of afternoon sun?

If you are the Old Wally from way back...welcome back.

I think that was wolly. He sure was a card that one!

Trade me now at 13293 for Akld and realestate.co.nz has just exploded to 14161 for Akld

For comparison's sake, do you know what the stats were this time last year?