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). It's a skinny edition today.
MORTGAGE/LOAN RATE CHANGES
No so far today.
TERM DEPOSIT/SAVINGS RATE CHANGES
Treasury trimmed its 1, 2, and 4 year Kiwi Bond rates by -25 bps today.
MORE LISTINGS, LOWER PRICES
Barfoot & Thompson started the year with rising stock levels and falling prices, spelling good news for buyers. Their average price was down nearly $100,000 in January as listing jumped.
HOUSE BUILDING CONSENTS SHARPLY LOWER
The December data closed 2023 showing the number of new homes consented dropped by -25% from the prior year. There's a looming crunch coming for the residential construction industry as new dwelling consents continued to tumble at the end of last year. And analysts now also expect a fall in construction activity over 2024.
NON-RES CONSENTS WEAK
Meanwhile outside the housing sector Infometrics noted that non-residential consents totaled $647 mln in December, down 24% from a year ago. After adjusting for seasonal patterns and building cost inflation, the monthly consent total was the weakest since January 2023 and continues a definite trend of weakening in the second half of last year, they said.
CAR SALES SOFT, COMMERCIAL VEHICLE SALES JUMP
There were 8116 new cars sold in January, plus another 8915 used imports. That means the new car sales level was more than -12% lower than year ago levels, but the used import level was +24% higher. And it looks like the level of EV and hybrid sales were unusually low last month. In contrast, there seems to have been a big surge in new commercial vehicle sales, topping 4300 and the second highest January ever.
SENTIMENT STILL LOW
Consumer sentiment remained low in January even if it did firm slightly from December. However, the same ANZ-Roy Morgan survey showed that inflation expectations rose to start the year, going up from 3.9% to 4.3%. The RBNZ won't like to see that. A net 19% think it’s a bad time to buy a major household item, up 6 percentage points. Retailers won't be happy with that metric either.
JANUARY RETAIL WEAK
Data released by Worldline today from its payments network shows consumer spending through Core Retail merchants (excluding Hospitality) in was $3.07 bln in January, up +3.9% on January 2023. Meanwhile, consumer spending through Hospitality merchants only reached $1.02 bln in the month, which is down -1.4% on January 2023. Neither metric shows enthusiastic consumers.
UDC BUYS NZ BOOK OFF BOQ
UDC Finance said it has a deal with Bank of Queensland to purchase the New Zealand loan book and other New Zealand assets originated by BOQ Finance and BOQ Equipment Finance. Regulatory approval for this transaction has been received from the Overseas Investment Office.
FALLING WELL SHORT
In Australia, there were only 51,570 home loans issued in 2023 for the construction or purchase of a new home, less than half the number of loans issued just two years earlier in 2021 and finishing 2023 on a weak note. The pipeline of new housing supply approaching completion there is now shrinking rapidly and they are very unlikely to meet the Federal Government's target 1.2 million new homes built in the next five years.
SWAP RATES HOLD
Wholesale swap rates will probably be little-changed again today. However, the key reaction will come at the close. Our chart below records the final positions. The 90 day bank bill rate is up +1 bp at 5.67%. The Australian 10 year bond yield is down another -4 bps at 3.98% although has been lower in between. The China 10 year bond rate is little-changed at 2.45%. And the NZ Government 10 year bond rate is up a minor +1 bp at 4.62%, while the earlier RBNZ fixing was at 4.66% and unchanged from yesterday. The UST 10 year yield is now at 3.88% and down another -7 bps from this time yesterday. The UST 2yr is at 4.21% and so that key inversion is holding ar -33 bps.
EQUITY WINNERS & LOSERS
The NZX50 is up +0.4% in late trade today heading for a weekly rise of +0.7%. The ASX200 is up +1.1% in early afternoon trade, and heading for a weekly rise of +1.6%. Tokyo has opened up +0.9% in early trade and heading for +1.5% for the week. Hong Kong has opened up +1.8% at its open and unless that changes it will complete its week down -1.2%. Shanghai is up +0.2% in their opening trade today but the damage was done earlier in the week and that look headed for a -4.6% weekly retreat. Singapore is up +1.2% at its open. The S&P500 closed on Wall Street in Thursday trade up +1.3% but in the first four days of the week that is only a +0.3% rise.
OIL EASES FURTHER
Oil prices are down another -US$1.50 from yesterday at just under US$74.50/bbl in the US while the international Brent price is now just under US$79.50/bbl. That is seriously cheap - it first hit this level in June 2006, and since then New Zealand has had a +54% change in purchasing power.
GOLD FIRMS FURTHER
In early Asian trade, gold is now at US$2053 and up another +US$13 from this time yesterday.
NZD FIRMER AGAIN
The Kiwi dollar is now just on 61.5 USc and up +¼c from yesterday at this time. Against the Aussie we are slightly firmer again at 93.4 AUc. Against the euro we are slightly softer at 56.6 euro cents. That means the TWI-5 is now at just over 70.7 today and up a bit less than +20 bps.
BITCOIN RETREATS
The bitcoin price rose +3.0% today to US$43,269. There's been modest volatility over the past 24 hours of just over +/- 1.8%.
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32 Comments
WSJ gets in on the global contagion of the property rout. Get the feeling they're not trying to spook the horses too much and painting this as a scratch wound.
Had to take this to the water cooler. Nobody's fazed. Response was pretty much 'Yeah. Nah'. Anyway, that's how we roll in Nu Zillun.
But the contagion is spreading. While the Fed won’t necessarily cut (due to "strong economy"), they can change eligible collateral requirements to include commercial real estate - kind of "back-end money printing".
Potentially good for gold and Bitcoin if you understand the smoke and mirrors.
She said small and midsize lenders especially face substantial numbers of loans to office landlords that refinance in the next 24 months, and likened the situation to a “rolling recession” for banks that could drag on for some time.
Some of the biggest risks come at the maturity of loans, which tend to run five to 10 years in term. As cheap loans from an era of low rates and high prices come due, landlords are increasingly unable to find new loans to replace them.
https://www.wsj.com/finance/banking/pain-in-commercial-property-hits-ba…
Barry Sternlicht - CEO of Starwood Capital Group, an investment fund with over $100 billion in assets under management - on the commercial property rout. This is gold.
"We have a problem in real estate. In every sector of real estate, not just office, because of the 500 basis point increase in rates that was vertical.
The office market has an existential crisis right now... it's a $3 trillion dollar asset class that's probably worth $1.8 trillion [now]. There's $1.2 trillion of losses spread somewhere, and nobody knows exactly where it all is...
There are buildings in New York that were bought for $200 million... the loan was $100 million... and we [personally] thought it was worth $30 million.
There's a building for sale right now in San Francisco. It was bought for $850 per sq ft. The loan was $450 per sq ft. They'll [probably] sell it for $250 per sq ft... that's $0.25 on the dollar.
That would mean we lost three-quarters of the total asset class...
This asset class is not just owned by rich people. It's owned by pension plans and other people... small investors.
We're not just talking about towers. We're talking about the buildings that surround towns and municipalities. What happens to those cities?
But there is a bright spot - the office situation is a completely US phenomenon. I just was in Munich last week, and rents in Munich are up 15%. The vacancy rate in Munich is 2% for Class A. In Seoul, Korea, it's 1%. In Tokyo, it's 4%.
Everyone's back to work except for Americans. We've gone off the deep end. We don't show up for work, we don't apply for jobs, and we don't feel like we have to go back to the office."
It's complicated. Chinese banks do not seem directly exposed outside China. But I do not have a deep understanding. But Evergrande and the shadow banking players were issuing bonds for developments across Asia and in Aussie.
This one is Country Garden and Forest City in Malaysia. Many of these properties were sold as 'investments'. https://www.aljazeera.com/news/2023/11/23/how-a-focus-on-chinese-buyers…
Not getting much attention is a kind of mini-Evergrande in Vietnam. USD12.5 billion. The mastermind behind is Vietnamese but has deep connections to China. Bonds were being sold to unsuspecting punters through the banks.
https://www.bloomberg.com/news/articles/2023-12-18/vietnam-property-tyc…
Europe and Asia - high density cities with good public transport, walking and cycling. Office vacancy bounces back, people don't mind the trip into the office and there is plenty to do after work in town.
Car dependent cities, not so much, people hate the long car commute in traffic and prefer to work from home now.
Lol. A fund manager that only sees $$ and doesn't want to understand how it got to this point in the first place. It's obviously not a $3 trillion asset class anymore.
It certainly does highlight the whole value, worth, wealth, MOAR money, debt model though.
What happens to those cities? Well the buildings still exist and it's clear a different version of economic/capitalism thinking is required.
A reset was always needed, always going to happen. The only question now is who leads, rules, owns us through it?
me think its going to be a tough year for everyone, a small business in Motueka is selling his boat and classic car to prop his business and it seems he's not the only one, labor has stuck it to us in every which way ,I'm retired with no debt and a reasonable income but even I look twice before I buy something .never had to that my entire life, but getting to old to work so I'm stuffed if I run out of dough and this baby boomer now has to cut back on my booze intake and my sex life is shit.then my doctor tells me I should be doing this and that for what I don't know what he's getting at because it isn't going to get better from here but hey I have had good life so I have decided not to listen to anyone even myself lol
https://www.stuff.co.nz/money/350166246/peculiar-situation-how-tax-chan…
Cry me a river...a trust to hide money to receive rest home subsidies and now it is unfair to pay tax on it.
“I imagine there are a lot of historic trusts, whenever super was means tested and people were putting their houses in trust so they qualified for super and rest home subsidies, that sort of thing.
Perhaps but then the standard of care becomes no more than basic. A family should decide whether or not their elders have a degree of dignity, security and wellbeing as opposed to secreting away their funds. Recently in our extended family two late eighties have gone into care, good care that is, and the process of funding that through WINZ was exhaustive involving their very heavy enquiry into whether pre-existing trusts were a feature. Basic care under WINZ in rest homes is very basic and that can include being shifted out of town so to speak. Any family that sacrifices care to the benefit of themselves financially is certainly not much of a family.
Australia is so much better sorted in many ways.
Last year we put my 85yo mum (NZ citizen) into care in Oz.
The care cost is capped at 80% of her pension.
The accommodation payment can be made in a few different ways. We paid the total care unit cost upfront (A$450k), this is 100% refundable, govt guaranteed.
You can also keep your family home, rent it out to cover the weekly accommodation cost in which case you don't get the cost back but retain your assets in your estate.
My mother lived to well over 100. When she passed that mark though she didn’t know that nor much about anything else for that matter. But she was safe, clean, warm and dry and fed. All of her funds, home proceeds, savings etc had contributed to that care until the $237k was hit.That eventually went too in order to keep up the same standard of care. Then we as siblings kept that up. That adds up to a big difference as a burden on tax payers, to those that end up in care with nothing at all to contribute.
I thought this was interesting. The pain being inflicted on mortgage holders may be completely unnecessary.
Lol a professor of economics who doesn't understand what he's been taught or what he's teaching. I researched this a long time ago and it's much more than just inflation. Price stability, purchasing power, debt based money, fear of deflation, capitalism, supply and demand, economic theory - it's all connected and all made up haha.
Oh the "pain" is still necessary. Bubble economics and the status quo doesn't help society as a whole. Neo liberal economics was made up by a bunch of students and is ultimately a real time experiment. Everything to do with the human ego, the illusion of scarcity, foreign policy and financial dictators.
Listen earlier to a guy from Hawke Bay on RNZ. Bemoaning the fact a home owner (fictional )was be asked to pay for the demolition of a house from the demo money in the insurance payout. He then went on to say that getting $1.2m payout for a $1m property was definitely not gaining from the system.
Maybe he just wasn't a good spokesperson for those affected but certainly didn't get my sympathy.
https://www.rnz.co.nz/news/national/508158/cyclone-gabrielle-hawke-s-ba…
ASX hits record and real estate stocks surge. BAU.
The Australian sharemarket set another record on Friday for the second time this week, fuelled by a rally in interest rate-sensitive technology and real estate stocks as investors step up their rate-cut bets.
https://www.afr.com/markets/equity-markets/bank-rebound-sends-asx-to-al…
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