A review of things you need to know before you go home on Monday; a minor rate cut, food price growth low, some rent rises are steep, CBA sees ASB needing $3 bln more capital, swaps soft, NZD soft, & more

A review of things you need to know before you go home on Monday; a minor rate cut, food price growth low, some rent rises are steep, CBA sees ASB needing $3 bln more capital, swaps soft, NZD soft, & more
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Here are the key things you need to know before you leave work today.

No more changes to report, but this review may be helpful.

FE Investments has reduced all its rates of 18 months and longer.

Low food price growth is allowing household budgets an easier time of it. Statistics NZ reports that food prices increased just +1.0% in the year ended April 2019. The average annual increase over the past year is just +0.7% pa. In April 2019 compared with April 2018, fruit and vegetable prices decreased -4.1%, meat, poultry, and fish prices increased 2.3%, grocery food prices increased +1.2%, non-alcoholic beverage prices increased +0.4%, and restaurant meals and ready-to-eat food prices increased +3.2%. There is no penalty for healthy eating.

Updated data from Statistics NZ shows that rents are rising relentlessly. On a stock basis (all rental properties), they are up +3.4% in the year to April. On a flow basis (properties that changed tenants in the month) the national rise is +4.3% pa. However, there is substantial regional variance. In Auckland, the rise on a flow basis is running at just +2.4%, its lowest in a year. In Canterbury, the rise is +4.7%, the highest rate in a year. In Wellington the rise for the year to April is a double-take +11.3%.

Major Aussie bank CBA reported March quarter profits of AU$2.4 bln. Even though they had large remediation costs (exceeding AU$700 mln), overall bank profitability is largely unaffected. And households are pouring in deposits which enabled the bank to fund itself with 69% from this source, a recent high. They also noted that "current RBNZ capital proposals would result in an additional Tier 1 capital requirement for ASB of ~NZ$3 bln, assuming current balance sheet size and composition." But they didn't mention that they would have five years to achieve that, and it could all be funded by foregoing dividends for part of that time.

Just how much the Aussie lending market has changed was revealed in official data released about lending commitments there. Total lending to households fell more than -17% in March 2019 from March 2018. For the full year to March it was down more than -9%. That is a drop of more than -AU$40 bln and even big banks will have noticed that. Part of it was covered by a +4% rise in lending to business in the year, but that rise didn't quite amount to +AU$300 mln. The net effect is a huge fall.

The NZX50 has opened the week stronger, up +0.3%. But the ASX200 has opened weaker, down -0.3%. And Shanghai has opened down -0.9% while Tokyo is down -0.5%. Tonight of course, attention will turn to Wall Street and its mood after the weekend trade talk failures.

Tomorrow will bring some important local data; both the REINZ April result which will be out at about 9 am, and the April migration data which will be out at 10:45 am

Local swap rates are all down -3 bps today across the whole curve. The UST 10yr rate is also lower by -3 bps and now at 2.44%. Their 2-10 curve has come right back to just +10 bps and their negative 1-5 curve has pushed out to -14 bps. The Aussie Govt 10yr is back down -2 bps at 1.72%, the China Govt 10yr is down -5 bps, now at 3.31%, while the New Zealand Govt 10yr is down -2 bps at 1.83%. (All changes from this time on Friday.) The 90 day bank bill rate is unchanged at 1.70%.

The NZ dollar is marginally lower from its open this morning, now at 65.9 USc. Against the Aussie we are firm at 94.3 AUc. But we are a softer at 58.6 euro cents. That puts the TWI-5 down slightly to 70.6.

Bitcoin is now at US$7,003 which is down from a peak of US$7,578 over the weekend but a net rise of +13% from this time on Friday. Bitcoin is tracked in the chart below.

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Daily exchange rates

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Source: RBNZ
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The 'TWI' chart will be drawn here.
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Source: RBNZ
The '¥en' chart will be drawn here.
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The '¥uan' chart will be drawn here.
Daily benchmark rate
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The '€uro' chart will be drawn here.
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Source: RBNZ
The 'GBP' chart will be drawn here.
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Source: RBNZ
The 'Bitcoin' chart will be drawn here.
End of day UTC
Source: CoinDesk

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"Rents rising relentlessly" ~ hardly surprising with such a large amount of empty property.

When are the government going to implement a significant rates surcharge for having vacant property ? Isn't it time this was addressed ?

..can't see it happening. Usual problems..the family holiday home and the empty property is suddenly got one of the kids in it, or the wife (we need some time apart). Like it or not, TOP is correct. Exempt the family home and nothing is easily implemented. Include it then it's simple - just like our gst.

Considering that there appears to be no limit as to the number of homes that could ultimately be held vacant as a “store of wealth” I wonder if a total hands off approach is entirely appropriate.

In a properly functioning market maybe intervention wouldn’t be necessary – but if recent history is a guide a properly functioning market now or in the future just seems like “crazy talk”.

"Statistics NZ shows that rents are rising relentlessly" is not a surprise. Due to gross yields of 4% and no outlook for capital gains, investors will be looking to improving return some how.
Rising rents are likely to be the coming housing affordability issue.

'Rising rents are likely to be the coming housing affordability issue.'

There will be a growing cohort of people who earn too much to get state housing, but don't earn enough to buy.
The market will not deliver enough rental housing. So rents will rise....

I hope the government is thinking seriously about this (I doubt it, because which government, red or blue, actually shows any foresight???), and the need for it to expand its 'landlord' role to provide market-rate rental housing as well as social housing. As is done in many parts of the world, and as was once done in NZ.

But given Labour is 'National Lite' I doubt it very very much....

Barfoots auction results a real mixed bag.. 50% clearance rate at Highbrook, and 18% at Bruce Mason.

Stats New Zealand new rental methodology, both more accurate and timely and which will be introduced in the 2Q CPI, is running 1 percent higher than the current annualized levels. Given rents make up over 9 percent of the CPI basket, inflation may get a 'welcome' boost .'
We wonder why household consumption excluding rent is falling Mr Orr and committee

For a large number of families in Auckland rent makes up a considerable percentage of weekly income – certainly well north of 9% - thus inflation could be running far higher than reported for a significant portion of our population.

The OCR cut is doing diddly for them.

PWC released an excellent report the other day about the extraordinary cost of living in Auckland, with big erosion of discretionary spending power in the last 10-15 years. Auckland compared very poorly to Brisbane, Perth, Adelaide.
It could be good for interest.co.nz to do a feature on this.

I received a notable email from BNZ KiwiSaver today regarding significant cuts to monthly member fees, and management fees for Moderate, Balanced and Growth Funds. I thought interest.co would be reporting on this.
Monthly member fees are to go for all BNZ funds.
Of greater significance; Moderate Fund management fee down from 0.9%pa to 0.58%; Balanced from 1.00% to 0.58%; and Growth from 1.10% to 0.58% all effective 13 May.
For growth funds that is effectively an improved 0.52% return on funds.
Not sure if other KiwiSaver providers have made the same sort of cuts, but to me this is very significant and well over due as funds become much larger with economy of scale advantages.

Thanks for the update. I was looking to shop around for a different fund manager, now that some are clearly getting greedier with their fee structure.

Not sure what other providers have done or propose doing but great to see this as it was mooted sometime ago that KiwiSaver providers should be look at fee cuts. Pleasingly, a little contrary to the perception and reputation of the big banks.

Thanks for sharing. The effect of a 50bp per annum change in fees for long term fund performance is immense. Worth Interest doing a full review of this topic. Brokerage fees for retail investors would also be worth a detailed story (*because they are exorbitant compared to pretty much any other developed economy in the world.)

Yeah brokerage is crazy here. I bought NZ$5K of US shares through my UK broker. Cost me 47p commission, that's 93 cents nz.

By my reading of ASB rates "0.80% minimum of US$50 per trade plus agency fee of 0.4% with a minimum of US$40 per trade "
I'd be looking at 90 bucks. (5000*.008=40, so min $50 + 5000*0.004=20 so minimum 40)

What would you prefer to pay, 90 cents or 90 dollars?