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
Kiwibank was the first to cut following the RBNZ OCR cut, taking its floating rate down a matching -25 bps. They were quickly followed by ASB. Then ANZ cut as well. All rates are here.
TERM DEPOSIT/SAVINGS RATE CHANGES
SBS Bank cut their TD rate offers today by between -10 bps and -30 bps. Kiwibank cut its Notice Saver rates, and its online call accounts by -25 bps. ASB made similar cut announcements for August 20. ANZ also trimmed. All updated rates less than 1 year are here, for 1-5 years, they are here.
IT'S A CUT
The Reserve Bank has started the long awaited interest rate cuts, and is forecasting further cuts before the end of the year. It also now sees annual inflation falling to just 2.3% by the end of this quarter.
IN RECESSION
The RBNZ data shows this and next quarter with shrinking economic activity (GDP). This won't be much of a surprise to readers locally.
NO LONGER RECORD-BREAKING
ASB's annual tax-paid profit fell -6.7% in their June 2024 year to NZ$1.455 bln, from last year's record high of NZ$1.559 bln. Both income & net interest margins were down with expenses up. Meanwhile, parent CBA reported a AU$9.4 bln profit (page 136), down -6.0% from AU$10 bln last year and AU$10.7 bln the year before that. [Just because we have these documents open, we should also note that ASB paid taxes of NZ$572 mln at a 28.2% rate, the maximum company NZ rate, while CBA paid taxes of AU$4.3 bln at a 31.2% rate. The CBA data includes the ASB data.]
REGULATING A MARKET OPERATOR WITH TEETH
In Australia, ASIC has commenced proceedings in the Federal Court against Australia’s largest market operator, ASX Limited, for allegedly making misleading statements related to its Clearing House Electronic Subregister System (CHESS) replacement project.
BACK OPEN
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SWAP RATES SLIP
Wholesale swap rates are probably lower following the RBNZ signals, but maybe by not much (it was priced in). Our chart below will record the final positions. The 90 day bank bill rate is down -1 bp at 5.37% but these rates were set before the OCR change. The Australian 10 year bond yield is down -5 bps from this time yesterday at 3.98%. The China 10 year bond rate is down -3 bps at 2.16%. The NZ Government 10 year bond rate is down -4 bps at 4.25% and the earlier RBNZ fix was at 4.22% and down -4 bps from yesterday. The UST 10yr yield is down -6 bps from this time yesterday at 3.85%. Their 2yr is now at 3.95%, so that curve is little-changed at -10 bps.
EQUITIES MIXED
The NZX50 is up +1.3% in late trade today. The ASX200 is up +0.5% in their Wednesday afternoon trade. Tokyo is down -0.2%. Hong Kong is also down -0.2% at its open. Shanghai is down -0.3% in its opening trade. Singapore has risen +0.4% at its open. Wall Street ended its Tuesday session with the S&P500 up +1.7%. Remember it is the heart of their summer holiday season there.
OIL SLIPS
The oil price is down -50 USc from this time yesterday, now at US$77.50/bbl in the US, and at just on US$80.50/bbl for the international Brent price.
CARBON PRICE EASES SLIGHTLY IN LIGHT TRADE
Today the carbon price is down slightly -50 USc at $53/NZU today in light trade. See our new daily chart tracker of the NZU price for carbon, courtesy of emsTradepoint.
GOLD EASES BACK
In early Asian trade, gold is down -US$5 from this time yesterday, now at US$2459/oz.
NZD FALLS POST OCR
The Kiwi dollar has fallen after the OCR decision (after overnight rises to 60.8 USc), now at 60.1 USc. Against the Aussie we are down -70 bps at 90.8 AUc. Against the euro we are soft at 54. euro cents. This all means the TWI-5 is down -30 bps from yesterday at 67.7.
BITCOIN FIRMS FURTHER
The bitcoin price has risen +2.4% from this time yesterday, now at US$60,917. Volatility of the past 24 hours has been moderate at just on +/- 2.6%.
USE OF AI
No articles on this news service are produced with AI. Occasionally we use AI to derive images. They are always identified in the attribution.
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90 Comments
Dropping the interest rate should stimulate construction (supply) as well. For instance in Hamilton there are two basically new suburbs approaching construction - something like 5k+ homes in total. I don't recall the post-GFC period having the same momentum in terms of building activity.
Thanks Zwifter.
I see a much sharper OCR drop to 2.50 - 3.00% by August 2025, so a hefty 2.5 - 3% drop from this mornings top.
I don't see a sudden house price recovery though, I think this will take more time, perhaps in 2026 but maybe even later.
Let's revisit these predictions in 12 and 24 months time.
I wonder if in 2-3 years looking back it would be obvious to a blind man (in hindsight) to have stacked up on NZ property at this point (thinking of interest rate structure that is along with changes to regulation and taxes).
Quite possibly Wolfie. We might be winding into the mother of all property booms without the support of filthy lucre from China.
Wolfie in 2002 after dot com crash and in 2009 after gfc you had the added tail wind of global asset price reset and global low rates
right now we have yet to have any global landing in USA though in china the plane ✈️ is somewhere in Southern Ocean (no landing going to happen )
so it’s a very different cycle to past buying opportunities, we are out of sync with the rest of the Anglo world and Asia
I reckon there’s a big queue of “you can’t lose with property mate” people out there looking for an excuse to buy a “bargain”, and Orr has given them one excuse and will no doubt give them more. The economy is irrelevant to those people. Anyway it’s just a theory, time will tell what happens.
Aussie's new housing minister Clare O'Neil has misled the parliament, making up expert quotes on Monday, then being caught out on Tuesday. This is after being forced to apologise for making up economic modelling attributed to Treasury just days ago.
At first O'Neil simply served up various word salads rather than admit another mistake as she accused the opposition and the Greens of playing politics.
(Jacinda was also guilty of this but is now a C-Lister on the ruling elite circuit)
https://www.dailymail.co.uk/news/article-13737889/Blundering-minister-C…
Has a strong and persistent social media presence. Obviously has a full-time team working on it. It's all about "look at me and the great things I'm doing for you."
The preacher man says it's the end of time
And the Mississippi River, she's a-goin' dry
The interest is up and the stock market's down
And you only get mugged if you go downtown
I live back in the woods, you see
My woman and the kids and the dogs and me
I got a shotgun, a rifle and a four-wheel drive
And a country boy can survive
Country folks can survive
...about that non tradeable inflation...Public sector labour cost increases ~ double private sector
No wonder we are in deficit | Kiwiblog
I had some doubts on the graph which appears to be NZ Stats LCI however there's a similar picture here
Labour-Cost-Index-March-2024-quarter.pdf (publicservice.govt.nz)
Edit: an apparent failure of Arderns Covid 3 year public sector salary freeze
Don't be misled. Private sector wages moved quickly to keep up with living costs. Public sector wages always move much more slowly. Here's the data for the last few years. Remember also that LCI is not wages.
NZ Stats doesn't agree with you
"Labour cost index (LCI) measures changes in wages and salaries."
https://www.stats.govt.nz/topics/labour-market
Also, anyone looking at the graph should acknowledge that the Public sector catchup overshoots Private by a considerable margin.
Looks like this developer didn't get saved by the 25bps drop today
https://www.trademe.co.nz/a/property/residential/sale/auckland/waitaker…
Get in quick!
Orr has buckled to noise from the banks
Inflation is not even in the band and now definitely risks rising further.
You either trash your economy OR you trash your currency, so we can expect an energy importing clusterf$5k
The dilemma he has is that there is no longer a goldilocks zone where interest rates are high enough to tame inflation but low enough to handle our debt burden.
And the solution of cheaper credit will be less and less effective
Youth, best keep leaving NZ.
Reported Inflation is basically whatever they want it to be. They can pick and choose and overlook and look past and etc etc
It all depends if the man on the street is feeling richer with Prices supposedly rising less fast
I highly doubt with rates bills and power bills and imported energy set to rise he will be feeling the love of the 1-3% band
"Orr has buckled to noise from the banks."
That's a misread of the situation. (aka Pub-economics.)
The RBNZ was caught between a rock and a hard place ... all of their own making.
The rock: Remember they kept rates too low, for too long, and kept throwing cheap money at the retail banks, again for far too long, during and after covid. At the same time, supply chains were broken all over the world and that fool Pootin invaded the Ukraine and energy prices spiked and we got hit with a massive deluge from not one, but two, cyclones. And yet the RBNZ was still juicing the economy.
The hard place: The RBNZ completely lost the plot after inflation started coming down. Not only did they not adjust the OCR to reflect falling inflation, in May the told NZ that rates weren't coming down until Q3 2025 and they may even raise the OCR even higher. (All of that was total b.s. by the way!) In May, there was very, very clear evidence that the economy was contracting fast. And the last MPS, July, it was writ large. But still they did nothing. And since November we've had a new government turning the tap off at high speed. DOUBLE WHAMMY !!!!
Finally they recognised the huge damage they've done and are now predicting yet another RECESSION.
Tell me, what choice did they have? If they'd held the OCR that would extend an already unprecedented length of time for the RBNZ to have held at peak - and the damage would mount exponentially. One of their remits is financial stability. Hitting yet another RECESSION so soon after the last one isn't anyone's definition of financial stability. They have failed! Again!
How bad will the RECESSION be? Hell. It's only just getting going. Brace yourselves.
But the whiners who are worried about getting lower interest rates on their cash (are you one?) will be able to buy up the broken pieces with their surplus cash at rock bottom prices as the RECESSION unfolds.
"Central Banks, working for rich people!" That's their raison d'etre.
IN RECESSION
The RBNZ data shows this and next quarter with shrinking economic activity (GDP). This won't be much of a surprise to readers locally.
For consumers what will probably be more relevant is if they can meet their CPI target over the next couple of quarters. They've had three quarters of on-target inflation but they have taken a risk today.
The supply of rental housing in Buenos Aires has jumped 195.2% since the repeal of rent control.
With Argentina's inflation reaching 211.4%—the highest in 32 years—rent prices were adjusted every 12 months, and leases had to last at least three years. The law, introduced in 2020, ended up distorting the real estate market and hurting both landlords and tenants.
The law aimed to provide tenants with more financial security, but by the end of last year, an estimated one in seven homes in Buenos Aires was sitting empty as landlords chose not to rent them out in Argentine pesos. Deposits were capped, and it was nearly impossible to end tenancies early.
https://www.newsweek.com/javier-milei-rent-control-argentina-us-electio…
So interest costs have reduced by 5% - 10% depending on how much gets passed on and how much banks get ahead of further rate cuts. That's roughly $3bn more disposable income over the year.
Govt has cut deficit spending (the money it gives to the private sector net of taxes) from 5.3% of GDP to 2.1% of GDP this year. That is a cut of about $13bn over a year.
So, net position of minus $10bn of stimulus (+$3bn-$13bn)
Now, how much will those lower rates encourage people to borrow to buy a bargain-priced weatherboard shack? Current net borrowing is about 3.3% of GDP or $14bn a year. A return to net borrowing of 6% of GDP ($25bn) over the next 12 - 24 months would be the most we could expect given previous recoveries.
So, net stimulus position of +$1bn (+$3bn-$13bn+$11bn).
So, basically no real change. The descent continues. The jobs disappear. RBNZ cut and cut rates but nothing really happens. Why?
Because recoveries depend on fiscal policy. Remember December 2008 when the Key Govt kicked Clark and Labour out? What did they do in their mid-December emergency budget? They turned up fiscal and spent about the same over the next few years as Labour did during COVID. And, it still took about 5 years to get unemployment down to anything acceptable. Will Luxon and Willis work this out or are they too blinded by ideology?
Superbly framed with data that is relatively easy to access while accounting for public policy.
The big known unknown is the consumer behavior piece - a space that I have a particular interest in.
Now, how much will those lower rates encourage people to borrow to buy a bargain-priced weatherboard shack?
I have talked about conjoint analysis before - how people make trade offs on things like price, cost, etc. Conjoint is used mainly in research for understanding how to position and to measure demand for goods and services. Not sure why the RBNZ boffins, govt, and industry experts don't use it. It would be relatively expensive to execute as you would need to recruit different segments like potential marginal buyers, exiting homeowners, investors, etc.
Because recoveries depend on fiscal policy.
Increased bank lending underpins economic recovery.
MICHAEL HUDSON: It’s not so much that we’re in a recession; the whole economy has been shrinking really, since 2008. The idea of a recession is a fantasy created by the National Bureau of Economic Research. And the whole principle underlying all of its models is that the economy works in a sine curve; it goes up and down, and there are automatic correction factors. Once it goes up, there are internal correction factors that move it down, but it’s always rescued, because when an economy moves down, labor becomes cheaper, there’s unemployment, it is hired again, and employers can make more profits, and there’s a recovery.
This is not how economies have worked for the last 5000 years. What does the National Bureau leave out of account? That every recovery from a recession has started from a higher and higher debt level. Link
Govt deficit spending and bank lending both create private sector deposit. Hmmmm...
Syndicate for Launch of 15 May 2054 Nominal Bond Announced
The Treasury has today announced the appointment of the following joint lead managers to form the panel for the syndication of the 15 May 2054 nominal bond:
• Bank of New Zealand
• Commonwealth Bank of Australia
• J.P. Morgan
• UBS AG, Australia Branch
• Westpac Banking Corporation, New ZealandThe Treasury expects to issue at least NZ$2.0 billion of the 15 May 2054 nominal bond and the transaction will be capped at NZ$4.0 billion.
"I do agree however that the idea of continuous debt fuelled growth is stupid and killing us."
The amount of new debt created each cycle should reflect the new stuff created less the old stuff retired. I.e. the debt (money supply) should increase. Nothing wrong with that. (The alternative being the supply of money doesn't increase so value of money increases and deflation becomes the norm. I've no problem with that either.)
However - that's not what is happening.
Central banks feel the need to throw their weight around and throw new debt into the economy to 'juice it' way before it is justified. Likewise, they attempt to 'un-juice it' when they realise they juiced too hard (and for too long) in the beginning. And then they hold the un-juicing process for too long ... And the whole cycle starts over again. Boom, bust. Boom, bust.
Many central banks need to back off. A lot! (Same applies to many governments but the 'democratic process' ensures more frequent change.))
(Not all central banks are guilty. Many do take a softly, softly approach. And they can rely on their governments acting alongside them.)
Methinks Mr Market - over all the cheering from a tiny OCR cut that should have occurred November '23 - didn't get the message that the RBNZ's forecast for growth means we've another two quarters of falling growth in the pipeline. Seems the swaps folk got it, though.
Poor NZ Inc. What did we do to deserve this?
Snorted debt like mindless meth fiends till the over indulgent host collapsed.
It's a cycle. Whenever the really greedy are fat on OPM (other peoples money), they overflow indulgence. Simply cant help themselves. Social brag media makes easier to spot them this time around. Roll's and Jets are the red light flashing "pull up ...pull up". Same in 87, GFC and today.
Those being mocked on here for an age for calling "bullsido" are now doing paying attention scouting opportunities. Cash cannon primed and ready to mop up the remains of the dazed and confused.
I guess where it falls apart is none of you guys ever really talked about the devastation in the wider economy. It was always being pitched as some sort of strategic strike on the over-debted in property.
Either you all didn't see it, or chose to willfully ignore it.
I don't know if there's such a thing as excessive greed.
Property is what gets over-invested in after the greed for general commercial expansion is satiated, and urbanisation reaches critical mass.
Regardless, pretty much all of your neglected to ever highlight what the rate rises were going to do to businesses and jobs, the negative news of which is going to over shadow whatever's going on in the property market. Yet at the same time crow that you called it.
Brad Olsen slams the RBNZ’s u turn:
https://www.stuff.co.nz/business/350379032/huge-u-turn-economist-brad-o…
Pomposity and arrogance is a Hallmark of any central representative. They have to come across definitive, and will never admit any form of culpability or liability.
You're right though, we cannot trust them. Or probably most of our politicians also. None of them are here for us.
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