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
No changes to report today so far.
TERM DEPOSIT/SAVINGS RATE CHANGES
Update: ANZ raised its 6 month rate to 5.85% and their 1 year rate to 6.00% Both are +5 bps increases.
HOPEFULLY THE START OF A RECOVERY
Dairy auction prices rose for the second successive auction overnight. Both overall prices and key whole milk powder prices rose +4.6%. But these tow increases don't really move the trend higher. positive evidence will be required from more auctions. And the signs of rising demand in China are not there yet. Fonterra is reported to have 500,000 tonnes of WMP in storage there awaiting an upturn. The 2023/24 season is still very uncertain. More here.
SMALLER DEFICIT
The current account deficit shrank to -7.5% of GDP in Q2-2023 from -7.9% a year ago, which was more than economists expected. Shifting the dial was a higher level of exports, including much better service exports. Slower imports helped too.
FEWER LIABILITIES
Our net international liability position was $189.3 bln (-47.8% of GDP). A year ago it was $184.8 bln or -50.8% of GDP. Net external debt was -47.5% of GDP compared to -49.5% in Q2-2022
HIGH DEMAND, HIGH RATE, LOW MARGIN
Auckland Council attracted high levels of demand for its secured, unsubordinated five year fixed rate green bonds and took $300 mln, the top of its indicated range. The high demand meant it could price them at the bottom of its indicated pricing range, 65 bps, meaning it will pay 5.734% for this funding (or $47,100 in interest per calendar day, just for this bond).
RESILIENCE ACTIVITY
Budget 2023 allocated $100 mln for flood protection and resilience. Today $15 mln was released to raise the ~200 homes, about half of them in Te Karaka, Tairāwhiti, in a locally-led project. Another $10 mln package targets nine projects which will support economic recovery in Hawke’s Bay, Tairāwhiti and Northland.
TAXING AIR BNB
In Victoria, the State Government said (page 20) it will tax short-stay rental platforms 7.5% from 2025. There are more than 36,000 short-stay accommodation places in Victoria and almost half of these are in regional centers. More than 29,000 of those places are entire homes. The goal is more affordable long-term rental accommodation. But their tourism industry is livid.
LESS IN JAPAN
After a good surge in 2021 and 2022, Japanese exports slipped -0.8% in August from a year ago, a second month of no expansion. Their exports to China dropped -11%. But at least overall they are holding on to their earlier gains. And the August slip was less than feared. Imports however fell more than expected, the most in three years. But most of this can be attributed to big falls in oil products (-33%), and it is encouraging that Japan is learning how to do with significantly less oil.
HOLDING AT RECORD LOWS
China held its Loan Prime rates in its monthly review today. This is what analysts expected. The one-year loan prime rate (LPR), which is the medium-term lending facility used for corporate and household loans was kept unchanged at a record low of 3.45%; and the five-year rate, a reference for mortgages, was held at 4.2% for the third straight month.
"STAY, WE ARE LISTENING"
China is worried about the outflow of funds by foreign investors. Today it held a 'symposium' for JPMorgan Chase Bank, HSBC, Deutsche Bank, BNP Paribas, UBS Securities, Mitsubishi UFJ Bank, Tesla, BASF, Trafigura, Schneider and other foreign financial institutions and foreign-funded enterprises to hear of their concerns, and provide reassurances.
SWAPS FIRMER
Wholesale swap rates probably pushed a little higher yet again today across the whole curve. But the real reaction will come at the close. Our chart will record the final positions. The 90 day bank bill rate is little-changed at 5.67%. The Australian 10 year bond yield is up +7 bps to 4.16%. The China 10 year bond rate is unchanged at 2.69%. The NZ Government 10 year bond rate is up +6 bps to 5.14% which is almost back at its August high, but still well above the earlier RBNZ fixing of 5.08% which was up +7 bps today. The UST 10 year yield is now almost at 4.37% which up +7 bps from this time yesterday and more than a 15 year high (back to levels pre-GFC.
EQUITIES UNENTHUSIASTIC AHEAD OF THE FED
The NZX50 is down -0.2% near today's close. The ASX200 is down another -0.5% in afternoon trade. Tokyo is down -0.4% in early trade. Hong Kong has opened its Wednesday trade down -0.6%, and Shanghai has opened down -0.4%. On Wall Street, the S&P500 ended its Tuesday session down -0.2%.
GOLD EDGES DOWN
In early Asian trade, gold is at US$1930/oz and down -US$2 from this time yesterday. It closed earlier in New York at US$1931/oz, and earlier still in London at US$1935/oz.
NZD STILL STUCK IN TIGHT RANGE
The Kiwi dollar is little-changed from this time yesterday at 59.4 USc. Against the Aussie we are firmish at 92.1 AUc. Against the euro we are firm at 55.6 euro cents. The TWI-5 is however little-changed from yesterday at just under 68.6.
BITCOIN MOVES UP AGAIN
The bitcoin price is higher again and now at US$27,193 and up another +1.5% from this time yesterday. Volatility over the past 24 hours has been modest at just over +/- 1.3%.
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89 Comments
Lines from an article in the SMH that perfectly explains the housing obsession in this country:
when we direct our tax concessions to property owners rather than workers, we make two significant related statements: 1. having assets is better than working; 2. passive income is better than income from productive activity.
And then we wonder why wealth inequality is rising in NZ and our economic productivity is in the toilet.
Both major political parties have completely ruled out taxing wealth/capital gains, which means the situation will only worsen going forward.
Both major political parties have completely ruled out taxing wealth/capital gains, which means the situation will only worsen going forward.
Unless you go the whole hog and eliminate / minimize tax on all wealth and capital gains, not just "propadee as a business".
I'm on the fence about CGT, rather than taxing the outcome why not tackle the source/reason for that outcome?
Say the market appreciates 50% in 4 years. I need to move for work purposes. I sell my house and look to buy in a similar market, paying CGT could put me backwards when all I'm trying to do is go sideways.
Yes that's tricky. I think there are better ways to encourage efficient use of housing. How about rolling the FIF regime currently used with overseas share holdings onto second properties? Deemed return of 5% (adjustable as a policy lever), if you have a rental your tax is as if you'd made income of 5% of the property value, so likely 1.5-2% of the value paid in tax. No deductions, nice easy tax calculation.
If you want a batch or second home, knock yourself out, but you'll be paying the same tax without any associated income.
Exclusions are a problem, why should someone with a 5m 'home' get a free ride on that when someone with a 1m home and 1m rental has to pay?
We have enough rentals, that 'aren't rentals' for tax purposes already - time to stop sticking it to the honest and make things fairer with a low LVT on all land. Those 'family' staying in that house which is 'not a rental' will not be able to avoid it.
Time to stop pretending everyone follows the rules (look no further than current immigration debacle) and accept we have a vastly different culture now. It's well past time we wrote rules to cover those that 'won't do the right thing' and an LVT is the perfect example of how to do it.
Maybe that's how it works. Defer the tax bill for 'x' calendar months (maybe 12?) so that it falls into the next tax year, otherwise you'd get the odd OO with a sale settlement in the last week of the tax year followed by a purchase settlement in the first week of the new tax year that gets stung.
A really thorough CGT is one that hits all property and is calculated and paid each year. At that point, you realise it is very similar to an LVT in a slowly rising market.
I know people like the idea of paying when selling, but that creates an unfairness and disincentive to those that need to shift for work as they would be asked to pay it when those that don't move delay paying the tax. Mobility of labour helps with productivity and a CGT only payable on sale mean people make choices based on tax rather than productivity - eg I would take that job paying 5k a year more, but not worth it due to having to sell and buy houses. Only taxing the land also encourages development/building (CGT often is on the land and house).
Summary, a LVT offset by a 15k tax-free threshold per TOP's policy is the way to go for your children if you want them to have maximum flexibility on home ownership and be able to move location as careers develop (compared to a CGT).
Aren't the houses bought with already taxed income though? We don't tax the family residence because we want to encourage familys buying and owning houses, it creates a positive society. You need to look elsewhere - investment property's sure let's tax those as they are a business. But we are about to elect a party into power who is very prop-property.
If an owner occupied house doubles in value over 10 years, and that owner releases the equity into a deposit for a rental property while borrowing the rest, how much of that rental property was paid for by their "taxed income"? Maybe the taxed income of the various renters, so do we give the tax break to the renter instead?
It's very crazy. If someone works a full time job, they incur expenses to provide shelter, food, fuel, maintenance etc to ensure they can turn up to work and "derive an income". If that cost exceeds their income they don't receive any sort of tax break, no matter how big their mortgage is.
Yet someone (not a company, someone) who "derives an income" from other people living in a surplus house, can pretend they're a business for tax purposes while running at an effective loss for tax free capital gains further down the line. Well, Labour partially fixed that one by removing interest deductibility.
Are you really suggesting an annual CGT on the family home
No.
do you have a book of bad idea's?
No, but since you're looking try these sites: www.labour.nz www.national.nz
Do you realise just how throroughly unworkable that is?
Yes. That's exactly why I advocate for a simple Land Value Tax (LVT).
That sounds like a Green communist fantasy to run the nation into the dirt.
Agree their wealth tax is awful, that's why I advocate for TOP's tax switch (take with LVT, give 15k tax free on income).
You are missing my point completely. We should be using CGT to discourage speculation and divert investments into more productive assets, not as another tax grab.
Alas, the entire conversation has been infiltrated by speculators and powerful FIRE sector lobbies who have no issues using mom-and-pop investors and FHBs as human shields to block tax reforms by spreading misinformation.
mom-and-pop investors
I watched Luxon's shameless appeal during the debate yesterday for these people that were just trying to provide for their retirement. Where was the follow up question about the retirement prospects of those that rent from them! Useless.
Equally useless was the non-questioning of the supply side ONLY answers to housing affordability both leaders gave. Supply and demand, how hard is TVNZ? You could ask a 3rd form (showing my age) economics student what determines price and get a better answer than the next PM gave last night.
Wolfie Richter unpacks the mess that is Canada. Very much the same narrative that is happening here and in Aussie. While all the pointy heads cry 'look over there' at energy prices, it's all about the bubble. Perfect storm for socio-economic destruction and they have no answers. Just like Nu' Zillun.
The scary part is the red-hot inflation in housing: Inflation in rents has been shooting up and raged at the highest rate since 1983; and inflation in homeownership costs also surged.
Rent inflation, hottest since 1982. In August, the CPI for rents spiked by 6.5% year-over-year, the highest since 1983. This is another sign that housing – rents and ownership costs – started to fuel inflation, and that inflation isn’t going to just vanish unless housing stops fueling it.
The Bank of Canada is now in a pickle of its own making, after having repressed interest rates for many years and after unleashing a massive QE program during the pandemic, that it is now rapidly unwinding. These erstwhile policies had the effect of creating one of the biggest housing bubbles in the world, that is now deflating.
https://wolfstreet.com/2023/09/19/worst-rent-inflation-since-1983-red-h…
No mention of Canada running one of the most aggressive immigration policies anywhere in the developed world then?
No. But Aussie is just as bad. And we are not too far behind. But the busloads of Chinese with suitcases of cash willing to pay a king's ransom for suburban hovels does not fully rub with me. Even in Canada.
In my speciality, we had to fight tooth and nail to get an inflationary pay rise under national. Under labour, we fought tooth and nail to get a small pay cut after inflation. We are relatively well paid, high skilled specialists, and all the money has flowed to lower income groups.
Not saying this is philosophically wrong, but it is true to say we have found negotiation harder under labour.
House prices had levelled off under labour prior to Covid. The cost of living crisis exists in right wing lead countries too, eg the UK.
I do agree though that Labour are too focussed on poverty and National are too focused on property, leaving most of the middle unrepresented by either of our two centre parties.
Heaps of chatter about possible China capital flight - we know $CNY has depreciated almost 15% YTD. So, some possibilities:
1. China is buying a lot of gold
2. China is paying down USD offshore debt of its banks and corporates
3. Wealthy people getting out
China is not buying U.S. treasuries. We don't really know where this money is going. If you do know well, chances are you will make out like a bandit.
Zeihan latest on China.
Don't Be Surprised by China's Collapse || Peter Zeihan - YouTube
Probably, to create a squeeze.
It appears that all the US Treasury gold in the West Point depository (1681 tonnes) is still in a location swap with Bundesbank (Buba) gold at the NYFED vault (1236 tonnes) and at the Bank of England (445 tonnes). So Germany has claim on all the gold in West Point. Link
As far as I'm aware all of Germany's gold has been repatriated. Need to do some research.
https://www.bundesbank.de/en/tasks/topics/bundesbank-completes-transfer…
Arthur has some ideas:
https://twitter.com/CryptoHayes/status/1704331260108431594?t=W6HWVM76yT…
Some possibilities:
1. China is buying a lot of gold
2. China is paying down USD offshore debt of its banks and corporates
3. Some wealthy comrades are fleeing the coop
Most importantly what China is not doing is:
BUYING MORE US TREASURIES!!!!!
JC...
One of my favorite economists has the view that alot of Chinese entities had cheap short term dollar debt ...and have been "caught out".
https://economicperspectives.co.uk/2023/09/is-china-sucking-the-life-ou…
Who would have thought that Albany is now the murder capital of New Zealand and Queenstown now has the worst public hygiene (slum-like) in the country.
My intuition has always told me that these two towns were always over-rated. Who would want to live there?
House values in them should now be taking a tumble.
You been to Hawkes Bay, Hamilton, Kaitaia, or almost anywhere in NZ, ITS EVERYWHERE, kids walking out of shops with bags full of stolen kit etc etc, until we kick these lefties out nothing will change..... In Albany case it was a mentally ill 501 that was murdered, by a gang prospect I suspect....
And yet National has announced no plans to combat the rising crime, except to cut back the support workers in police HQ.
Looking forward to seeing all this retail and 501 crime magically disappearing in New Zealand because National fired some Wellington bureaucrats.
yeah right.
The Nats didn't throw much cash at the police last time they were in;
https://www.stuff.co.nz/national/politics/67840387/3-million-savings-fr…
The closure of 30 police stations throughout New Zealand has saved a cash-strapped police force $3 million, but the police union is warning of trouble ahead.
The Police Association says funding is nearing a critical point and "re-centralisation" could see public confidence erode to levels not seen since the early 1990s.
And as a five-year budget freeze continues to bite, the force has been quietly been reviewing its 400 "public facing" properties - which includes stations and community policing centres.
while the entire Auckland Downtown Station was relocated to Auckland Central.
A budget freeze, which has been hanging over police since 2010, is unlikely to thaw when Finance Minister Bill English delivers his seventh Budget on May 21.
good luck collecting this..... https://www.nzherald.co.nz/business/failure-to-settle-116m-manurewa-hou… though he looks an idiot not making an offer via a company he could fold....
I think they should limit sale and purchase agreements to the deposit. Everyday people are signing these on a daily basis, having to fork out $400k if you get it wrong is very harsh. I can’t get my bank to top up my very safe mortgage by a few k without them analysing my every move, yet I can sign myself up to an almost unlimited realestate debt.
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