A review of things you need to know before you go home on Tuesday; Co-op Bank cuts a mortgage rate, imports pour in, trade deficit swells, Sovereign brand to go, swaps and NZD unchanged, & more

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

MORTGAGE RATE CHANGES
The Co-operative Bank has cut its six month fixed rate by -40 bps to 4.10%. At that rate, this is by far the lowest six month fixed rate of any bank. And fyi, we have now added Bank of Baroda's 5.25% floating home loan rate to our table. And that is the lowest floating rate of any bank.

TERM DEPOSIT RATE CHANGES
No changes here either.

IMPORTS POUR IN
Imports are pouring into the country. October imports exceeded $6 bln in a month for the first time ever.This is +14% higher than the same month in 2017. In fact, imports over the past six months were on average +15% higher than the same period a year ago. Higher oil prices and an -8% dip in the NZD contributed, but import volumes are up substantially too. Oil imports by value were up +68% year-on-year, a rise of $257 mln. But the big rise in imports came from China. They are up +41% on the tenth anniversary of the NZ:China FTA signing. Our exports to China were +24% in October, year-on-year. For the full year to October we ran a trade surplus of $1.2 bln with China and doubling what it was in the full year to October 2017.

GOODS TRADE DEFICIT RISES
Despite the trade surplus with China, we posted an overall trade deficit in goods in October of -$1.3 bln and extending our annual deficit to -$5.8 bln. We also run a big annual surplus with Australia, but we run $1+ bln deficits with the USA, Japan, Korea, the UK, Singapore, Taiwan, Malaysia, and a sub $1 bln deficit with Indonesia. We are going backwards in trade fast especially with the USA, Singapore, Hong Kong and Malaysia. Our annual goods trade deficit however only amounts to -2% of GDP.

NO LONGER SOVEREIGN
AIA has announced that following its acquisition of Sovereign from CBA/ASB in July 2018, its combined New Zealand business will now operate under the AIA brand. AIA is a listed Hong Kong company.

ANOTHER SENIOR MANAGER GOES AT FONTERRA
Following the pushing out of CEO Theo Spierings at Fonterra, Lukas Paravicini, the Chief Operating Officer has now handed in his notice and will leave in January 2019.

ANOTHER FONTERRA ELECTION
The Fonterra Shareholders’ Council has confirmed that a second election for the remaining vacancy on Fonterra’s Board of Directors will be held in December. Voting will open on 3 December and close at 1.00pm on 20 December, and the results will be announced later the same day. This new election is a run-off because no previous candidate got more than 50% support in the first run.

PRIORITISING RESOURCES
The Commerce Commission has said it will be prioritising two area where it receives most consumer complaints. Retail telecommunications remains the most complained about industry, though complaint levels are relatively flat year on year. Online sales generated nearly a quarter of all Fair Trading Act complaints, highlighting the growing size of this market and the challenges for consumers purchasing goods from overseas-based companies in particular.

CHECK YOUR BANK HERE
We have updated our Key Bank Metrics tool to include the RBNZ dashboard data through to September 2018. You can now compare your bank with any other using this tool, focusing on a number of key metrics. Investors and depositors should learn how to use it because it makes comparison easier and gives an easier way to inspect important aspects of each bank's financial position and strength.

TROUBLE AT HOME
In Australia, powerhouse retailer Harvey Norman has reported a slowdown in its sales, amid retailers’ warnings of a difficult Christmas ahead. The same report shows it is up +4.5% in New Zealand, more in other non-Australian markets.

SWAP RATES UNCHANGED
Wholesale swap rates are unchanged today. The UST 10yr is little changed at 3.06%. But the 2-10 curve has now slipped under +23 bps. The Aussie Govt 10yr is at 2.64% and down -1 bp, the China Govt 10yr is up +3 bps at 3.44%, while the NZ Govt 10 yr is at 2.68% and unchanged. The 90 day bank bill rate is also unchanged at 1.99%.

BITCOIN LOWER
The bitcoin price is now at US$3,662 which is a -7.5% drop from this time yesterday.

NZD LITTLE CHANGED
The NZD is marginally lower today at 67.6 USc with little net reaction to the trade data. On the cross rates we unchanged at 93.6 AUc and at 59.6 euro cents. That puts the TWI-5 at 72.2.

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56 Comments

"Harvey Norman shares are a good buy at $4.50; $5, for them to be under $4 is crazy," (Gerry Harvey said a few months back during an interview), before extolling viewers to 'sell their boats, cars and houses' in favour of his company's stock if that happened
Today they are $3. I hope his shareholder have more boats, cars and houses to sell to get in at today's bargain price. But if the property market cracks, along with consumer courage, $3 will look expensive...

Mr Market doesn't appear to agree......

Maybe Harvey Norman should have a sale...

I haven't looked but are they holding a lot of debt... Any high street retailer that is over-leveraged is cactus in the new market for shopping habits... unless they are exclusively holding all the brands that people have to have...

BHS, Debenhams, House of Fraser, Mothercare, Carpetright, Toy r Us, etc are all cactus in the UK or going that way.... If you've had your assets stripped by Private equity and can't re-set the rent lower then you're on the endangered list!

Thing is HN in Oz have an odd business model that sees the areas in a HN store operated by franchise.

https://www.channelnews.com.au/exclusive-horrendous-harvey-norman-franch...

Years ago we were told, "NSW labour laws were very different between small employers and large, so lots of "small employers".

New Harvey Norman retail supply contracts issued via a subsidiary, following last years, Australian Securities and Investment Commission investigation into the retailers franchisee operations, have been described as “horrendous” and responsible for pushing up the price of consumer electronics and appliances in Australia according to suppliers who have contacted ChannelNews.

Derni Pty Ltd a Company controlled by Harvey Norman is now dictating terms to suppliers while at the same time distancing Harvey Norman from any liabilities.

Harvey Norman stores are already recognised as being one of the most expensive retailer to shop, for the purchase of consumer electronics furniture and appliances.

The supply contracts dated 2017 and 2018, obtained by ChannelNews has some distributors “seething” as they now have to deal with more than 190 separate franchisee stores, following last year’s investigation by the Australian Securities and Investment Commission into the failure of Harvey Norman franchisees and the bookkeeping of losses from franchisees who some analysts claim have a failure rate of close to 25%.

In our household, Harvey Norman is known as Hardly Normal.

Noel Leeming is Noel Lemon.

Houston we have a problem. Total mortgage lending is not growing nearly fast enough to prevent price falls!
Total New mortgage Lending in Year to end October
2018. $63.10 billion
2017 $60.87 billion
2016 $72.46 billion
2015 $67.01 billion

First Home buyers for whom the market was too expensive are now doing their best to prop it up and have diligently increased their total share of borrowing (own that home, own that home) https://www.youtube.com/watch?v=9khstFJD3R8

To Year End October First home buyers total new borrowing
2018 - $10.01 billion
2017 - $8.59 billion
2016 - $8.55 billion
2015 - $6.92 billion

The investors however really do need to dip their hands in their pockets if they are going to keep the credit growth alive and the Ponzi financing that underpins their Ponzi financed homes.

New mortgage lending in Year to Oct (investors)
2018 - $14.07 billion
2017 - $14.31 billion
2016 - $22.51 billion
2015 - $21.43 billion.

Maybe we need a few more adverts like this one to get them fired up again and spending
https://www.youtube.com/watch?v=0Ssu3R16h7U

If the $61 Billion borrowed in year to October 2017 didn't result in price drops, why would the year to October 2018's $63 billion result in price drops? No skin in the game, just curious how you reach your conclusion.

This premise is thrown around a bit – I won’t get into whether this current housing boom is credit induced or not.

My understanding is that even if credit expansion is simply held static (not increased) during a credit induced boom – then the “boom” itself will still implode.

Is $63 billion enough I think is what Nik is alluding to.

“To keep the credit induced boom going, more credit and more money, provided at ever lower interest rates, are required.”

https://mises.org/library/keeping-bubble-boom-going

So, this year's ~3% increase will do what a ~16% fall failed to do last year?

Could well be wrong but didn’t Auckland house prices peak in 2017 - ran out of puff?

hi Custard

Many Auckland suburbs have been falling in price since April 2017 and that's with the flow on effects of 20% foreign buyers injecting capital into (borrowed or otherwise) into the central suburbs... sadly that news gets swept under the carpet because it wouldn't help the populous get up for work tomorrow... What we need to do, is focus on Dunedin (NZ's Hobart) where the sun is shining and the property market is still doing okay...

Probably yes, depending on your series, but especially if you correct for inflation. Other areas carried on. I guess the mortgage data isn't split geographically so potentially difficult to isolate the effect on a particular market.

Regardless, I don't see the argument that a large fall in mortgage lending created a flat/gently declining market, so now an increase in lending will lead to bigger drops.

And, for clarity, the $63b is not mortgage growth. The data per RBNZ is new loan commitments, so will include refinances from one institution to another.

There can be a scenario where there is a lot more churn and no net growth.

The statistic I’d be looking at is changes in existing lending. Tracks at about $3.5 to $4.0 billion per quarter according to RBNZ C32 so around $16 billion per year on currently $250 billion in mortgage lending. 6% p.a mortgage debt inflation. Surely not a good thing right?

“6% p.a mortgage debt inflation. Surely not a good thing right?”

Taken on its own I really don’t know – higher population, higher wages/salaries, lower interest rates – servicing costs, %age GDP etc??

You pose a good question – thus what say you?

GDP growth 1% p.a
Inflation 1.5 - 1.9% p.a
Wage inflation 2% p.a
Population growth 2% p.a

Yes interest rates are low. Doesn’t mean mortgage lending growth is a good thing.

Good enough - thanks for the reply.

He's getting good is Nzdan.... he'll be a Jedi yet!... just needs to work on the combat skills and mind control..

All part of the wonderful GDP growth.... from an economy that had another big trade deficit last month... When the music stops, I'm not quite sure how we'll trade our way of this Nzdan. Your mortgage being the equivalent size of an Auckland deposit, looks like a very sensible place to be, if you ask me.

What the boomers fail to realise is that the second movers are in short supply because many of them are already maxed out.... All that re-mortgaging the family home to fund deposits could create a big issue when the day job ends and negative gearing doesn't pay off on the pension.

"At some point, interest rates globally really are going to go much higher. So much higher. As long as dollar shorts and shortages continue to be hitched together, however, it won’t be anytime soon. Dollar shortage equals strong worldwide demand for safe assets, the very stuff of Milton Friedman’s interest rate fallacy. The more foreign governments and institutions sell them because they have to, the greater everyone else will demand them."
https://www.alhambrapartners.com/2018/11/26/selling-usts-hedging-costs-%...

According to credit guru Michael Lewitt, a downgrade of $GE corporate debt to junk status (where it should be) would increase the high yield bond market by 10%.

Given our unhealthy trade deficit with the US, I expect the politicians are making great strides in their efforts to get tariff concessions on our steel exports, especially being close allies and all? Yeah right.

Looking at that soil moisture map, I can hear Sir Geoffrey, in his inimitable squeak, pronouncing that 'New Zealand (me - well, the SI especially) is Irreducibly Pluvial'.

waymad - You must have a bloody good memory to repeat Palmer's quote from ten years ago.

Lots of people know that one, because Bill Ralston and chums ripped the piss out of it on Nightline, umpteen years ago. They'd run video of Palmer being wordy, with a translation running across the bottom. 'New Zealand is irreducibly pluvial' had the subtitle 'It rains a lot here'.

The 3.9x % mortgage rates 1 year.
Is anyone managing to negotiate these down further?

The U.S. Housing Boom Is Coming to an End, Starting in Dallas
https://www.wsj.com/articles/the-u-s-housing-boom-is-coming-to-an-end-st...

Hardly
14,265 today. A first weekly decline for a while... I may have misjudged the pace of capitulation and kiwis appetites for nought but food over Christmas.... I still have 4 weeks but you may well be favourite now....
Need a few big days this week by the looks of it... However, looking around where I am, there are more reduced prices than new listings keeping the programmers at trademe and realestate.co.nz busy....

whats with all the rentals?
This boom won't bust because banks tighten or reduce lending standards, it will bust because the returns don't justify the risk.

Hi AJ
My bet with Hardly was on Sales Listings... I thought that people would try a lot longer to sell before becoming accidental landlords! But then again, if you're cash flow is very tight then you need to get something off it I guess

Students are going to have a field day this Summer and should have the pick of some really nice places in some prime addresses! Bring out the beer bong for the house warming in Remuera or the North Shore!

they may be talking to agents who tell them sales are slow, rather than swamp the market with listings they are on the market, just unofficial, I have done that before myself.
You know, hey if you have a buyer with a mill I'm for sale.

Hi AJ

I wanted to ask you. Will the Argentina discussion with US have an impact on exports of beef from NZ?

Lots of debate but the USA has so much of it's own beef I don't know if they will be importing much cow and bull beef from Argentina, it's only involving 20,000 tonnes and lets US beef into Argentina too. I hear lots of Argentina beef is now fattened on feedpads, cropping has taken over much of the Pampas. Argentina also will have access to China under the JBS deal which could be a more profitable market.
The swine flu in China will be the big one to watch, 500,000 pigs in China.
Don't be surprised if China takes a share in JBS

Thanks AJ

I had dinner on the top floor of the Rio Hotel in Vegas recently.... I would have to go to my favourite restaurant in Wellington, which is a similar price per visit, (Charlie Noble) three times to take on a similar number of calories from prime steak... Charlie Noble is a better restaurant for service for those that want a good dinner in Welly by the way.

However the quality, value for money and volume gave me the impression that there may not be a beef shortage in the US.

They don't like the idea of anyone leaving hungry in the USA, just look around

I ran a quick Trademe search of Auckland Rental Properties. The first property that caught my attention was 51 Potter Ave, was listed today. So i googled it. Sure enough!

https://www.trademe.co.nz/property/residential-property-to-rent/auction-...

https://harcourts.co.nz/Property/864214/TO2235/51-Potter-Avenue

.

Surely an ad for a rental should disclose that the property is on the market?
Imagine moving in, then one month later the property sells to an owner occupier and as the tenant you are served notice

God bless New Zealand's 2 year only landlords with no slack to play either way!!!!!

You are excelling yourself this evening Nzdan..

That is interesting. The second house sold for 1460k and is now being rented for $780 a week. That's quite a shortfall even at 3.95% mortgage rate. It must have been bought in anticipation of moving into later.

Do they have 3.95% mortgages in China?

thats a 1.7 million dollar house renting for 50k a year, lots could go wrong here.

According to Homes.co.nz it was bought for $1.65 million in 2015, now has a November 2018 "homes estimate" of $1.61 million.

Act casual, say nothing

What's wrong with you guys. ... you'll have made my good pals (bhsl, expat, ttp, zachary boy) feel sheepish ..

Another one. . 25 checkerberry court

Overhang – “a quantity of securities or commodities large enough to make prices fall if offered for sale”

TM2 and all those septics, sorry meant critics. .
https://i.stuff.co.nz/business/108885856/stephen-tindall-houses-cost-42-...

It was close Nic, for a minute I thought you had it. It’s bound to cross that level by March though.

Which charity will the winnings go to?