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/LOAN RATE CHANGES
ASB has raised most of its fixed rates by either 10 bps or +20 bps. More here. SBS Bank has reduced its three year fixed rate by -30 bps to 5.99%.
TERM DEPOSIT/SAVINGS RATE CHANGES
ASB raised its 6, 9 and 12 month term deposit rates up to where its main rivals already were. SBS Bank cut its market-leading one year TD rate from 6.50% to 6.00%. Bank of Baroda raised rates for all terms 3 to 18 months.
DESPITE HIGHER INCOMES & CHEAPER HOUSES, FHBs NO BETTER OFF
Ongoing rises in mortgage interest rates gazumped rising incomes and drooping house prices for first home buyers last month and consequently home loan affordability continued to worsen for FHBs.
CREDIT CARD SPENDING
Spending on credit cards in July was +3.5% higher than year ago levels, clearly less than can be accounted for by inflation. But it was a new record high for a July. Balances owing on credit cards were up a lesser +2.8% over the same period. 52.9% of balances incur interest, about the same level as a year ago. More here.
MORE BOND ISSUES COMING
There is a widespread expectation that the impending Pre Election Economic Forecast (PREFU) will show larger deficits and therefor larger bond issuance requirements. Westpac said the borrowing programme for 2023/24 is likely to be lifted by about +$6 bln, given that the as-yet unpublished deficit for 2022/23 has likely exceeded the Budget forecast. But they will be competing with an uptick in corporate bond issuance as well, and the banks are getting in first. SBS Bank has signaled that it want to raise up to $175 mln soon (by the end of the month). SBS Bank not only needs funding for its banking operations, it needs it for thor FinanceNow operations too, and major profit driver for the bank. These bonds are expected to be assigned a BBB+ credit rating by Fitch. And BNZ said it is making an offer of up to NZ$100 mln (plus unlimited oversubscriptions) of a new series of 5 year unsecured unsubordinated fixed rate notes. They are likely to pay about 6.1% pa in interest, and will be have a credit rating of AA-/A1 from S&P/Moody's.
BIGGER TRADE DEFICIT
Sagging dairy prices have helped fuel a larger than expected monthly trade deficit. There was a -14% month-on-month fall in dairy exports which drive a bigger-than-expected -$1.1 bln merchandise trade deficit in July.
DERISKING FROM CHINA
Meanwhile, our export trade is moving away from China. Merchandise trade with China peaked in November 2021 with 31.8% of our exports going there. That was $20 bln in the year. In the year to July 2023 it is still $20 bln (actually $20.1 bln) but that is only 28.0% of our exports. Over the same period our total merchandise exports rose +14% to $71.8 bln. All that extra went to countries other than China. There is no guarantee it will of course, but if similar 'progress' is made over the next two years, our export exposure to China will be down to 24.4% by late 2025.
ONE OF TWO CUT
In China, they made a modest change to their loan prime rates today. Markets were disappointed at the timid policy action. The August fixing cut the one-year loan prime rate by -10 bps to 3.45% (a record low) in an effort to ease borrowing costs for businesses, but maintained the five-year rate. the home loan benchmark, at 4.2%.
PRIME OFFICE MARKETS WOBBLE
Meanwhile, the commercial office market in both Beijing and Shanghai is tightening significantly, extending the residential property sector's woes into the wider sector. More tenants in Shanghai's Grade A offices terminated leases than signed them during the June 2023 quarter ending, the first time that has happened since 2015. Further Beijing experienced its third consecutive quarter of rising Grade A office vacancies, also the highest level since 2015.
SUDDEN SLOWING
Thailand reported its Q2 GDP growth today and it slowed much faster than anyone saw coming. The Thai economy is far from irrelevant and a big miss like this will have regional ramifications.
SWAPS A TOUCH HIGHER
Wholesale swap rates were probably up again today, but the real reaction will come at the close. Our chart will record the final positions. The 90 day bank bill rate is unchanged yet again at 5.64% and now +14 bps above the 5.50% OCR. The Australian 10 year bond yield is down -2 bps from this morning at 4.26%. The China 10 year bond rate is also lower at 2.56% and a new three year low and prior to that pandemic dip, nearing a 21 year low. And the NZ Government 10 year bond rate has settled at 5.12% and up +4 bps to a 12 year high, and still higher than the earlier RBNZ fix which was up +1 bp to 5.03%. That is also the RBNZ's series highest since July 2011. The UST 10 year yield is at 4.28% and up +3 bps from this morning.
EQUITIES VERY MIXED
It has been a tough day on the NZX50 with it heading for a -1.3% fall. The ASX200 is down -0.2% in afternoon trade. Tokyo has opened up +1.0% however in its early Monday trade. Hong Kong has opened down -1.0% and Shanghai is -0.5% lower at its market open. The S&P500 futures are currently showing a minor +0.2% gain.
GOLD ON HOLD
In early Asian trade, gold is at US$1892/oz and up +US$2 from the opening.
NZD HOLDING
The Kiwi dollar is still at 59.2 USc where it was when we opened this morning. Against the Aussie we softer at 92.3 AUc. Against the euro we little-changed at 54.4 euro cents. That means the TWI-5 is still at 68.4.
BITCOIN HOLDS
The bitcoin price is little-changed today, now at US$26,092 and down a mere -US$35 from where we opened this morning. Volatility has been low at just over +/- 0.5%.
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68 Comments
If global markets remain risk-off as they have become the last few weeks, the NZD/USD could be down 0.55 or even 0.5 by the time the next OCR update occurs in early October.
I wonder how this will sit with Orr and the team if they see the NZD continue to slide and imported inflation on the rise.
They will fully expect this to occur, it will make their life harder but also cushion exporters as always.... I just hope that the holes in the budget can be closed through decent austerity and cutting out all the woke crap labour have not already put on the bonfire.
I am more worried about China and an International Global slump killing demand for exports at any price...
I was chatting with Scarfie today, God help NZ if there is a big oil spike due to war somewhere... would be devastating.
I was reading a piece the other day (but can't find the link) and the argument was, the only reason we aren't in a severe recession or even a depression right now is because we are running war-time budget deficits to support our economies.
What happens if suddenly that tap is turned off? (i.e the austerirty you mention).
In my view, we risk hurtling very quickly into not your average recession - and that tap would need to be turned back on again to avoid public revolt - because people have got used to the government stepping in to prevent society experiencing any real pain. Is austerity even an option now given the conditioning of the public following 2008 and 2020?
How do you take the candy away from the children who have been conditioned to receive it everytime something doesn't go their way? (i.e. how do you enforce austerity after periods of QE and extreme deficit spending where people have got 'rich' from doing nothing other than owning assets?)
My take on this is that in a democracy, the government are a reflection of views/thinking/attitudes/behaviours of the collective people it represents.
So in line with your comment above, our society is based upon people who act no better than badly behaved kids.
Which I agree with.
I've been looking around to see where the adults are in the room, but they appeared to die with the greatest generation about 20 years ago and since then we've had children running/influencing the show.
I think most of the troubles in our world come down to a simple thing "NOT ACCEPTING FAILURE OR PAIN. As soon as a company or person fails, instead of letting them fail and learn a valuable lesson, everything is set in motion to support them and keep them going. This sounds "nice" in principle, but it's a terrible concept, because it makes the good and successful, pay for the negligent and careless. This in my view started during the GFC when bad, loss making companies were bailed out by the average, good, tax paying person on the street.
J K Galbraith: The culture of contentment
The world has become increasingly separated into the haves and have-nots. In The Culture of Contentment, renowned economist John Kenneth Galbraith shows how a contented class—not the privileged few but the socially and economically advantaged majority—defend their comfortable status at a cost. Middle-class voting against regulation and increased taxation that would remedy pressing social ills has created a culture of immediate gratification, leading to complacency and hampering long-term progress. Only economic disaster, military action, or the eruption of an angry underclass seem capable of changing the status quo. A groundbreaking critique, The Culture of Contentment shows how the complacent majority captures the political process and determines economic policy.
If someone is caught in, let’s say a poverty trap and that situation offers no hope of ever acquiring what they might desire then the only solution on the table is to take that something off someone who has it. Now that crime, theft is hardly new But today it is driven, fuelled by addiction to drugs, a vast selection that in itself is an industry beyond imagination, say last century, that has likewise spawned similarly, violence and death.
The ultimate challenge then is how do we remove the 'getting rich' at the expense/exploitation of others, and others includes our natural environment?
How do we balance 'wealth' accumulation for the individual with collective/community wealth?
How do you change the capitalist manifesto away from owning assets, especially when the 'owners' are waiting in the wings to pounce?
Well the fact that Diary, Red Meat and Timber all at breakeven or worse levels, nothing the Gov can do to replace this spending in the regions, Cities doing pain due to building and soon to be redundancies I believe. Jobseeker will help many who are truely seeking jobs....
Well the new normal ids for central banks to print when things get tough but right now thats not possible, look at what happened to the pound... that said if things get much worse in China then the USD will become safe haven again and treasuries will fall in yield. I am very surprised we are not seeing major p[layers fail in USA or Europe like China is. Shadow banking is less shadowy outside China though, they never took there beans after the GFC and they do gambling big in WMP etc, so many in China must have already lost their life savings and soon their jobs, police visit you the day before you plan to protest, dystopian for sure, but that control will breakdown in the face of rising outrage about economic mismanagement.
It’s weird how people think hospitals and schools and police are not productive.
The two biggest expenditure items are Health Services and NZ Super.
There is waste in govt but it doesn’t get cut when a national government rides into town. They just run down core public services and infrastructure.
FWIW I agree that censorship by site admins is a slippery slope, so courtesy of ChatGPT here's a way to pick and chose who you see on here and unclutter the view if you wish: https://chrome.google.com/webstore/detail/interestconz-commenter-bl/kbf…
thanks for writing that, but can I suggest a change. Add something to indicate a blocked post was removed, otherwise the context of discussions is going to get distorted with replies that refer to posts you can't see. Either that or a hard prune of the everything on the tree below it.
I run both, Chrome and Safari, the option to block a commenter is a Chrome only option, so if you really get desperate to read a comment from someone you blocked to understand a thread, you can always go on Safari.
This block is a great option in my view, it certainly will make me happier, and more productive.
Which reeks of personal opinion, a lack in the editor's emotional management and borders on censorship.
I liked reading the Prophet's comments. They were entertaining and more accurate than the economist's drivel posted here.
There's a whole lot more "repetitive, boorish commenting" and arguing here that I'd rather see removed. May as well remove commenting all together. It just becomes an echo chamber much like social media.
Gotta love Aussie. If it weren't so outrageous, it would be comical.
International students to absorb nearly 80 per cent of new homes in Sydney by 2028, report says
Four out of five new homes in Sydney by 2028 will be needed to absorb an “unprecedented” international student wave, a new study says.
https://www.news.com.au/finance/real-estate/international-students-to-a…
This doesn't appear to have occurred, if anything more migration to Australia when National were elected (the yellow line): https://www.stats.govt.nz/news/net-migration-loss-to-australia-in-2022/….
More young and talented will leave under National. The biggest barrier to staying in NZ for the young and qualified is affordable housing. Luxon wants to undo the great work Labour has done on housing and try to reignite the Ponzi. He will not succeed but it will send enough of a message to the young that they are not valued for them to look for opportunities abroad.
The old and rich whinge-bags who consistently vote against progress, and those that do not have the skills to go will be staying though. If only the former had moved away when they threatened to under Jacinda ...
i struggle with teh Labour have done so much in housing -- when we had the largest ever prices rises as a direct result of a Labour intervention - ie massive flood of cheap money during Covid that only had one possible home -- and outcome that Treasury and their own advisors told them would happen --- the recent correction is nothing to do with a direct Labour targetted intervention -- more global inflation and Labour mismanagement -
For all the talk about banning foreign buyers interest deductability -- it really had little to no effect on the housing market - -and i dont think that reversing those things will make any difference with lending rates at 7%
Same here. Guess though, given the direction now setting in with the latest series of poll outcomes, the diehard supporters of this Labour government are about to face the reality, by their account at least, of a forthcoming government that is going to be even worse. I tend to agree with Bob Jones that this present government is undoubtedly the worst NZ has ever witnessed, at least in modern times, but you never can tell. Now who was it that said records are made to be broken.
Progress is reducing the size of government, great education outcomes for the young, a great health system, stable real estate market, low inflation, affordable interest rates, a balanced budget, racial harmony, low levels of debt, lower taxation. Labour has failed at all of these things…and we could name many more. After 6 years (which should have been three), we are broke, getting even poorer, getting dumber, become more unhealthy, more racially divided than ever and many people live in fear of constant criminal offending. This government made progress on nothing positive and that view is held by a majority of the country (which gets larger every day that this disaster continues).
Labour has failed at all of these things... As did the previous National and Labour govts. going back to the 90's. Everything seems to have compounded the last two decades.
One might suggest it's actually neo liberal economics, capitalism on steroids and globalisation that has caused these problems, and neither parties have the wisdom or competence to address the issues.
And we the people are too ignorant, uninformed and uneducated to vote for anything better. We're obviously unable to make progress without or despite the government.
Yes bad news that National look to unwind the foreign buyers ban, 10 yr CGT, and taxation of rental income. Will be interesting to see if they try and remove the ring fencing also. These will be the things that will be remembered when National get thrown out again in 3 or 6 years time.
They will be around for 9, at least. Sensible administrations usually get 9 (the last one almost got twelve). This labour lot should have had 3. Covid saved them. It will take years for National and Act to work through this mess and unwind/cancel/reorganise back into something sensible and trustworthy.
Yes the Clarke Cullen government was 9 yrs I think. But as I mentioned, if National repeat their mistakes and we have an average house price of 1.8 million in 5 years they will be gone. Will be very sad if we go back to the most over-priced houses in the world again. Some will call it a rockstar economy again though sadly. I wish NZ could have stable housing policy for the benefit of NZ, and not a continuation of the FOMO Boom Bust cycle.
Meanwhile, our export trade is moving away from China. Merchandise trade with China peaked in November 2021 with 31.8% of our exports going there. That was $20 bln in the year. In the year to July 2023 it is still $20 bln (actually $20.1 bln) but that is only 28.0% of our exports
China’s farming push is about war
Beijing wants to produce enough food to satisfy its massive demand, to withstand a potential blockade by the US
Not an ounce of good will accrue to NZ, if this is true:
The Observer view on the Camp David summit: it signals a new cold war – this time with China
Good for Vietnam agricultural exports to China
To ensure trade balance, both China and Vietnam promised to import more agriculture and high-quality food products from each other.
Not good for NZ dairy brands in Vietnam
China will push for the official import of yams and other fruits from Vietnam, while Vietnam will push for the import of Chinese milk.
https://e.vnexpress.net/news/economy/analysts-expect-vietnam-china-trad…
https://www.1news.co.nz/2023/08/21/poll-labour-dips-to-just-29-national…
"Translated to seats in Parliament, today’s poll meant National could comfortably form a government with ACT - National’s 48 seats and ACT’s 17 seats coming to a total of 65 seats."
And Hipkins has been exposed as the fake he has always been.
Covid minister fail
Education fail
Police fail
Health fail
His plan to reverse his backing of Arderns policies and win the election is in tatters.
Preffered PM 21%! Luxon 20%
Labour under Hipkins is heading for andrew do little " low 20%" territory
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