By Stuart Ritson*
Global asset markets were generally subdued as investors looked ahead to the US Federal Reserve rate decision which will help frame the outlook for policy easing this year. The S&P recovered from an earlier dip to be marginally higher in afternoon trade with similar small moves across other major global indices. The Nikkei registered a 0.7% gain after Tuesday's widely anticipated Bank of Japan meeting. Treasury yields drifted lower and the US dollar advanced.
The Bank of Japan (BOJ) raised interest rates for the first time since 2007, becoming the last central bank to exit negative interest rate policy. The BOJ shifted to a new overnight policy rate which it will keep in a 0-0.1% range, discontinued its yield curve control program and ended purchases of exchange-traded funds. However, it will continue to purchase government bonds to ensure any move higher in yields remains gradual. The policy adjustment was widely anticipated. Japanese Government Bond (JGB) yields ended marginally lower while the yen weakened.
In the US, building permits and housing starts for February exceeded median expectations. Although likely partly weather related, easing mortgage rates and weak inventory for existing homes for sale contributed to demand. The data suggests the underlying trend is improving, and aligns with the pickup in homebuilder sentiment, which turned positive in March.
US treasury yields drifted lower across the curve. 2-year yields retraced marginally from the 2024 highs falling 3 basis points (bps) to 4.70%. There was a similar move in 10-year treasuries – down 2bps to 4.30% - in quiet market conditions with many investors sidelined ahead of the Federal Reserve's Federal Open Market Committee (FOMC). The US$13 billion 20-year auction saw decent demand with yields near the 2024 highs likely a factor.
The yen was the main mover in currency markets falling more than 1% against the US dollar compared with pre-BOJ levels. Comments by Governor Ueda, who said it’s important to keep monetary conditions accommodative, weighted on the Yen. The US Dollar was broadly stronger against G10 currencies. Softer than expected inflation data in Canada, increased market pricing for a June cut by the Bank of Canada and contributed to Canadian dollar weakness.
NZ dollar-US dollar (NZD/USD) extended the move from the local session Tuesday and made new 2024 lows towards 0.6035. There didn’t appear to be any independent catalyst for the NZD move. However, sentiment may have been impacted by the Treasury’s commentary that said NZ was in a ‘severe’ economic downturn. The NZD is weaker on the major crosses except NZD/Japanese yen. NZD/Australian dollar retraced gains made Tuesday following the Reserve Bank of Australia (RBA) meeting, where rates were on hold as expected, and the bank removed any references to possible future increases.
NZ fixed interest markets ended the local session Tuesday lower in yield with a modest steepening bias. 10- year NZ Government Bond yields fell 2bps to 4.67%. Bonds outperformed swaps with rates in the 10-year sector unchanged on the day. Australian 3 and 10-year bond futures are largely unchanged overnight following the post-RBA drop in yields.
NZ fourth quarter (Q4) current account data is released Wednesday and is expected to continue narrowing as a proportion of GDP. The FOMC is unanimously expected to leave rates on hold Thursday morning (NZT) with the focus on updated economic projections and Chair Powell’s press conference. Investors will look to the ‘dot plot’ and the amount of rate cuts forecast for this year.
Another key focus is any change in policymakers’ long run view of the fed funds rate. The median has been stable at 2.5% since 2019. Officials are also likely to discuss the Fed’s balance sheet though an official announcement about the tapering of quantitative tightening is not expected at this meeting.
The overnight bi-monthly GlobalDairyTrade (GDT) auction saw a 2.8% overall price drop, with whole milk powder down 4.2%.
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*Stuart Ritson is BNZ's Senior Interest Rate Strategist. David Chaston will return on Thursday.
90 Comments
what he actually said...not the media spin
Rt Hon Winston Peters - Media Misrepresentation, Inconsistency, And Dripping Bias | Scoop News
“one dollar, one vote”?
Richlisters speak out on why they splash big cash on political parties
In other news, it appears even the mainstream is waking up to the supply shortage furphy.
From the Guardian (https://www.theguardian.com/lifeandstyle/2024/mar/19/end-of-landlords-surprisingly-simple-solution-to-uk-housing-crisis)
The evidence, however, does not support this thinking. Quite the reverse. Over the last 25 years, there has not just been a constant surplus of homes per household, but the ratio has been modestly growing while our living situations have been getting so much worse.
...
In terms of the Organisation for Economic Co-operation and Development countries, the UK has roughly the average number of homes per capita: 468 per 1,000 people in 2019. We have a comparable amount of housing to the Netherlands, Hungary or Canada, and our housing stock far exceeds many more affordable places such as Poland, Slovenia and the Czech Republic. It is impossible to make a case for unique levels of housing scarcity in Britain, in comparative international or historical terms.
...
In the 1970s, when Leigh’s contemporaries were buying their first homes, they were the direct beneficiaries of an imploding private rental market. Rent controls, secure tenancies and high interest rates had conspired to decimate the sector: it shrank from nearly 60% of dwellings in England and Wales in 1939 to just 9% in 1988
I had to look up Furphy. Good word. Thank you!
“A furphy is Australian slang for an erroneous or improbable story that is claimed to be factual.”
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I've always been a bit suspicious that Supply is the main/only problem. Seems like a good cover story for some owning several properties.
Furphy indeed. They are everywhere in the media. I am getting frustrated with the media stories that list the negative comments about something, but you can't find actual detail what was said or done about that something.
Yesterday it was Deputy PM Peters. Today it is disability funding.
The positive is that I know a number of second homes that are now coming on the rental market.
As the prospect of capital gains disappears over the horizon while holding costs rise, this is exactly what you would expect to see if you believe underutilisation has been an issue.
Before this is over (the crash, that is) I think there may even be talk of oversupply (Ireland anyone?).
I'm somewhat surprised you didn't quote this paragraph ... [my emphasis added]
Solving the housing crisis does not need to involve an ecologically unforgivable project of mass-scale housebuilding. It does not need to involve asphalting green belts, destroying precious amenities through “infilling”, converting office blocks into flats or wasting government money on quixotic home-ownership schemes. We simply need to relearn the wisdom of the last century: to acknowledge that landlordism is the enemy of affordability, and to ensure that the housing economy is not defined by the staggering rental yields that our unregulated market can produce.
Yes, it is about as naive as you can get about how housing works.
1)There are no staggering yields, in fact, most yields are neutral at best. What there can be is high ROI due to speculative capital growth with the actual yield just washing its face debt-wise.
2) Rental properties are needed as part of a healthy societal mix. But it's the % of rents to owner-occupiers that is the issue. Renting at certain stages of your life gives you more flexibility to take advantage of work opportunities, ie allows you to be more mobile and mobility is linked to higher incomes over time. Conversely if you buy too early you can lock yourself into a place and debt and not be able to move as easily should the opportunity arise.
UK is a warning that shows what happens when land use restrictions get baked into the housing framework such that speculative rentier gain is the underlying benchmark for the value, rather than its present yield earning ability. And it's a warning because we use the same commonwealth-inherited legislation. The UK is worse only because they have been doing it longer.
Thankfully NZ's main political parties all understand the flaw. Labour's attempt to remedy it was countered by their command and control ideology. National understands what needs to be done, and if they get their policy settings and implementation right, despite the vested interest that will try to block it, we will have a chance to stabilize the housing market, remove waste from the system, and allow wage inflation to restore median income multiples to a more affordable ratio.
Totally on board with points 1 and 2.
As for how this could be resolved, I don't think addressing the supply side is sufficient.
What will work is reducing demand for properties as investments. Demand for properties as homes will always remain.
Unfortunately, we've proven incapable (or unwilling) to do that with the consistent rejection of capital gains tax, land value tax, meaningful lending restrictions, etc, all in favour of increased accommodation supplements, interest deductions, short term rentals, and so on.
Thankfully (for many) the market will solve this one for us. The whole thing is so fragile now that a return to even less than historically typical interest rates is crushing the house of cards.
Real change generally only happens in response to a crisis.
Saw it coming a couple of years ago and decided to lock in some decent maintenance contracts - leaving me with 4 days a week to focus on my own projects. With the way the NZD has been going, and those projects focused on overseas markets, I'm very happy with that decision right now.
https://www.stuff.co.nz/politics/350208676/richlisters-speak-out-why-th…
Richlisters splash big on National and Act because National and Act put in place policy which makes them richer and protects their wealth. This is why the current coalition's policies are so clueless and will do nothing to address cost of living or improve the country's overall well-being.
The coalition is there to pay back their donors, which is why you see policies that are proven to be bad for the country (tobacco, roads road roads, etc...) and elections fought along culture war lines. The super rich have a massive interest in creating disharmony and division across society, the last thing they want is a unified country that looks at how much they take and decide that enough is enough.
It's a shame, as this is exactly the same route that the Republican party in the US and the Tory party in the UK have taken, we're just running a decade or so behind them. If you want to see how that works out just look at where both those countries are now.
"Richlisters splash big on National and Act because National and Act put in place policy which makes them richer and protects their wealth. "
Evidence for your assertion? There's nothing in the article to support your statement, quite the contrary.
I look forward to seeing your next expose on the influence unions have on Labours policies.
The taxation and economic policy side of the new government I'm not so hot on, but the cigarette thing seems blown out of proportion. The way some people are carrying on you'd think the government is handing out packs of darts on every street corner, and we will soon be back to the "glory days" of tobacco advertising everywhere.
Everybody knows smoking is bad for you, and smoking isn't cool with youth any more (heck even the best part of 20 years ago when I started high school, smoking was only for the absolute losers ... how would I know? Because I was an absolute loser and did smoke a bit, but then stopped one day and never looked back).
It seems a very long bow to draw that we're suddenly going to see a big uptick in the number of people starting smoking. That's before considering issues with black market tobacco (I find it strange that many of the people who argue that prohibiting drugs doesn't work because it engenders criminal activity then claim that the same doesn't apply for tobacco)
To some extent I'm more interested in seeing how parties are going to respond to the vaping epidemic. There are kids as young as 12 at my wife's school getting busted vaping - seems unlikely that in 3 years time or whatever the new cohort will be lighting up a Marlboro red instead?
Do you remember the implementation of Labours ethnostate (3-10 Waters, separate Maori Health, unelected race based local govt representation etc) as published policy prior to the 2020 election, or He PuaPua being mentioned ?
Me neither.
Speaking of being challenged with facts, you haven't yet replied to my challenge on your demonstrably false claims about the Stuff article.
Unions have a huge influence on Labour policies. Unions defend the rights of their workers. Unions were responsible for the vast majority of working condition improvements. I'm not sure what your point is.
Personally I think the nurses union is more likely to have the interests of nurses as a whole than a rich lister who owns a private medical firm. Doesn't mean that every richlister is only out for themselves, but "on average" it's more likely.
Countries like Russia (and China) are not democracies and dont have elections just a charade for a purpose
and worse they provide an example for others to copy - so plenty of African and middle eastern countries adopt the same veneer
maybe furphy is a good description of what has taken place
Er. They put up a programme, and the people voted for it, and then they did it.
Democracy, it's good.
So as you asked, I approve the wind back of the co-governance madness has begun, and with courtesy and care.
I don't like with the reversal of interest tax deductions for rental house.
"He donated because he was deeply concerned about the direction the country was heading in, believing “more competent and disciplined management” was required."
Reckon that donor might be looking for their money back.
Anyway, all of then said they didn't want anything from the party. I believe.
well the labour party set a pretty low bar for competent and disciplined management
My concern is that the requirement for a big improvement in competent and disciplined management does not appear to be flowing through to govt. depts. and certainly not to local bodies
Only likely to change if some dept. heads are given their marching orders
Warehouse posts a 27.7 million net loss for 6 months. Now selling The Market, their online side.
Some big sales on at our competitors stores at the moment. Can that see some retail prices are less than our cost. Might buy them some time but not a long term strategy.
Going to be some big changes in the retail market as firms struggle.
When "The Market" was advertising heavily for ICT staff I did some digging on the technology they were using. I was so concerned that they'd end up with a system that would be extremely costly to maintain I emailed a colleague and suggested a K.I.S.S approach with a low cost base would serve them far better in the longer term. They replied, "Bay of Pigs".
Obviously the com com missed the fact we have a new government and things need to change.
https://www.rnz.co.nz/news/business/512198/warehouse-disappointed-comco…
Sarc
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