A review of things you need to know before you go home on Thursday; one SBS TD change, a spluttering housing market, employment confidence rises, beneficiary numbers turn up, rents up, swaps low, NZD dips, & more

A review of things you need to know before you go home on Thursday; one SBS TD change, a spluttering housing market, employment confidence rises, beneficiary numbers turn up, rents up, swaps low, NZD dips, & more

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

MORTGAGE RATE CHANGES
None so far today.

TERM DEPOSIT RATE CHANGES
SBS Bank have raised their one year offer rate by +5 bps to 3.40%.

A SPLUTTERING MARKET
The December housing market transaction data from the REINZ was released today. It says there was an 'extremely quiet' December with the lowest nationwide house sales volumes in seven years. Nationally, the median house price rose by less than +1.5% from the same month a year ago and fell by -$29,000 from November. The +1.5% annual gain is the lowest in more than a year and the third lowest in seven years. Auckland, Waikato and the Bay of Plenty are where the gains are least; they are higher the further south you go from there.

A NO GROWTH MARKET
The REINZ data for Auckland shows the Queen City in a volume and price funk, with unusually low volumes and no price growth at all. For a variety of reasons this situation may last for a few more years yet.

THE PAYOFF FOR THEIR FINANCIAL SUPPORT
Changes to the Employment Relations Act now in effect include the following: Union representatives can now enter workplaces without consent, provided the employees are covered under, or bargaining towards, a collective agreement. Pay deductions can no longer be made for partial strikes, Businesses must now enter into bargaining for multi-employer collective agreements, if asked to join by a union, Employees will have extended protections against discrimination on the basis of their union membership status. From May 6, more union-friendly changes take effect including, Employers will need to allow for reasonable paid time for union delegates to undertake their union activities, Employers will need to pass on information about the role and function of unions to prospective employees, 90-day trial periods will be restricted to businesses with less than 20 employees, The duty to conclude bargaining will be restored for single-employer collective bargaining, Employers will need to provide new employees with an approved active choice form’ within the first ten days of employment and return forms to the applicable union, and a few others.

ACHIEVING MORE WITH LESS
The number of dairy cattle has dipped for a second year, while beef cattle numbers increased strongly in 2018, up +5% to 3.8 mln. The national dairy herd was at its highest level 2014 at 6.7 mln and is now down to 6.4 mln. Meanwhile the national sheep flock fell to 27 mln, down from its peak of 40 mln in 2006. On a stock unit basis (which adjusts for different livestock types), the peak was 100 mln in 1990 and is now down to 86 mln and it is expected to fall further. Despite this, in 2018 agricultural exports from livestock amounted to $26.8 bln, a rise of +14% from 2017.

POSITIVE JOB CONFIDENCE
Confidence in the labour market rose strongly in December, reaching its highest level since early 2008. Households’ perceptions of job opportunities have continued to rise, as demand for workers has remained strong and the pool of unemployed job seekers has fallen. Employment confidence rebounded in Auckland and Waikato, and remains particularly high in Gisborne/Hawke’s Bay and Southland.

BENEFICIARY NUMBERS RISE
After steadily moving down from high levels in 2008, the number of working-aged beneficiaries is moving back up again, and by December reached 299,300 its highest level in four years. "Job seeker support" (unemployment benefits) rose by +9% pa to 134,000 the highest level since 2012 - despite a falling jobless rate. In 2012 84% of those who were jobless or between jobs were on an income support benefit. In 2018 that has risen to 94% - virtually everyone. The level of other benefits are little-changed. There are now 2.0 workers for every adult receiving a benefit.

LOWER YIELD, LESS DEMAND
The latest NZ Government bond tender for $250 mln of April 2029 bonds (ten years) has brought lower yields and less demand. The 2.27% yield is the lowest-ever for this issue (the high was 2.86%). The coverage ratio of 1.6x was the lowest-ever for this issue (the high was 3.5x).

RENTS RISE
The national median rent for a 3 bdr house has risen to $460 per week in December, up +$10/week. In Auckland, there was a small decline to $640/wk, in Wellington a rise to a record $625/wk, and in Christchurch it was unchanged at $420/wk.

PROPOSED RBNZ BANK CAPITAL INCREASES 'UNNECESSARY & POTENTIALLY DAMAGING'
In a rare move, investment bank UBS has provided one of its research reports to NZ media on an unsolicited basis. The report's on the RBNZ's proposed increase to NZ banks' regulatory capital requirements. UBS argues the RBNZ proposals would increase NZ bank capital requirements to the highest in the developed world and says they appear excessive. Equity is expensive, UBS adds, noting a cost of capital of 11%, with shareholders to demand "at least" this return. Thus UBS estimates NZ's Aussie owned banks will "reprice" (increase) their NZ mortgage rates by between 80 basis points, to generate a 12% Group return on equity (ROE), and 125 basis points, to maintain current ROE of around 14.4%. "A stronger NZ would be dilutive to Australia unless fresh capital is raised. RBNZ capital proposals appear unnecessary and potentially damaging. We believe the RBNZ's endeavours to strengthen the banks could come at a significant cost to the NZ economy as they appear to be materially underestimating the likely mortgage repricing. We see these proposals as expensive and unnecessary. That said, if the RBNZ proceeds with its capital proposals, it may be the final catalyst for dividend cuts at the Aussie major banks [with a] potential range of [an] 11% cut at ANZ to a 29% cut at [BNZ's parent] NAB," UBS says.

SINKING MARKET
In Australia, tighter property lending has investors fleeing the market with the lowest percentage of borrowers since 2009. Overall housing market lending is down more than -10%, with lending in November for new houses down -10.8% and lending for existing housing down -11.3% year-on-year.

HOB-NOBBING WITH THE ECONOMIC ELITES
The Prime Minister and the Minister of Finance (and teams) are off to Davos and the World Economic Forum, to talk up their 'Wellbeing Budget' (and using 'trade talks' as a crutch).

EQUITY MARKET UPDATE
Asian equity markets have all opened lower by about -0.5% today. But Australia isn't showing a decline yet, and New Zealand is up +0.4%.

SWAP RATES LOWER AGAIN
Local wholesale swap rates are at record lows for all durations from one to four years and longer durations are falling still too. The two year is now at 1.88% and that is a cumulative -20 bps fall from just before Christmas. The UST 10yr yield is little-changed at 2.71%. Their 2-10 curve is just on +17 bps. The Aussie Govt 10yr is at 2.29% and up +1 bp, the China Govt 10yr is down -2 bps at 3.13%, while the NZ Govt 10 yr is at 2.31% and unchanged. The 90 day bank bill rate is holding at 1.90%. (The record low is 1.86% in December 2017.)

BITCOIN HOLDS
The bitcoin price has held its level at US$3,603, almost no change from this time yesterday.

NZD DROPS
The Kiwi dollar is a lot lower today at 67.6 USc a fall of almost -¾c in 24 hours. On the cross rates, we also lower against the Aussie at 94.4 AUc and at 59.3 euro cents. That puts the TWI-5 at 71.8.

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NZD
End of day UTC
Source: CoinDesk

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28 Comments

" UBS estimates NZ's Aussie owned banks will "reprice" (increase) their NZ mortgage rates by between 80 basis points, "
Another reason why the RBNZ will likely DROP the OCR to balance the effective cost of funds to local banks and mitigate any 'repricing'.

But aren’t the.NZ owned banks already under similar rules now? So how will Aussie banks raise rates when real kiwi banks can undercut them? Maybe they don’t raise rates and just have to suck up the greater cost?

Hardly - NZ owned banks have very limited capital and limited ability to fund anything other than a very modest share of the Australian banks business - they are minnows in this market. Maybe the NZ Govt should tip some more tax payers money into Kiwibank, or NZers into the other few, but then with the new capital requirements youre probably looking at a poor return on investment that questions that idea?

Might want to tweak the bitcoin comment up there - shouldn't it say "bitcoin holds". Its everything else that is down :)

With Bitcoin, that would be 'hodl' ?! (to $zero!)

The best time to buy is when everyone hates it...

Only if the hate is temporary..

it's happened 3 times in my memory 2012-2013, 2014-2016, 2017-20??
Its amazing how things can happen repeatedly in history but most people only see whats in front of their nose...

Everyone hated bitcoin in 2012? No, most people hadn't heard of it. Now most people have.

it's happened 3 times in my memory 2012-2013, 2014-2016, 2017-20??

Yes. What happened in 2017 with the crypto crash is not necessarily the largest plunge in value.

Not at all. Largest was from $32 down to $2. Then we had $1155 down to $145. This is the third biggest I think, at least from 2012.

It was just a week or so ago that people were stating that the absolute dollar value change was the important aspect and the percentage delta was not germane. That $32 to $2 was just a $30 decrease... The ~$23k decrease from the most recent high may be something of importance. :)

In reality, if the 16 to 1 decline is repeated, then buying in now would mean that one would lose 80% of the purchase price before any possible gains. From the bottom it would take a 400% increase in order to break even from the 80% initial loss.

There are some that enjoy gambling via pokies or bitcoin. I prefer investing in something that generates returns myself. If I happen to also get some capital gains, that is an additional benefit. The primary purpose of investment should be to be generating returns instead of hoping for a greater fool...

Thanks. Yes. Done

Aucklands median annual house price gain is a 0.9% loss.

I remember when everyone thought ethereum was dead just before Christmas and it shot up 100% in a few weeks.

I remember when people were desperate to sell their houses in 2011, coming to a town near you soon.

You mean when it plummeted from $200 to ~$80, then regained some of the loss back to ~$150ish, and since then it's dribbled down to $120 again? So overall down 40% in a couple of months.

That's really not quite the same as "it shot up 100% in a few weeks".

The price is a sideshow, the real value is in the code which anyone who cares to look can see. The idea of open-source is a phenomenon most people are completely ignorant of....

I won't argue with blockchain technology having some very real practical uses. But cryptocurrency... Nope, without the backing of a govt its nothing but digital monopoly money.

And nope, not ignorant of open-source, I was compiling linux kernels on 90Mhz Pentiums. But rarely use open-source software these days, it mostly lacks finish and usability for desktop apps.

That's exactly what it did - shooting up from $80 to $155 I believe - over the course of a few weeks (just like I said). If you want to cherry pick dates then how about starting from when it was 1 cent per ETH?

Nah, i'll cherry pick the last 12 months.. 1025 down to 121.. 89% loss. Ouch.

No problem, as long as I can cherry pick global warming figures based on 1998 to show global warming doesn't exist

Labour overseeing a rise in beneficiary numbers as is their usual M.O. Gotta increase their voter base.

Dark art of deception and being lied to

Carmel Sepuloni claimed the beneficiary numbers were due to population growth - implying the population growth was "natural"

Unfortunately domestic NZ population growth is not growing - it is falling

All the population growth is external from imports - so if population growth is driving the increase in welfare recipients then it is the migrant coming in and going onto unemployment and other benefits almost immediately

Add to that 60% of private rentals receiving the accommodation supplement and you have many property investors receiving a benefit. Craziness.

Banks are getting those benefits

Re Bank Equity. Martin North made an interesting point about risk weighted assets. What he said was that each asset (ie mortgage loan) has to have some bank equity set aside, and the amount depends on the riskiness of the loan. The riskiness equals the debt to equity ratio. So what he said is that in a falling market, if the houses are valued mark-to-market then the debt to equity ratio deteriorates and the bank would theoretically be forced to hold more equity against the riskier loan.

UBS adds, noting a cost of capital of 11%, with shareholders to demand "at least" this return

So why do investors bid the price up so much? That brings the ANZ dividend yield down to 7% https://www.nzx.com/instruments/ANZ