A review of things you need to know before you go home on Thursday; some rate changes, big bond issues, Jones not spending fast enough, a $1.09 tln investment, swaps dip, NZD strong, & more

Here are the key things you need to know before you leave work today.

MORTGAGE RATE CHANGES
TSB joined many other banks adoption the 3.95% carded price point for a 1 year fixed home loan. The weighted average bank rate is now under 4% for the first time ever.

TERM DEPOSIT RATE CHANGES
NZCU Baywide has trimmed most rates under 6 months, and also trimmed its savings account rates.

BOND BONANZA CONTINUES ...
BNZ is borrowing $550 mln at 3.648% via five-year bond issue. And Chorus is seeking at least $300 mln in its own bond issue.

... WITH THE GOVT IN THE ACTION AS WELL
The Government was raising bond money today too. 47 bidders bid $428 mln for the $150 mln of April 2037 bonds. Nineteen of them won by offering an average of 3.07%, which was the highest yield achieved by investors for this duration since July.

NZD BACK IN FAVOUR
There was a sharp jump in trading volumes for the NZD in currency markets in October with overall volumes rising to their highest monthly level in four years. Activity in both spot and forward trade were up, but the really big rise was for currency swap trades.

CASH FOR THE REGIONS
Shane Jones has today announced a Provincial Growth Fund (the NZFirst re-election fund) package for Manawatū-Whanganui of about $48 mln. He is only 14% the way through his $3 bln funding for this pork barrel scheme, having allocated $431 mln to date.

BETTER JOBS NEWS
In Australia, October jobs data revealed that jobs grew by +32,800 from September and the growth in full-time jobs was even higher at +42,300 as part-time positions fell. The reported 5.0% unemployment rate is actually better than that because that is the seasonally adjusted number, unchanged from September. On an actual basis the rate is 4.8% and that is down from the prior month; in fact it is the third monthly dip in a row. Their participation rate was unchanged at 65.3%. Markets liked the data and the Aussie currency rose on the news.

STABLE - PERHAPS
In Beijing their official statistics agency released data on house prices showing broad stability. In this data there is no sign of the tensions and stress reported elsewhere of falling prices and the social anxiety these are apparently causing. Chinese censorship rules are now extending to official economic data reports following "instructions" not to changshuai (bad mouth) the economy.

EASING OFF
The RBNZ released valuation data today of the New Zealand housing stock. All up it is worth $1.09 tln, a +4.5% rise in a year and a value+new gain of +$48 bln. That is the smallest gain since the year to September 2014 and far below the +$140 bln gain in calendar 2016. Of the $1.09 tln total value, $275.0 bln is the value of rental housing and $815.5 bln is the value of owner-occupied housing. Given there were 1,169,900 owner-occupied dwellings at June 2018, that means the average value was $697,000 (up +3.7%) whereas the average value of a rented dwelling was $392,000 (up +1.9%). Westpac thinks prices will keep rising for a while yet.

SWAP RATES SOFTER
Swap rates are unchanged for one year and down -1 bps for all other durations. The UST 10yr is holding at 3.13% today after falling -3 bps last night. The 2-10 curve is just under +26 bps. The Aussie Govt 10yr is at 2.73%, unchanged, the China Govt 10yr is at 3.50% and also unchanged, while the NZ Govt 10 yr is at 2.79% and that is down another -2 bps today. The 90 day bank bill rate is down -1 bp to 2.00%.

BITCOIN DROPS SHARPLY
The bitcoin price has dropped -10.6% today and is now at US$5,596, its first big move in any direction for some time. Other than moving past a 'death cross', analysts are at a loss to explain why the sudden move lower. Some ideas include a demand for liquidity in the face of a Bitcoin Cash fork. Or maybe there has been a herd-shift to mining cryptos other than bitcoin. But basically, no one really knows.

NZD HOLDS HIGH
The NZD has actually risen today and is up to just on 68 USc. But on the cross rates we have slipped to 93.4 AU, but are up over 60 euro cent. That puts the TWI-5 at just on 72.5 and a five month high.

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61 Comments

"BNZ is borrowing $550 mln at 3.648% via five-year bond issue. "
Potential here for historically low (< 4.5%) mortgage rates to extend beyond the next couple of years????

until they can figure out how to hit the 'growth' button it's all going to be downhill. More and more money is betting on deflation as the most likely outcome.

Hussman
"The corollary is also true. The lower the long-term rate of return demanded by investors, the higher the price moves today. So clearly, changes in investors' attitudes toward risk will strongly affect short-term returns. If investors become more willing to take market risk, it is equivalent to saying that they are demanding a smaller risk premium on stocks (that is, a lower long-term rate of return). Prices rise as a result. Now, the fact that current stock prices are higher also implies that future long-term returns will be lower, but that's part of the deal."

Hard to extrapolate the “now” into the future.

If these relatively low interest rates should fail to hold and rise (dramatically?) over the next few years then these bond holders are potentially in for a rather miserable time.

"the NZFirst re-election fund" Ha!

IF they actually spent it right, then it could be a good thing, the more that can be done to shift business around the country the better. Outside of Iceland, population roughly that of Christchurch, (Reykjavik apparently has 35% of their population), are there any other OECD nations that has a city that makes up 33% of their population as Auckland does?

You can’t really compare NZ with old world oecd countries that have had many long established cities or enormous geographical countries like Canada and USA. Better to compare NZ with each Australian state of which each capital city makes up half or more of the state population. Or Israel (oecd), Tel Aviv metro makes up around a third of country population. Or Chile (oecd), Santiago metro about 40% of population. Or South Korea (oecd), with Seoul metro about 50% of population.
Artificially shifting business around the country is not a good thing. There are reasons for agglomeration and centralisation. Let small towns die if they must, it’s all part of creative destruction.

Fair call on the comparison. I'm not entirely convinced that rampant urbanization is the future though. There's a tipping point at which over-densification causes problems for health, both mentally and physically. I'd like to see us unwind some of it, not in France though, as I've got my eye on a 14 bed house in semi-rural that's an absolute bargain at sub $600k :)

"The BoJ now practically owns companies and financial markets with what to show for it? GDP growth over the last five plus years since it started has been 0.9% per year compared to 1.5% since Q1 2009. Caught up in the mess are the regular Japanese citizens who are being stuck with the short end of the stick. And it’s not even close."
https://www.alhambrapartners.com/2018/11/14/the-obvious-politics-of-down...

"Shane Jones has today announced a Provincial Growth Fund (the NZFirst re-election fund) package . . . "
True and well put.

If he's taking so long to spend it maybe he should boost the local economy by staying in a provincial hotel. He could blow his re-erection package in one night.

But will the provincial hotels have the range of porn channels on their TV's?

do dvds; no trace;( unless you use govt credit card)

Farmers catalogue.

Andy Xie

The current market turmoil is a different animal. It undermines the pillar that sustains leveraged speculation – the mutually dependent relationship between the US and China which states, “I buy your goods, you buy my debt”. China continued the invest-and-export tradition of other East Asian economies. The overinvestment in the East was sustainable only because of overconsumption in the US. Through forced savings, the East financed its overinvestment at home and overconsumption in the US by buying American debt.

https://www.scmp.com/comment/insight-opinion/united-states/article/21731...

Declining growth will hit the market soon. A 12-year-old property bubble has begun to deflate in China. This is causing the economic slowdown, not the trade war. Soon, commodity prices will decline, affecting the commodity-dependent economies in the developing world. These two blocks have accounted for around half of global growth. The earnings story for multinational companies is bound to reverse.

Whilst NZ and Australia are not considered "developing" world, it's hard to imagine how they would insulate themselves economically from a recession in China. My fear is that because of the extreme reach of CPC information control and censorship... if recession occurs and when evidence of that surfaces, the markets will freak the f$#k out. Markets are jittery and like as much data as they can get to alleviate concerns and feel like the bets they make are informed. But if the Chinese miracle unravels, there could be panic like we haven't seen since the GFC. And of course, there is a lot more debt swilling around now than then.

We are selling %25 less milk powder to China than last year and production is up %6. Logs will be interesting to follow.

Andrewj very interesting. And that is just one of the easier measures to track in terms of China-slowdown's and
its impact on the NZ economy. Some of the other effects must be nigh on immeasurable and unpredictable but will be felt just as keenly.

That just has to be plain wrong. The latest data is to September and that shows we are exporting +10.8% more "milk powder, butter, cheese" than the same quarter a year ago on a value basis and +6.9% more on a volume basis. And to China our overall exports are up +18% q-on-q.

Got it from California milk producers, they could be wrong. EU stockpiles are about half of two years ago, they have moved a lot of product and India has added100,000 tonnes to the market.

The swine flu in China is getting really interesting, wonder what the flow 0n effects will be?
https://2.bp.blogspot.com/-q9ZEOscx0ig/W-mOZemIwaI/AAAAAAAAC5g/aHoxM16oh...

Agree. This is 'interesting'. But whenever I dig into the numbers of pigs in a farm with ASF it is usually just a handful. I look at detailed reports not just in English, but local reports in Chinese. Of course, record keeping could be very dodgy, and there is a huge incentive for hog farmers not to declare accurately. Still, the actual numbers involved are tiny given the size of their pig herd.

What is interesting is the relativey rapid spread of reported infection. And that suggests very poor biosecurity and monitoring. And of course ASF is highly infectious and untreatable. So it could decimate their herds if it gets away. And it does look like it is. Local reporting is quite intense, so locals are obviously very worried. Will upend the meat market if it becomes a severe crisis.

I don't understand how the outbreaks so spread out, could be we are getting sanitised news. They also have done a huge deal with the Danish for pork which could be driven by concerns over future supply, not that it would make much impact as the market in China is huge.

That property bubble in China when it bursts will be a bigger international shock than the US housing market crash was. And I suspect it will be accompanied by some quite serious civil unrest in China as well.

Will it burst?
Genuine question.
Can a communist state do what no capitalist state has achieved and prevent a bubble bursting?

Yes, genuine question - likely no one knows the answer, not even the CCP.

TradeMe Auckland listings now up to 13,450. Thought it was just hitting 13,000 on Monday...

Interesting times.

They must be hiding some from me, I've only got 13,456.. Realestate at 14,255

Whoops, my mistype. Meant to be a 3 in both of those. Corrected now.

"Six charts that show what killed Australia's property boom". https://www.smh.com.au/business/the-economy/six-charts-that-show-what-ki...

Martin North of DFA interviewing John Dahlson - Formerly of ANZ. A very interesting watch.

https://www.youtube.com/watch?v=5r6eGSkMMp0

Totaly unrelated but just filled up the car and prices have dropped to 2.15!!!!Yay its getting cheaper to run my business!!!!!

Risky Debt in Australia Could Magnify Potential Downturn, Central Bank Governor Says

https://www.bloomberg.com/news/articles/2018-11-15/rba-s-debelle-says-ri...

You've been busy today AJ

Thanks again for sharing some interesting posts.

Nic

As corporate defaults soar, Bass believes that China is headed for a "reset" that he expects to arrive during "the next couple of years."

He projected that China could lose more than $2.5 trillion of equity, more than triple the size of the U.S bank bailout during the 2008 financial crisis, and would have to print more than $25 trillion of renmimbi to counteract the impact of slowing economic growth and declining credit on its banks.

"It’s insane how levered this market has become," Bass said.

"You’re starting to see bankruptcies across the board in China that are hard to hide, if you look at the corporate default rate, the bankruptcy rate, M1 and M2 (money supply), the slowest money growth in over four decades."

"We’ll have a reset in China, and I think it will happen in the next couple of years," Bass concluded.

https://www.zerohedge.com/news/2018-11-14/kyle-bass-doubles-down-yuan-sh...

Kyle Bass – Just one of his moments:

"In 2008, Bass successfully predicted and effectively bet against the U.S. subprime mortgage crisis by purchasing credit default swaps on subprime securities which, in turn, increased in value when the real estate bubble burst."

With China his timing to date has been off – but certainly always worth taking note of.

The problem is quite a few 'experts' have been calling a China 'reset' for a number of years. And it hasn't happened.

No, that’s not a problem at all. But I guess if you think because it hasn’t happened it won’t happen (maybe you’re much smarter than these experts?) then don’t let their scaremongering hold anyone back.

I'm not saying it won't happen. My point is many of the predictions of an imminent collapse over the past 5 years have been wrong. It's the folly of expert predictions, whether bullish or bearish.
I think there will be at least a 'reset'.

Mortgage rates are climbing faster than the 10-year Treasury yield.
The average interest rate for 30-year fixed-rate mortgages with conforming loan balances ($453,100 or less) and a 20% down-payment rose to 5.17% for the latest reporting week, according to the Mortgage Bankers Association (MBA) today. This is the highest average rate since September 2009 (chart via Investing.com):

https://wolfstreet.com/2018/11/14/mortgage-rates-reach-6-percent-sooner-...

Ooh. Theresa May has survived the cabinet approval test and has their support for the Chequers plan. Now she has to face parliament. Expect shenanigans.

Couple of senior resignations planned apparently, second referendum here we come.

I dunno, she's survived resignations and rebellion already. Personally, I didn't think she'd survive her first month, let alone all the high jinx that have ensued since 2016 but she's still standing. I don't fully understand how. Perhaps there was is some dark magics in her dance moves?

https://www.youtube.com/watch?v=qjGkQPbSPK8

https://www.youtube.com/watch?v=tbCDFNRA-Wo

She'd have some rhythm if there were dark arts involved, can you imagine Dracula or someone rolling around like a drunken gibbon?

HAHAHAHHAHAHAHAHAH Corbyn coming in as the Hype Man hahahhah

Good ol' Jonny Two Jags though....keeping it classy.

snap election more likely by the day?

The only hope Theresa May has now... is if they agree to host a dance off instead of a snap election.

2 down ginge, Raab’s gone and Vara, vote of no confidence to come, general election and a second referendum on the way.

A review of things you need to know before you go home on Thursday;
Marginal buyers and all.

https://www.youtube.com/watch?v=V0oUxIIdE4k

Joseph Wilks and I discuss the impact of foreign buyers in the New Zealand market, in the light of the recent ban, and the impact this will have ahead. Joseph also looks at the impact of marginal borrowers on home prices and sales, in the light of recent data.
(or in the recent light data!)

s/Joesph Wilks/Nic Johnson

Wish I was that smart!

So much market chitter chatter – follow the demise of the marginal buyer, and the demise of easy credit (in cycles the cost of credit is somewhat irrelevant cf availability) and you have the next 3 to 6 months.

.

Is the NZ researcher on China influence receiving backlash?
https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=121...
Is so, what will the Govts response be? Trade overrides all concerns?

More evidence of the deeply sinister side of China... oops better check my tyres

"The fact of the matter is, there's nothing to see here." - Soimon

European share markets getting smashed. Not even 2 hrs in and around 2.5% down.

Yep, S&P down 1.5% in early premarket, I think its going to drop like a lead balloon on open.