What happened Friday

A review of things you need to know before you go home Friday; Kiwibank cuts two mortgage rates, adds to TD rate, apartments very hard to sell, Canadians buy Murray Goulburn, swaps and NZD little changed

27th Oct 17, 3:59pm by David Chaston

Here are the key things you need to know before you leave work today.

MORTGAGE RATE CHANGES
Kiwibank has reduced its 3 year 'special' by -10 bps to 4.99%. Their five year rate is down by -30 bps to 5.69%. Neither of these changes make them market-leading although they do have their free Samoa holiday offer still running.

DEPOSIT RATE CHANGES
Kiwibank now have a 3.60% one year 'special'. (That extends their existing 3.60% nine month 'special' rate.)

'CITY OF NO SALES'
Auckland city apartments are hard to sell these days. The latest events have generated zero transactions

UPDATED SCORES
Updated data out in Australia shows their economy grew by just +2.0% in real terms in 2016-17. This is the 26th consecutive year of economic growth, but the lowest rate of growth since 2008-09. GDP per capita grew by just +0.4% in the year to June 2017. (The equivalent data for New Zealand is +2.7% and +0.6%.)

THE CANUKS 'WIN'
Canada's Saputo is set to become Australia’s biggest milk processor after agreeing to pay AU$1.3 bln for Murray Goulburn’s assets. Fonterra's expression of interest didn't feature and is going its own way, competing hard for MG's suppliers.

WHOLESALE RATES STABLE
Swap rates are up +1 bps again today for all terms 3 to 7 years, and +2 bps for 10 years. The 90 day bank bill rate is unchanged at 1.94%.

NZ DOLLAR LITTLE CHANGED
The NZ dollar is down another ½c today against the greenback, now trading at 68.3 USc. On the cross rates we are at 89.5 AUc and recovered to 58.7 euro cents. The TWI-5 is still about 71.7. The bitcoin price is up again, now to US$5,911, a +4% gain on the day and back near a record high.

You can now see an animation of this chart. Click on it, or click here.

Daily exchange rates

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Source: RBNZ

Source: CoinDesk

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6 Comments

by Stephen Hulme | 27th Oct 17, 4:22pm 1509074562

Australia’s inflation could be weaker than recent data showed because of lengthy intervals between the re-weighting of the consumer price index, central bank Deputy Governor Guy Debelle said.

Over time, households gravitate toward cheaper products and away from rising prices, but it takes a long time for the basket of goods in the CPI to adjust and reflect that change, he said in a speech prepared for delivery in Sydney Thursday.

“Because of substitution bias, history suggests that measured CPI inflation has been overstated by an average of 0.25 percentage point in the period between expenditure share updates,” Debelle said. “Going forward, the Australian Bureau of Statistics will update the expenditure shares annually, rather than every five or six years. This will reduce substitution bias.” Read more

What "stimulus"

by J.C. | 27th Oct 17, 4:52pm 1509076348

H'holds gravitate towards "cheaper products" when their budgets are stretched or during periods of deleveraging. Perfect example is Japan and the emergence of Daiso, Uniqlo, etc. The list is endless. During the bubble, the stories of $10 coffees where true. You can probably still find them.

Similar phenomenon in the U.S. Since the GFC, the emergence of Dollar Tree and Dollar General has been a necessity for the mass market. H'holds have been tapped out. Dept stores are in terminal decline and the Amazon effect helps people buy at the lowest price possible.

Japan and the U.S. are not the same, but the pattern is clear.

Debelle needs some grounding in behavioral economics. "Households gravitate toward cheaper products and away from rising prices". This is a meaningless statement. In a perpetual "boom economy" (such as Australia), consumer choice should be less dependent by the price variable.

Unless, of course, Debelle is sending smoke signals.

by Stephen Hulme | 27th Oct 17, 4:28pm 1509074912

Deutsche Bank’s CEO John Cryan warned that the bank’s quarterly results for Q3 would be no better than those produced in the two disappointing quarters prior. He has been proved by the bank’s reported results to have been optimistic. Trading revenue fell an alarming 30% year-over-year, with DB joining the rest of Wall Street in blaming the absence of “volatility” for it.

The press release for the latest quarterly earnings cited “an interest rate environment which remained challenging.” It can only be interpreted the same as for the rest, meaning all these banks really have bought into the idea that interest rates have nowhere to go but up.

Aside from the trading segment, DB’s Corporate & Investment Bank segment reported truly awful results. Revenues were down 23% Y/Y to just €3.5 billion. By way of comparison, in Q3 2010 the same bank division reported net revenues of just over €5 billion.

Within the Corporate & Investment Bank, the all-important FICC category, or FIC as it is characterized at DB, produced 36% less revenue in Q3 2017 than in Q3 2016 (though the bank notes that on a comparable reporting basis, having reclassified certain desks, apparently, the comp for FIC was instead -24%). Deutsche Bank still can’t make money in “bond trading.” Read more

by Cowpat | 27th Oct 17, 4:37pm 1509075444

Election looming in Australia. Good ole Kiwi.

by JB | 27th Oct 17, 4:39pm 1509075587

Having just lost his parliamentary majority thanks to NZ Labour party it will be interesting to see how busy Turnbull will be for availability re future visits of our new PM.

Forget any changes for NZ residents in Oz - Turnbull and entire cabinet will be absolutely livid !

by Stephen Hulme | 27th Oct 17, 4:45pm 1509075925

Rents have increased rapidly across U.S. housing markets as the share of renting households has risen faster than the number of new units. Now, in a survey published Thursday by an apartment-listing service, nearly one in five respondents reports struggling to make the monthly payments.

While big landlords seem to be succeeding at finding tenants who can keep up, the survey, by Apartment List, suggests escalating housing costs may be straining renters’ resources. Eighteen percent of respondents couldn’t pay the full rent due in at least one of the past three months, according to the poll of 40,000 renters. Of those who have registered for the listing site this year, 3.3 percent said they had been evicted in the past, up from 2.8 percent in 2015. Read more

Relying on indispensable exceptionalism is just not enough for some in this nation.