What happened Tuesday

A review of things you need to know before you go home on Tuesday; a few rate changes, affordability improves, credit card activity up, NZX50 record, swaps stable, NZD holds, & more

23rd Apr 19, 3:59pm by David Chaston

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

MORTGAGE RATE CHANGES
Resimac has trimmed fixed rates for terms 2 to 5 years.

TERM DEPOSIT RATE CHANGES
NZCU Baywide has trimmed their term deposit offers, for terms 1 to 5 years. NZCU Central has cut may longer-term rates, some of them substantially (for example, 5 yrs goes from 4.60% to 3.65%). But they did up their 6 month TD rate by +10 bps to 3.55%.

AFFORDABILITY IMPROVES
Our March home loan affordability monitoring (comparing mortgage payments to take home pay) shows that Auckland is on the cusp of being affordable for first home buyers. Even though lower quartile house prices remain at or near record highs, falling interest rates have come to the rescue of first home buyers nationwide. The home loan may be more affordable, but getting the initial deposit is still a challenge.

SO MUCH MORE ACTIVITY
So far this year there have been 74 mortgage rate changes by banks, almost all to fixed rates (ICIB trimmed its floating rate in March, the only floating change). And these rate reductions have been pretty well spread across the durations. It is unusual to see so much action in rate changes for three years and longer. The 2019 change activity is almost 4 times as much as we saw in the equivalent period in 2018 (19). This is a competitive market.

GRABBING THE BEST BITS
The amounts owing on credit card accounts is now growing only very slowly. It was up just +1.3% in the year to March. This is the slowest growth in two and a half years. But the value of transactions running through our credit card accounts are rising +4.4%. Remember, Visa and MasterCard love us using their cards; not only do they clip the ticket of every transaction, they structure it in such a way that they don't pay New Zealand income taxes on the profits they earn here. The local banks who issue the cards reap the interest on the balances unpaid (and do pay taxes here). The level of balances that accrue interest is now down to 61% and very close to its all-time low.

FLOATING RATE REVIEWS
In Australia, banks are starting to cut floating rates to mortgage borrowers. Supporting that has been a -38 bps drop in their 90 day BBSW from 2.07% at the start of the year to 1.69%. We see a -30 to -40 bps competitive response from banks as this opportunity opens up and beds in. That puts some of their 'variable' rates as low as 3.8%. On this side of the ditch in the same time frame our 90 day bank bill rates have fallen -18 bps. but there has been no equivalent 'floating' rate reductions here yet. The mortgage markets are different however. In Australia, it is still a market where 'variable' rates comprise 80% of the market. In New Zealand, fixed rates comprise 80% of ours.

EQUITY UPDATES
After languishing for most of the day, the S&P500 ended up just +0.1% on Wall Street today. Shanghai fell -1.7% yesterday and has opened todat down another -0.4% in early trade. Hong Kong, which was closed yesterday, is trading unchanged. The ASX200 is up +0.8% in early afternoon trade while the NZX50 is up +0.6% in mid afternoon trade. (The NZX50 is now at a record all-time high and a +15% gain so far in 2019, just above the meaningless 10,000 point level.)

LOCAL SWAP RATES STABLE
Local swap rates are little-changed today, with only the longer tenors showing minor softness. The UST 10yr rate has dipped -1 bp to 2.58%. Their 2-10 curve is now at +20 bps and their negative 1-5 curve now at -7 bps. The Aussie Govt 10yr is down hard today to 1.90% (down -8 bps from Thursday), the China Govt 10yr is up +5 bps at 3.46%, while the New Zealand Govt 10yr is now at 1.99% and down -1 bp from this morning. The 90 day bank bill rate is down -1 bp at 1.77%.

NZ DOLLAR HOLDS
The NZ dollar is still where we started this morning at 66.8 USc. Against the Aussie we are marginally firmer at 93.7 AUc. We are little-changed at 59.4 euro cents. The TWI-5 is now at 71.3.

BITCOIN UP
Bitcoin has held on to yesterday's gains and still at US$5,387. Bitcoin is tracked in the chart below.

This chart is animated here. For previous users, the animation process has been updated and works better now.

Daily exchange rates

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Source: RBNZ

Source: CoinDesk

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14 Comments

by sharetrader | 23rd Apr 19, 4:17pm 1555993031

the NZX will keep going up with low interest rates and no CGT
the question is when will the correction happen and will it be a slow deflating or a quick drop

by andreas_od | 23rd Apr 19, 4:26pm 1555993617

" just +0.1% on Wall Street today. Shanghai fell -1.7% yesterday" but NZX is UUUP . Reminds me Auckland's housing ..

by Justa comment | 23rd Apr 19, 4:37pm 1555994240

Hard to say. Ive never seen this combination of equities and housing streched so high, and interest rates so low. I thought the fund managers may have started moving to cash by now, but their staying put (with other peoples money). It seems the RBNZ is trying to avoid a hard landing for the housing market so this is the way its going to go for now. If I was a young teacher or nurse the housing prices in Melbourne or Sydney would be starting to look a better option than Auckland now.

by J.C. | 23rd Apr 19, 5:05pm 1555995958

Brisvegas and Perth even better if you don't need the big city life.

by Withay | 23rd Apr 19, 5:29pm 1555997391

In this case I would summise that equities and housing are so high because of low interest rates. "Even though lower quartile house prices remain at or near record highs, falling interest rates have come to the rescue of first home buyers nationwide." "Come to the rescue" is code for increased borrowing capacity for increased house prices in my eyes.

by Roger Witherspoon | 23rd Apr 19, 4:55pm 1555995353

Is that the best plan they can come up with, then? Put interest rates down to stop house prices going down and lower the currency. Lowering the currency puts petrol prices up and encourages the young to move to Australia as their pay becomes that much higher in real terms. A cunning plan indeed, worthy of Baldrick himself. Sigh.

by brisket | 23rd Apr 19, 6:30pm 1556001022

It sure looks like that's the idea. Anything to prop up housing and the sharemarket. But the NZD won't necessarily fall too much, because so many other economies are in the same situation, including Australia. Either we have a crash at some point, or we go the Japan route and accept we'll carry a massive stack of unpayable debt indefinitely and just pretend it might be paid back sometime. But with zombie houses - sitting on the market for years with no buyer and fictional valuations as the owners grow old - instead of zombie corporations...

by J.C. | 23rd Apr 19, 6:48pm 1556002085

But Japan is a creditor nation, not a debtor nation. Furthermore, their public debt is owed primarily to themselves.

by Withay | 23rd Apr 19, 8:49pm 1556009391

So that just means then that the tipping point for them is when their debt servicing costs exceed their tax take. Would you agree with that or can they borrow forever?

by J.C. | 23rd Apr 19, 9:46pm 1556012776

It doesn't mean that at all. Govt spending is not constrained by taxes. Theoretically they can borrow forever. You might argue that the yen will collapse. Funny that as the yen has strengthened when SHTF over P10Y.

But what happens if they liquidate all those USD-denominated bonds?

by Withay | 24th Apr 19, 6:05am 1556042754

It’s more that the borrowing to spend is held up by the assumption that the borrowing can be paid back. There is plenty of foreign buying of Japanese bonds - https://www.google.com/amp/s/mobile.reuters.com/article/amp/idUSL4N1OL2…
When foreigners realise that the Japanese bonds can’t be paid back but for more ponzi like borrowing the game is up.
The reason it may not look that way now is Japan is a productive nation and seemingly every other country is intent on devaluing there own currencies. This is what is papering over the cracks - that they have a long term unsustainable scheme running.

by lonewolfnz | 23rd Apr 19, 7:19pm 1556003988

Bitcoin isn't slowing down - its price is already at what some conversative commentators were calling for at the end of the year. Today bitcoin broke its fabled 'golden cross' trading pattern (last seen in 2015), and interesting rumours as to an imminent NASDAQ listing

by Yankiwi | 23rd Apr 19, 7:34pm 1556004880

A NASDAQ (futures) listing.... likely will result in a similar outcome to the debut of BTC in futures trading on the CBOE and CME in December 2017. The start of futures trading heralded the all-time high, which is almost 4x the current price. So, if you thought that futures trading provided legitimacy to bitcoin and bought bitcoin at that point, you would have lost more than 2/3 of your investment, even accounting for the very strong recent recovery. Maybe buy the rumor and sell the fact is the operative phrase here... just as it was back in late 2017.

by J.C. | 23rd Apr 19, 9:50pm 1556013024

BCC (Bitcoin Cash) is a standout. Up approx 150% in P3M.