Here are the key things you need to know before you leave work today (or if you already work from home, before you shutdown your laptop).
MORTGAGE RATE CHANGES
None to report for floating rates so far following the RBNZ's +50 bps hike of the OCR to 3.50%. But the SBS Bank raised fixed rates, as did Heretaunga Building Society.
TERM DEPOSIT RATE CHANGES
Nothing yet from the main banks but ICBC, Heretaunga Building Society and General Finance all raised rates today. Given the RBNZ's explicit signal to banks we will be watching for special TD rate changes. SBS Bank also raised TD rates and their new 4.50% one year offer deserves special mention as the highest for this term from any bank.
NOT LETTING UP
The Reserve Bank makes it five-from-five for +50 point Official Cash Rate hikes, taking the rate up to +3.5%. Remember, we started 2022 with the OCR at 0.75%. Today's increase came with a hawkish Statement, and a noticeably different tone to yesterday's RBA dovish positioning. Markets now expect our OCR to top out at 4.75% later in 2023. (For reference, the US Fed rate is currently 3.25% and the RBA rate is currently 2.6%.)
THE DOMINANT FORCE IN THE ECONOMY
The Treasury released its Crown Accounts today, recording a 2021/2022 year end deficit of -$16.9 bln. The OBEGAL was a deficit of -$9.7 bln. For reference, these are both much larger deficits than in the 2020/21 year of a +$16.3 bln surplus and a -$4.4 bln deficit respectively. Crown net debt is only +17.2% of GDP but it is up from 10.5% a year ago. The Crown revenue took 39.4% of the county's GDP (up from 37.8% of GDP last year). They spent a massive 42.0% of GDP on their programs, a rise from a high 39.1% last year. Crown spending rose +12.9% in a year. Crown income rose +9.5%.
WHERE THE MONEY CAME FROM
The Crown results come after the tax on individuals (Source deductions etc.) rose +14.6%. GST rose just +2.2%. And taxes on companies rose +26.2%.
A CHANGE IS INDICATED
The latest Roy Morgan political poll is out and it shows no sharp changes, just enhancing previous trends, perhaps with the exception of the Greens who rise to 12.5% support after a long stagnant period. Labour sank further in a longish trend (but down from a small rise last month). National rose minorly in a shorter trend. Act rose again but faster, now also at 12.5% support in this poll.
FARMERS MORE CONFIDENT
Farmer confidence crept higher in the last quarter, but remains at net negative levels overall according to the Rabobank survey. Rising demand and higher commodity prices were the two major reasons for optimism. Rising farm input costs continue to be the main source of concern, cited as a key reason for pessimism by more than two-thirds of farmers with a negative outlook on the 12 months ahead. Government policy and labour shortages were also concerns.
STILL SPENDING FREELY
Consumer spending is not as weak as feared according to the Worldline NZ (Paymark) data. While recent consumer confidence surveys have forecast a drop in consumer spending, but this data shows that spending growth is actually rising, and well above the inflation rate. This data says core retail activity was $2.92 bln in September, up +16% from the same month last year. (This data excludes hospitality spending.)
SWAP RATES PRESSED BOTH WAYS
Wholesale swap rates are should probably up on the surprising hawkish RBNZ review. But they aren't, in fact may even have fallen on global trends. The key real action comes near the close. Our chart will record the final positions. The 90 day bank bill rate is down -4 bps at 3.83% but this move was before the RBNZ OCR review release. The Australian 10 year bond yield is now at 3.73% and down -18 bps from yesterday just ahead of their RBA announcement. The China 10 year bond rate is up +1 bp from Friday at 2.77%. The NZ Government 10 year bond rate is now at 4.05%, and down -10 bps and still below the earlier RBNZ fix for this bond at 4.07% which was down another -13 bps from this time yesterday. The UST 10 year is now at 3.62% and down -2 bps from this time yesterday.
EQUITIES EVEN HIGHER
Wall Street took off even higher today in its second October session with the S&P500 ended its Tuesday session up +3.1% after yesterday's +2.6% rise. Tokyo has started its Wednesday session up +0.2% in early trade. Hong Kong is up a sharp 4.7% after yesterday's holiday. Shanghai is still on holiday. The ASX200 is up +1.6% in early afternoon trade. The NZX50 is up +0.6% near the close.
GOLD RISES
In early Asian trade, gold is at US$1721/oz and a rise of +US$24 from this time yesterday. It closed in New York earlier at US$1726/oz.
NZD IN FURTHER FIRMING
The Kiwi dollar has firmed from this time yesterday to be just over 57.7 USc and a gain of more than +½c after the RBNZ OCR announcement. Against the AUD we are up almost +1c at 88.8 AUc. Against the euro we are now at 57.8 euro cents and down -½c. That all means our TWI-5 is at 67.6 and up a net +30 bps from this time yesterday.
BITCOIN FIRM
Bitcoin is firmer today and is now at US$20,224 and another +3.4% rise.. Volatility over the past 24 hours has remained moderate at just on +/- 2.4%.
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73 Comments
The Treasury released its Crown Accounts today, recording a 2021/2022 year end deficit of -$16.9 bln
That's just awful, truely terrible for NZ. Yep I know, Covid… but the lockdowns and closed borders were enforced by the government, and so were the handouts.
You must be a blind Labour supporter, the deficit has ballooned to a record high under Labour, not National. That means Labour has spent much, much more than it has earned since they came into power. A business would go bust and it's employees made redundant, if it was run at a loss like Labour is doing with the crown accounts.
Ah, that old trope (or tripe, take your pick). It times like this the govt can and sometimes should expand its debt to provide the services the citizens need, and it can recoup the money later.
Also, perhaps you should take a look at this (New Zealand Government Net Debt - 2022 Data - 2023 Forecast - 1972-2021 Historical (tradingeconomics.com), set to 25 or 50 years, and the low point was the end of 2008, When John Keys National govt got in and debt skyrocketed, then it dropped just a tiny bit when Labour got in in 2017-2019. 2020 was of course Covid.
You seem to be coming up short on facts there Yvil.
From NZ Herald;
"As it happened, the deficit was $9.7b, expenses were lower and revenue was higher.
The figure accelerates the Government's pathway to surplus, currently forecast to be $2.6b in 2025.."
So given you think a Govt should balance the books,are tax cuts wise?
Let's see where we are in a year...I think for the opposition supporters,any signs of positivity,doesn't suit their narrative...I think many are worried that the books might be good enough to announce a tax relief package that rewards a broader number than the nats tax policy...they fired their shots too early...Luxon has attached himself to Truss and the other Tory clowns.
Yvil, Labours largest spend has obviously been covid related, you have to conceed that. Wage subsidy cost the most for the highest income earners. Ardern after following scientific advice (thank goodness for us) can sleep at night, unlike the leaders of the US and GB at the time, and a since disgraced premier of New South Wales. I have voted for both National and Labour in the past, but sadly over recent years Jim Bolger seems to make more sense than the latest bunch.
How are tax cuts tragic? Surely, tax cuts are a good thing. They keep money away from our inefficient government and give it back to those who are productive, this allocates capital more efficiently.
Remember, Ronald Reagan faced a similar situation. He came in after an inept leftist government had run huge deficits. Reagan cut taxes, and the economy took off. It's called Reagonomics.
I guess the problem is efficiency doesn't necessarily transfer to fair distribution.
There's only so much waste you can trim, so the question comes down to whether you think everyone should have equal access to the same base level of services like education and health, or whether you're a fan of every man for themselves.
The US is a decent place to get wealthy but it's also a fairly bad place to be poor.
Why does the distribution have to be 'fair'? We have a progressive tax system - the flip side of people who earn more paying more is that they get more back when rates are cut.
Bear in mind we have a huge chunk of core net income tax revenue in this country coming from a small group of taxpayers.
'Fair' is so open ended and meaningless when it comes to tax that it is basically a platitude - your opposition always thinks something you think is fair is unfair and vice versa. It adds no value other than a line for people to sloganeer either side of when they want to.
As soon as anyone uses the words 'fair share' in a tax debate, I stop listening.
it depends on the tax cut, example if you made the first 10k tax free most of that would be spent in the NZ economy, if you can the top tax rate only, a lot would be saved and the rest spent on holidays overseas or buying another investment house ie paying interest to overseas banks.
i suspect labour will be pushed at the next election to go with option 1 and offer the first 10-15k as tax free for their tax cut which will be a vote gatherer
national will stick with lowering the top tax rate because they have not read the room
At this point I think tax cuts would be inflationary and therefore unwise. However I believe that increasing the tax take by $10bn in one year is excessive. If the economy stalls next year and we are on top of inflation we should address the tax brackets or and/or reduce the overall tax take. Thoughts?
Oh well,we could go to Australia for better service...oh heck,maybe not. (sarc)
If you took the major headlines from most western countries,they would look very similar.
https://www.smh.com.au/politics/nsw/ambulance-patients-waiting-up-to-36…
"NSW hospital patients are waiting up to 36 hours to be admitted through emergency departments, where increasing ambulance ramping and overcrowding are resulting in inadequate and unsafe care.
The worsening reality of workload and staffing in the state’s hospitals was canvassed in a parliamentary inquiry on Wednesday, which heard health sector strains were a global phenomenon that had been growing for decades..."
https://www.smh.com.au/healthcare/nsw-minister-backs-pharmacist-prescri…
"NSW minister backs pharmacist prescribing as patients struggle to get GP appointments"
only Grant Robertson could spin a $33billion change from surplus to deficit as a great sign !! shame he forgot to mention that the entire $10 billion less than predicted deficit -- is pretty much exactly what he has lost on his LSAP gamble!
For a nation whose finances are largely based on exporting primary goods -- a $16m deficit is incredibly worrying
(For reference, the US Fed rate is currently 3.25% and the RBA rate is currently 2.6%.)
What markets/curves are pricing is that as more anecdotes and data comes in, it narrows the possibilities of what's going to happen. The base case was always recession, and hasn't changed regardless of rate hikes expectations Big swing in Euro$ futures back toward sooner privot. Link
The most important news of the day is this...
https://www.nzherald.co.nz/nz/max-key-makes-another-splash-in-the-auckl…
National (like the Tories in the Uk) are campaiging with out of date ideas and policies.
Most people with money in nz dont want tax cuts they want better infrastructure and better public services. Most people in NZ want much more affordable house prices and less properties owned by investors.
Why - because most people want a better standard of living for their retirement anf for their children and grandchildren.
So labour want to deliver better infrastructure and services but are stuffing up delivery (or mismanaging comms). National jist wants to make the ŕich richer and the poor poorer and thus crap infrastructure for all.
Of the two i am a trad national voter.. but in favor of labour.
No. They are not capable of anything……except delivering more sickness to sick people and more poverty to poor people. They have a particular knack for this. The well off generally find ways around labours silly rules and do what they do best….succeed. This allows labour to keep delivering poverty to poor people until even they get sick of it and kick them out (which will be happening next year).
Most people with money in nz dont want tax cuts they want better infrastructure and better public services.
That's a no-brainer because people with money have it invested into shares and property which is not taxed in NZ.
(income) Tax cuts are not for people with money, they are for people who earn money. I.e. productive people.
Just reading Zollner's (ANZ) release regarding todays monetary policy announcement.
A few sentences caught my eye.
'If capacity (particularly in the labour market) doesn't open up, the OCR could easily have a 5-handle by the end of 2023'.
'There is a pretty high risk that inflation will prove stickier than expected, both in Nz and offshore'.
She does counter this with the opposite argument regarding the fragility of the economy and possibility of disinflation etc. So trying to cover all bases.
Strikes me it's easier to make reliable predictions when markets are dominated by fundamentals - measurables that can be tracked. When power gets concentrated in the hands of an increasingly desperate few we are forced to flip flop each time we find out which side of the bed they got out of, and who they were with at the time.
Hardly done any flip flopping over the last few years Nifty, and when I have it’s been very reluctantly. But I am starting to think the next 12 months is near unpredictable. Probably better to think in terms of scenarios.
Next 6 months is easy enough - most assets and equities continuing to weaken, economy weakening significantly without being decimated and unemployment rising a tad. But beyond that…
Kris "Whānau Whānau" Faafoi is apparently quite chuffed with his new role heading up a government lobbying and PR firm, after leaving parliament back in June to "spend more time with his family":
https://www.rnz.co.nz/news/national/476120/faafoi-rejects-criticism-ove…
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