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
Westpac and Kiwibank cut rates today. One of the Kiwibank new rates is notable. Details here.
TERM DEPOSIT/SAVINGS RATE CHANGES
Kiwibank also cut some key TD rates. Heretaunga Building Society also reduced rates
WINTER STARTS EARLY IN GLUM HOUSING MARKET
A winter downturn is hitting the residential property market. Fewer properties are being auctioned as winter takes hold - only a third sell under the hammer.
FOOD NOT PRESSURING CPI, BUT RENTS ARE
Food prices rose for the first time in three months in April sparked by higher olive oil, potato crisps and chocolate block prices. Statistics NZ says they rose +0.6% in April from March to be +0.8% higher than a year ago. Meanwhile international airfares surged +7.2% from the prior month but are still -21% lower than a year ago. Rents continued to rise keeping CPI inflation elevated, up +4.6% from a year ago.
FBU STILL STUMBLING
Ailing construction giant Fletcher Building (FBU) has slashed earnings guidance as housing sales slow. It's share price tanks. After removing its CEO, a cleanout is underway. But it is warning that profits for the year to June could be as much as $140 million lower than it forecast less than three months ago.
GRIM OUTLOOK
The services sector continued to contract further in April, according to the BNZ-BusinessNZ Performance of Services Index (PSI). Led by weak new orders, it failed to bounce in April from March which itself was a 'slump'. . At 47.1, it was marginally lower than the 47.2 it had slumped to in March. None of this augers well for Q2 GDP. Combining today’s weak PSI with last week’s PMI yields a composite reading that would be consistent with GDP tracking below year earlier levels into the middle of this year.
UP +9% AND IT IS STILL "NOT ENOUGH"
Stats NZ updated its 2023 local authority stats today. That reminded us to check the change in Rates & Other Regulatory Income by councils. Overall to December 2023, this revenue is up +9.1%. It is not an insignificant contributor to inflation.
BACK IN RANGE?
The Business Survey of Expectations in Q2-2024 are rapidly reverting to within the target range or 1-3 percent. One year out, that expectation has fallen to 2.7% (it was 4.3% a year ago). Two years out the expectation is down to 2.3% (2.8% a year ago). This RBNZ survey is designed to capture the expectations that forecasters and business leaders have on a variety of economic data. More here.
NOTHING TO WRITE HOME ABOUT
Australia's closely-watched NAB business confidence index stood at +1 in April, holding steady for the second straight month while staying below its long-run average. Weak sentiment in retail, wholesale, and mining offset improvements in recreation, personal services, construction, and manufacturing. But the main feature is the lackluster current conditions.
SWAP RATES MARGINALLY FIRMER
Wholesale swap rates are likely to be little-changed today, perhaps marginally higher. Update: Wrong, at the end they actually slipped slightly. Our chart below will record the final positions. The 90 day bank bill rate is unchanged at 5.63%, a level it has hovered around for more than 70 days. The Australian 10 year bond yield is down -3 bps from this morning, now at 4.38%. The China 10 year bond rate is down -3 bps at 2.31%. The NZ Government 10 year bond rate is down -2 bps to 4.81% and the earlier RBNZ fix was at 4.75% and up +2 bps from Friday. The UST 10yr yield is down -1 bp from this morning's open at 4.49%. Their 2yr is now at 4.82%, so the curve is little-changed at -36 bps inverted.
NZX50 DRAGS THE CHAIN, AGAIN
The NZX50 has started the week on the back foot, down -1.0% in later Monday trade. The ASX200 is -0.1% softer in afternoon trade. Tokyo is down -0.2% in morning trade. Hong Kong is up +0.2% in early trade. Shanghai is down -0.3%. Singapore is up +0.2%. The S&P500 futures suggests Wall Street will open tomorrow up +0.4%.
OIL DRIFTS LOWER
The oil price is -50 USc softer today from this morning's open, at just over US$77.50/bbl in the US, while now at just on US$82/bbl for the international Brent price.
GOLD SNOOZING
In early Asian trade, gold is unchanged from this morning's open at US$2360/oz.
NZD HOLDS
The Kiwi dollar has hardly changed today at just over 60.1 USc. Against the Aussie we are holding at 91.2 AUc. Against the euro we are also little-changed at 55.8 euro cents. This all means the TWI-5 is now about 69.4, and basically unchanged as well.
BITCOIN HOLDS
The bitcoin price has risen to US$61,362 and virtually unchanged from this morning's open at US$61,614. Volatility of the past 24 hours has been low at under +/- 1.0%.
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69 Comments
Hard to know for sure, but what you have set out there would be my central view.
After the boom of 02-06, it wasn’t until 2016-2017 that things really started to crank up again.
As I have said before, OCR will need to be circa 3.5% before any life whatsoever is breathed into the sector.
There will be isolated spots of activity. For example I am expecting some of National’s mates to get some fast track approvals for greenfield development.
Yes but one very important exception- land that has been bought at a bargain basement price in the last couple of years, because it’s riddled with flooding etc. Of course not cheap to design and build solutions for, but that won’t stop them.
And counter cyclical - secure consent later this year, build with more competitive build rates through 2025, then sell in circa 1.5-2 years when interest rates are lower and the market is recovering.
There - easy.
Your observation is correct! I have put out a tender for major rewiring and electrical upgrading work for a property in Christchurch and those who did put a quote in were very positively surprising to the downside with both rates as well as material. But others who didn't put a quote in stated to me that they were intending to wind up their business in New Zealand. So both aspects of the economical downside observed: Lower prices and lower capacity.
We are currently talking to a mid-size builder in Christchurch working at half capacity. Our briefing was $3,500 - $4,000 incl of landscaping psqm for a nicely designed home, nothing too flash. First proposal came back at $4,400 psqm with loads of provisional sums. Not happy. Builder agreed to get quotes in the market to turn PSs into FPs. With the exception of one small item all quotes came in significantly above PS, in one instance double the PS. Builder is reluctant to negotiate and is now apparently less interested to take us on as client.
It is anecdotical evidence that the construction industry still lives in la-la-land thinking that boom times are there to stay. Perhaps we should wait a few months before signing up with another builder.
PS’s are a just as much a death trap as alterations are to the plan along the way. These are a loopholes ripe for the builder’s picking. Some PS’s though are legitimate and unavoidable, but clause each one that any variation must be given good notice with the proviso that alternatives, different products etc, are explored and costed.
Food prices rose for the first time in three months in April sparked by higher olive oil, potato crisps and chocolate block prices
Using a glass-half full POV, at least we can say these three foods fall into the 'nice to have' classification. We don't want to see flour, milk and potatoes driving food price inflation.
My mate had a crack at colleagues at Mars who decided to put prices up to maintain profit margin on Snickers in Thailand and Vietnam markets post-Covid. She told them to be careful as shoppers can forgo purchase if price is a barrier. Needless to say, sales volume plummeted and Mars had to resort to discounting to shift stock and trigger behaviors.
Mars put in a max calorific value for their bars, hence the shrinkage, which also made the shrinkflation look justified. But last night at the supermarket, Nestles' chocolate tabs have gone from 220g to 170-180. The Rolo tabs are now ultra thin. I'm going to write to Whittakers to urge them not to cut their block sizes.
Ah but any food processing is bound to have much more criticism, along with the where did they source the coco beans aspect. You would have almost no contact with a phone company if they did not screw up connections and billing as much but the impacts of a food item take a longer time to be digested and certainly could be far more aggrieving the next day if they screwed it up. Some people are naturally allergic to contents in half the products so the chances of severe issues are much more apparent and much more harmful. Yet they can prevent much of the cross contamination. So it is actually something that means as a company they already have customers they will naturally harm if they don't QA as much and there could be many more complaints when things go wrong.
Cadbury F d up in a large way by routinely changing recipes and flavours of the same product that they thought would be indistinguishable to their customers. They tried charging more for smaller amounts and thought no one would notice. Then they screwed over the staff in a big way. Tie that in with any further individual complaints that are unpublished and the overall customer voting did not approve of them.
Hence those who vote against companies the most are usually those who have been harmed by them and those who feel tricked by them. However as all public votes perception is always variable. Likewise in the food provider field I don't forsee supermarkets ranking highly in NZ (even though being in an agricultural nation one would think we would have more access to fresh food and cheaper staples & enjoy sourcing them). I think killing the sound speakers in any of the stores would help a lot to the experience.
Overall to December 2023, this revenue is up +9.1%. It is not an insignificant contributor to inflation.
Indeed, local Govt rates make up just over 3% of the CPI basket, so a 9.1% increase in rates adds about 0.31 percentage points to the annual CPI.
Rents make up about 10% of the basket, so a 4.6% increase adds 0.46 p.points.
Insurance cost increases added another 0.42 p.points last year.
Add another 0.32 p.points thanks to higher tobacco taxes and 0.47 p.points for higher petrol costs.
What do we have in total? A CPI of 2%. That's the target isn't it? Great (as long as the price of everything else stays still). Higher for longer etc.
Almost all hospo businesses are labours of love with people / families working 80 hours a week to earn what would be a reasonable wage for 40 hours of work. Similar labours (without the love) include dairies, uber, and, if you include travel time, home care, food delivery, couriers etc.
This is a final stage capitalist economy - the uberisation of the workforce and the carefree destruction of the ecosystem. The battle between capital and labour is over. You have workers desperate to work / live being exploited by corporate asset owners and landlords. The rentier class is basically accumulating assets that help them compete in a gigantic game of hungry hippo - all trying to grab a decent share of the flow of credit money that keeps the economy going. What do they do with their spoils? Buy more assets so they can compete harder; maybe throw a few dollars at philanthropy for the feel goods. I don't blame them of course - the objective and rules of the game are clear.
Before pdk gives me a kick, we should also recognise that, in material terms our economy is powered by labour, materials, machines and fossil fuels. We should also note that as our ecosystem destabilises, the rules of the game will change quickly.
"You have workers desperate to work / live being exploited by corporate asset owners and landlords. The rentier class is basically accumulating assets that help them compete in a gigantic game of hungry hippo "
I don't know if you can say workers are being exploited by landlords. Annual rent up 4% year on year - that's a cut after inflation. And with housing costs so high some rentals have a net yield of only 1-2%.
I'd say anyone wanting to be a landlord right now is mad. Better to just invest for VOO or QQQ index funds - you'll make a fortune more and the tax treatment is better
As usual, Maccy B offering more than most NZ journalists and economyths on the dire straits of our economy:
https://www.macrobusiness.com.au/2024/05/reserve-bank-must-cut-interest…
I heard that farmers in India get subsidised loans. I wonder if interest rates that are 1-2% lower in NZ for agriculture would make sense. It would mean agriculture, a much harder and higher commitment industry to get into than most, would be a little easier. But not so much that it is work mortgaging properties to put the money in the bank.
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