A review of things you need to know before you go home on Thursday; no retail rate changes, REINZ flat, food price rises modest, insurers survive Hayne, swaps and NZD rise again, & more

A review of things you need to know before you go home on Thursday; no retail rate changes, REINZ flat, food price rises modest, insurers survive Hayne, swaps and NZD rise again, & more

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

MORTGAGE RATE CHANGES
No changes today.

TERM DEPOSIT RATE CHANGES
None here either.

DRIFTING, BECALMED, LOWER IN THE WATER
REINZ says there was a two-tiered property market in January, with prices down in Auckland and Canterbury but firmer elsewhere. Overall, median prices are up +5.8% year-on-year, a similar rise to most months since May 2018. But the recent trends are not as strong. In Auckland the situation is less positive with prices down -2.4% year on year and that is broadly similar to y/y tracking since July 2017. Auckland median prices are back to levels last seen in February/March 2016. The volumes of transactions are also tracking down.

NEW RENT DATA, NO SURPRISES
Statistics NZ is now tracking rental price movements by reference to the MBIE Tenancy Bond database - something we have been doing with MBIE for a few years now. They released their first set of data today, a series that starts in late 2006. There are no surprises in this release for interest.co.nz readers. Basically they report that rents (on a flow basis) are up +4.7% nationally in the year to January 2019, with Auckland rents rising the least of any region they cover, +2.6% pa. The strongest rises are in Wellington (+6.7%) and the "rest of the North Island (+7.3% pa). Canterbury rises were +2.6%. But as these 'regions' are very broad, this data is not as useful as the city/TLA data we have, so we will be sticking to our more targeted data series.

NEW ENVIRONMENT DATA
Statistics NZ also released the first of its new data on the environment. This adds to its "environmental economic accounts' resource.

ASIC CONSULTING ON RESPONSIBLE LENDING
Hot on the heels of the final Royal Commission report, the Australian Securities and Investments Commission has issued a consultation paper to update its guidance on responsible lending. “The responsible lending obligations are an integral part of the regulatory framework for all consumer loans” said ASIC Commissioner and ex-FMA CEO Sean Hughes. “ASIC wants to ensure its guidance provides industry with certainty, including as a result of emerging technology and initiatives such as open banking and comprehensive credit reporting."

NO PRESSURE FROM RISING FOOD PRICES
Fruit and vegetable prices continue to fall, and are down almost -4% from a year ago. This drop helped keep overall food price increases low, cancelling out most of the +2% rise in mmeat, poultry & fish, and the almost +1% rise in grocery prices. Only ready-to-eat meal prices (cafes and takeaways) show any price gains, up +3% in the year to January.

FAT PROFIT GROWTH. HAYNE CAN BE HANDLED
Suncorp Group today announced net profit after tax (NPAT) of A $250 million for the six months to 31 December 2018. The New Zealand business achieved NPAT of NZ$120 million, up +79% on the prior corresponding period. In New Zealand, Suncorp is an insurance business. It downplayed its exposure to regulatory risks in its life insurance business, suggesting it is business as normal even for its 'intermediated' distribution channels (brokers).

AMP STILL STANDING
AMP may have been battered by Hayne in Australia, but they still managed a profit even if it has fallen from AU$848 mln in 2017 to AU$28 mln in 2018, and will even pay a dividend. But it is not the insurance division that is holding it together; it is AMP Capital, and the AMP Bank. The New Zealand 'wealth management' division earned AU$53 mln. Their Australian wealth management business saw a funds outflow of almost AU$4 bln.

JAPAN GROWING AGAIN
Japan reported Q4-2018 GDP real growth of +1.4%pa. That contrasts with a Q3 decline of -2.5%.

SWAP RATES JUMP
Wholesale swap rates leaped back higher today following the RBNZ MPS by about +3 bps across the curve following yesterday's +6 bps rise. The UST 10yr yield is holding at 2.70%. Their 2-10 curve is still at +17 bps. The Aussie Govt 10yr is down -2 bps at 2.13%, the China Govt 10yr is up +1 bp at 3.10%, while the NZ Govt 10 yr is up another +6 bps to 2.25% and extending the bull move. The 90 day bank bill rate is up +2 bps to 1.91%.

BITCOIN LITTLE CHANGED
The bitcoin price has hardly moved today, still at $3,579.

NZD HIGHER
The NZD is higher yet again after yesterday's strong jump, now at 68.2 USc. We are up at 96 AUc, and are at 60.5 euro cents. That has the TWI-5 up to 72.9. That puts us back to levels we were at the beginning of February (and before the RBA queered the pitch).

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24 Comments

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Highlight new comments in the last hr(s).

On the Opal Towers building disaster in Sydney and how it affects high-rise buildings.

https://www.youtube.com/watch?v=vRSdiq3sOTc

Expert warns Australia could turn into slums in 20 years

Housing and banking expert Martin North North has criticised developers and the housing industry for “throwing up” high-rise buildings at such alarmingly fast rates. He warned viewers that significant defects and safety concerns are imminent.

Opal Tower might as well be bowled over and started from scratch. Once the remediation work is done, who is going to want to move in?

Prediction: remediation, 12-18 months later a quiet name change, and a year after that most punters won't make the association.

Or, will apartment buyers become much much more diligent/paranoid?

Buyer: “How long was the construction phase and how many levels are on this apartment block?”

“Oh, Opal Tower took just as long to build just as many floors......what else do you have to show me?”

Live by oil, now die by oil. The process has been exactly the same in each month. The energy component once amplifying the headline has turned around to subtract from it for the second straight, down nearly 5% in January. That follows from a 10% decline year-over-year in motor fuel prices, mainly gasoline.
https://www.alhambrapartners.com/2019/02/13/inflation-falls-again-dot-co...

https://srsroccoreport.com/the-u-s-shale-oil-industry-bloodbath-spreads-...

"This is like buying a Mercedes but trying to pay for it with a salary as a Fry Chef at McFats Burgers-R-Us. At some point, the lousy economics will finally catch up".

AJ - so few understand that without enery, there is nothing. And it's now a bootstrap problem - we can't 'afford' the remaining resource - someone is going to go bust, the question is whether the majors take everything - and everyone else - down with them. The only way out at this point, is a debt jubilee - and who knows what that does to the 'value' of everything?

I would respectively disagree with this premise. After all, money is just numbers on a computer. If the US wants to produce tight oil at a loss then their government can magic up more money at the drop of a hat. 1's and 0's on a computer don't matter, only real physical constraints do.

I'm of the opinion that tight oil production will probably increase another 3-4 million barrels per day before it peaks. I think it's given us some additional time to get things in order but once it peaks - unless other countries can pull a similar rabbit out of their hat, or barring an EV/renewable revolution - then we'll have some serious issues.

up to a point and no one knows where that point is, the USA just passed 22 trillion dollars of debt.

https://www.econmatters.com/2019/02/thats-depressing-us-national-debt-is...

I think we're on the same page. If the Govt 'ponies up some more money' someone sometime has to query how much the debt is, and whether it can be meaningfully repaid, or whether it will be defaulted on. At which point what is anything 'worth'?

3-4 mbpd is about what is needed to displace depletion of existing - and that's just on a volume basis. As to energy return? Who knows. Did you read the Morgan Tullet/Prebon Perfect Storm piece?

it's a mess PDK. Who would have thunk it? So Saudi and the other producers need higher prices but cost of extraction have risen rapidly often up as high as $35 a barrel and oil exporting countries like Saudi really need $80 to keep funding Govt spending programs without being forced to dump US treasuries.
They lifted the price but consumption collapsed, the reality is the money is not there, we need higher wages but companies cannot afford to pay higher wages. So Russia is dominating and still pumping at any price and it's hurting. Lots of oil out available producers just need higher prices.

Someone has to pay the piper, to do that they need higher discretionary incomes but the money is not there just like Snider tells us.
Then this is going on-

'WTI and Brent used to trade in line, but prices had diverged over the past few years

The spread between West Texas Intermediate (WTI) and Brent crude oil represents the difference between two crude benchmarks, with WTI more representing the price U.S. oil producers receive and Brent more representing the prices received internationally. The two crudes are of similar quality and theoretically should price very closely to each other. However, the prices had differed greatly between the two crudes because a recent surge in production in the United States has caused a buildup of crude oil inventories at Cushing, Oklahoma, where WTI is priced. This created a supply and demand imbalance at the hub, causing WTI to trade lower than Brent. Before this increase in U.S. oil production, the two crudes had historically traded in line with each other.'

A debt alarm bell for Xi

https://asia.nikkei.com/Opinion/A-debt-alarm-bell-for-Xi

China isn’t looking to grow its economy but, rather, is waiting for it to recover. Good luck with that

https://www.scmp.com/comment/insight-opinion/united-states/article/21827...

But, sooner or later, a decade of fighting financial gravity, by means of epic debt issuance, catches up in any industrializing economy -- even China.

Mightn't we assume the same here if we look to the Reserve Bank to help out people who have taken up too much debt by dropping rates and only encouraging the uptake of yet more debt to perpetuate things?

“80% of Chinese people's wealth is in the form of real estate, totaling over $65 trillion in value -- almost twice the size of all G-7 economies combined. A significant slowdown could, therefore, have a substantial impact on citizens' financial health.”
https://asia.nikkei.com/Spotlight/Cover-Story/China-s-housing-glut-casts...

“While developers struggle to refinance their piles of debt, Chinese cities are facing a glut of unoccupied flats. Prof. Gan's striking estimate that 65 million urban residences -- or 21.4% of housing -- stand unoccupied was published in a report in December.”

The numbers are quite staggering.

Some may suggest these are simply transitionary, similar to some previously "called" ghost towns that are now thriving.

I guess we’ll find out eventually.

Sounds like a big bubble waiting to burst

All this palava seems to be challenging the popular notion that things can be kept on going for ever and ever by simply issuing ever more and ever more cheaper debt.

And if that were the answer, then is there any actual distinction between a speculator hoping for QE and lower interest rates, and the much-maligned spendthrift Greek government?

If you could keep on like that, Franz von Papen would still be Chancellor.

David:Yes. So if you think about the last five quarters, this is just over a year’s timeframe, what is credit? It is just a debt obligation with an interest component attached to it. Somebody owes somebody else money. Credit has grown by 30 trillion dollars.

Kevin:Oh my, say that again. 30 trillion dollars. That’s one-and-a-half times our entire U.S. debt for the last 240 years.

David:That’s in a matter of five quarters.

Kevin:That’s in five quarters that credit has grown 30 trillion dollars.

avid:There is nothing new under the sun, and there is nothing new about the dynamics afoot here except the degree to which, in terms of this credit expansion – we talk about 30 trillion dollars globally over the last five quarters – the degree to which the whole world has been caught up in it – that is different. You have the Institute for International Finance, which also marks out that credit growth expanded just here in the first quarter of 2018 by 8 trillion dollars, which brings total global debt to 247 trillion. That’s a large number. That’s 318% of global GDP – 318% debt-to-GDP.­

Kevin:When normally, 90% of GDP is…

David:That’s problematic.

David:If your debt-to-GDP number exceeds 90%, you should be aware of it as a problem. 318% — yes, it’s a problem. And it’s growing at double-digit growth rates of just over 11.1%, which puts us on track for a six-year timespan of doubling that number to 494 trillion dollars in debt instruments which have an interest component attached to it.

Kevin:We’ll never get there, Dave. Six more years of this? I don’t think so.

https://mcalvanyweeklycommentary.com/global_debt_explodes/

And this is why in MHO, currency or money will be the fall guy as that debt will never be repaid. All the smart money has gone into hard assets or revenue earning businesses.

don't people still expect pensions and the govt to act as a backstop and employer of middle class kids? Debt destruction normally involves bankruptcy lots of pain and suffering ,no one is used to suffering that much today.

Thats why we need to keep a guillotine out the back, so those in power know there are consequences.

Wow this David McMahon guy has a real China fetish. And the Herald is giving him plenty of airtime.
https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=122...

Meanwhile, those Huawei billboards are taking a less subtle turn:

https://imgur.com/a/wEMS13P

They need to get more up to speed and get one for the Uyghur internment camps