Here are the key things you need to know before you leave work today:
MORTGAGE RATE CHANGES
No changes to report today.
TERM DEPOSIT RATE CHANGES
No changes here either.
RECORD LOW
Today's NZ Govt bond tender of $200 mln brought a weighted average accepted yield of 3.24% which is -0.15% lower than the previous equivalent April tender. That is the lowest yield these April 2037 bonds have ever achieved. Today's coverage ratio was 2.45x. And the head of the Treasury Debt Management Office, Sarah Vrede has resigned from this role, one she has held since 2014. She is shifting to the private sector.
UNINSPIRED
The bounce in business confidence following the sharp fall post-election has ended and we are the way down again. Both headline business confidence and firms’ views of their own activity eased -4 points in May. In terms of expectations regarding their own activity, retail and construction industries are dragging the chain. Aggregate activity indicators fell across the board. Falling business conference is matched by slipping consumer confidence.
CONSUMERS SHOW NO FEAR
Updated data from the RBNZ shows that housing debt reached $248.5 bln, 99% of it held by banks. That housing debt is up +5.7% in the year to April, rising at about the same pace we have seen all year. But that puts it at its slowest growth rate since June 2015. Other debt growth taken up by consumers (personal loans, credit cards, etc) is growing at a +7.1% pa rate.
FIXED, BUT ...
Housing borrowers are just not taking up new floating rate mortgages, preferring fixed rate ones. Now only 20.6% of mortgages are on floating rates and that is the lowest this has been in eight years, since February 2010. However, just over half (51.1%) of all mortgages will be exposed to a price reset withing the next twelve months.
MORE RESTRAINED
Consumers appetite for more debt far exceeds that for businesses (where it is growing at a +4.1% rate) or for the rural sector (where it is growing at just a +2.6% rate).
DEPOSITS GROW FASTER THAN LOANS
On the other side, customer deposits at banks grew by +5.9% in the year to April and now total $333.1 bln. More than 90% of these deposits are by locals (residents), and 51% are by households. The household balances grew at the rate of +6.6% pa.
WHAT YOU CAN EXPECT FROM BANKS
The New Zealand Bankers’ Association has today published the sixth edition of the Code of Banking Practice. This edition adopts a principles-based approach. The code is a high-level statement of what customers can expect from their banks. It sets out the principles of good banking practice and sits above the detail that is contained in each bank’s terms and conditions. The new Code retains a clear statement about the reimbursement for genuine victims of fraud. This is a real problem for people over 55 especially as the evidence is that they are much more likely to fall to fraudulent scams.
MPB ASSISTANCE
ANZ today announced an assistance package to help Mycoplasma Bovis-affected cattle farmers meet their short-term cash-flow requirements and ultimately re-establish their herds. It involves suspending principal repayments (that is, converting to interest-only), waiving fees, and access to more short-term debt to transition their businesses.
BENCHMARK INTEREST RATES STABILISE
Local swap rates are marginally higher today, up +1 bp for the two year, up +1 bp for the five year, and up +2 bps for the ten year. The UST 10yr yield has risen again, up +3 bps to 2.85%. The Aussie Govt 10 yr is now at 2.65% (up +1 bp). The China 10 yr is at 3.64%, unchanged. And the NZ Govt 10 yr is also unchanged 2.76%. The 90 day bank bill rate is up another +1 bp to 2.02%.
BITCOIN SLIPS
The bitcoin price is now at US$7,341 which is down -2.5% from this time yesterday.
NZ DOLLAR UP
The NZD is up to 69.7 USc as risk appetities return in equity markets. But we are slightly higher against the Aussie at 92.3 AUc, and slightly lower against the euro at 59.8 euro cents. That has the TWI-5 now at 72.7 and +50 bps higher than this time yesterday.
This chart is animated here. For previous users, the animation process has been updated and works better now.
Daily exchange rates
Select chart tabs
15 Comments
MortgageBelt, so if inflation kicks off you don't think that rates will hike?
I'm on the fence on it myself. I think it could go either way over the next few years. The low rate, QE environment has been unprecedented and we simply can't look to history to give us an indication of what the future might be like (in terms of inflation and interest rates at least). I think the debt cycle has been more or less like other debt cycles though, aside from the fact that inflation never returned to eat down the debt so if we are at cycle peak, the down turn of the debt cycle could be more painful because the debt level is higher. A deleveraging is coming I think, whether it's a beautiful one, or ugly as all hell, I have no clue.
You don't have to rely on history gingerminga, mathematics will do fine. It is called the magic of compound interest, except in this instance the money supply is entirely based on credit so the interest is on the debt. Eventually it will grow so large it can't be paid. The only way it has been affordable to date is due to interest rates dropping, which eases the pain.
You may not have seen it, but in 2013 I posted here my rework of the quantity theory of money. (M.V)+I=P.Q, where i is the interest component that was missing until now. My prediction was that interest rates could only move down. Clearly I was wrong on that for the OCR here in NZ, but I believe the prediction will hold true for the trend. Note the jitters in markets as the US 10yr hits the top of the trend channel.
Push the theory a bit further and it applies to any investment demanding a yield. Substitute yield for interest in my prediction. Asset prices will work in the opposite direction to interest rates, more so when credit growth outstrips the needs of the economy.
Long term in NZ, or since 1971, the money supply has grown faster than the economy by 300%. Asset prices are according overvalued by this amount, or more.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.