By Leith van Onselen Following last week's Memorandum of Understanding between the Reserve Bank of New Zealand (RBNZ) and the New Zealand Government, the RBNZ has today outlined how it will use macro-prudential policy tools to target high loan-to-value (LVR) mortgage lending - i.e. mortgages where the deposit or equity in the property is less than 20%. From Interest.co.nz: The Reserve Bank is getting banks to break down their high loan-to-value (LVR) housing lending by borrower type as it outlines a preference for "speed limits" and "tiered limits" - as opposed to outright caps - in the LVR...

MB contributor, Rumpletstatskin, wrote an interesting post on the Australia property cycle this morning. In it he mused that: The crucial lesson in all this is that Australian nominal asset prices have been supported by fiscal policy during the financial crisis, ongoing monetary policy adjustments, and foreign investment (including in mining infrastructure), which all supported employment and incomes. This support allowed a slow melt adjustment since the financial crisis. Home prices have fallen, mortgage rates are down, and rents have increased. This means that buying a home is more affordable...

Cross-posted from Tiho at The Short Side of Long. Equities Chart 1: VIX & S&P 500 divergence continues... Source: Short Side of Long While not an outright sentiment indicator, Volatility Index (VIX) usually tends to lead the S&P 500 lower. Red divergence lines, in the chart above, show how VIX refuses to make a lower low while the stock market moves higher. Disagreement tends to be a warning signal majority of the time (doesn't always work). It seems that traders tend to buy protection in anticipation of an up-and-coming corrections. This is definitely a warning signal,...

By Leith van Onselen From the AFR today comes news that the Coalition has identified $75 billion of expenditure cuts and tax increases over the next four years required in order to address the "fiscal emergency" and return the Budget to surplus: As well as the $43 billion in cuts and tax rises contained in the federal budget which he supports, Opposition Leader Tony Abbott has separately announced at least another $14 billion savings, including his budget-in-reply promise to defer increases to the superannuation guarantee. Furthermore, the Coalition is backing about $13 billion savings Labor...

By Leith van Onselen From Westpac Economics today comes a report arguing that Australia's housing recovery will remain tepid and uneven: The current recovery in Australia's housing markets has been slow to form and despite a quickening in early 2013 remains uneven across segments and states. We expect more of the of the same going forward. Price expectations suggest current positive momentum is well-entrenched but ‘consumer caution’ and a reluctance on the part of buyers to stretch themselves financially will remain a major ongoing restraint. Concerns around job security remain...

From ANZ: Iron ore prices ended the week with a 5% drop, the sharpest fall since mid-March when China’s growth expectations for this year were reduced. Iron ore prices are now sitting around 6-month lows and remain under pressure from the weakness in Chinese steel prices. Coking coal prices also posted the 4th consecutive week of declines to USD144.9/t, with prices at three and a half year lows. In response, Baltic Capesize rates (key gauge for iron ore and coal shipping), turned lower for the first time in 4 weeks. Coal markets could be hit by China’s National Energy Administration’s...

Recent data suggests that investors are happy to jump back into Australian residential property markets.  Maybe jump is too strong.  Hop might be better. Perhaps this is due to a search for yield.  Perhaps it is foreign cash seeking a safe harbour. Or perhaps it’s simply time for the Aussie love affair to be rekindled.  Holes are over.  It’s houses turn. Despite first home buyers being tapped out, having dosed up in property during the 2008-09 FHBG boost period, the critical indicators are showing that the slow melt of Australian property has run most of its course. With these...

By Leith van Onselen The auction clearance rate in Australia’s biggest auction market – Melbourne – rose slightly over the weekend, with 73% of the 617 auctions reported to the REIV selling, with 33 auctions still listed as “no result”, which will likely lead to some minor downward revisions to the clearance rate as the missing results come in (see below table). The result compares favourably to the 72% provisional clearance rate recorded last weekend on 653 auctions, which was downgraded to a final clearance rate of 70% on 733 auctions after late results were chased-up. It was...

By Leith van Onselen The Western Australian Treasury has slashed more than $2 billion from the state's revenue forecasts amid falling iron ore prices, which are reducing mining royalties. From The West: WA Treasury has cut more than $2 billion from State revenue forecasts since February's pre- election financial update. The writedown over four years to 2016-17 is mostly from revised official State iron ore price and royalty forecasts [down $1.5 billion] and a smaller-than-expected national GST take. Treasury is also worried about a WA labour market that has deteriorated quicker than...

Morgan Stanley offers the obvious truth this morning: All else being equal, a weaker AUD is a positive for resource company earnings: Holding USD commodity prices static, a weaker AUD results in positive translational benefits for ASX resource equities who sell their products in USD and report earnings in AUD. But all things are rarely equal: As shown in Exhibits 1 to 3 on page 2, the AUD-USD rate is highly correlated to commodity prices, particularly bulks and oil. The demise of the “mining boom” brings with it a triple negative too, in the form of lower prices, lower production...

Above is an interesting short discussion from Financial Review Sunday with Bell Potter's Charlie Aitken and the AFR's Michael Stutchbury on the faster than expected unwinding of Australia's mining investment boom, following last week's profit downgrades by mining services companies - Coffey International, Worley Parsons, and UGL - as well as announcements by BHP and RIO that they would pull back mining capital expenditure. I have to take exception to Aitken's claim that the mining boom is coming off more quickly than expected. The writing has been on the wall for mining services for at least six...

By Leith van Onselen In a post-Budget newsletter last week, the "Barefoot Investor", Scott Pape, questioned why Australia's cash-strapped Federal Government had not considered scrapping negative gearing. From Property Observer: “Our 1.25 million loss making landlords cost taxpayers $5 billion a year - a significant saving when the budget is in deficit of $18 billion,” writes Pape. “And all it achieves is to make it harder for young people to compete to buy their first family home. “Sadly, the government didn't have the ticker to abolish it this year"... Pape has long been a...

Stocks and the US dollar were higher on Friday night as the trends continue to dominate markets. US 10 years rates were chased back from 2% last week by some buying but it seems that with all the talk of taper floating around the market is going to continue to keep upward pressure on yields. This is reinforcing the US dollar's growing place in FX land as the least ugly currency du jour and quickly becoming the currency du mois or even du annee. Of course these things are never straight line but as Chris wrote in his trading week note  over the weekend: Previously on the weekly chart  I...

The Opposition has leaked its plan for double dissolution over the carbon tax. From The Australian: TONY Abbott would prepare for a double-dissolution election within five months of taking office if parliament blocked the repeal of the carbon tax, under a 12-month action blueprint to transform the nation's environmental laws. ...The timetable outlines how the Coalition's environment plans would be implemented. The federal environment department would be instructed on day one of an Abbott government to prepare legislation to scrap the carbon tax. The legislation would be introduced to parliament...

From ANZ comes a note this morning offering a guide to the ABS capex report due on May 30 that I discussed last week. First for total capex: The Private New Capital Expenditure and Expected Expenditure (CAPEX) release on 30th May includes firms’ sixth estimate for 2012-13 investment intentions and their second estimate for intended capital spending for 2013-14. There is always uncertainty around these estimates and realised investment and for this reason, firms’ ‘raw’ investment intentions must be adjusted for historical biases (using so called ‘realisation ratios’). This is a highly...

Over the weekend the US declared Australia's gas boom at an end. Following President Obama's recent confirmation that he would permit LNG exports to non-free trade agreement nations, the Department of Energy gave approval to Freeport LNG to export to non-FTA nations: At the time it submitted its Application, FLEX had not yet entered into any long-term LTAs or other commercial off-take arrangements forthe LNG it proposes to export. However, FLEX has subsequently executed long-term LTAs with Osaka Gas Company, Ltd.,Chubu Electric Power Company, Inc., and BP Energy Company. These three LTAs in total...

Find below the iron ore price table for May 17, 2103: Rebar futures bounced. Here's the spot and swap chart: The next chart support is in the $118-$120 area. Looks like we're going to test it, as previously discussed. Meanwhile, as promised, here are my spread charts. Both remain stretched, with iron ore to swap and iron ore to rebar average both out by 5-15%: Either rebar and swap rise or iron ore keeps...

Global Macro/Markets: Is This Another Bubble? We Can’t Know Without Better Data - Bloomberg For Stock-Picking Advice, Dont Ask an Economist - New York Times Some Perspective on the “Can’t Lose” Market - Pragmatic Capitalism Fiscal prioritisation: Lessons from three wars - VOX North America: Secretary Lew Sends Debt Limit Letter to Congress - US Treasury Fed Officials Looking Closely at Student Debt - Wall Street Journal The persistent supply-side constraints in US housing - FT Alphaville Fed has not lowered interest rates enough: Kocherlakota - Reuters Too Much Talk...

By Chris Becker As our regular readers know, we recently launched the MacroBusiness Forum, a place for more robust discussion about any topic, and this week's hot topic was no surprise - climate change. Please note that registration in the The Forum is automatic - if you've registered as a reader at the blog, you're already logged into the forum, and can comment or start your own threads. For signed up MacroBusiness Members, there is also a separate "Member's Pavilion" where you can add your thoughts on how MB can hold the broader media, policy and investment community to account. Early next...

One of the puzzles of the global financial crisis has been that there has been no push for debt to equity swaps. In previous crises, most notably the Latin American debt crisis of the 1980s, arguably the beginning of the modern era of hyper usury and financial debauch from globalising Western banks, the situation was solved by at least the appearance of debt for equity swaps. The obvious difference being that with equity the risk lies with the creator of the funds and with debt the risk lies with the recipient of the funds. When there is a risk to the whole system, this is a way to reduce the...

By Chris Becker The local finance news this week has been agog at the Australian dollar, as it fell,  and kept falling, below parity with the USD. Beyond the actual price volatility, is the reaction of a mainstream press looking for an excuse for the weakness in the USD rising. As I said last week,  something else is afoot with the AUD/risk-on/commodity nexus. Stock markets continue to rise, commodities rebound, but the "battler" to crumble. Are we seeing the start of the great Australian adjustment, long considered the most beautiful in the Great Ugly Western Economy...

Global Macro/Markets: Central banks saved the world economy, now beware the fallout: IMF - Reuters Mine union threatens to bring South Africa to 'standstill' - Reuters Gold Bears Revived as Rout Resumes After Coin Rush: Commodities - Bloomberg Does sentiment still matter? - Capital Observer North America: Secretary Lew sends debt letter to congress US Treasury Wal-Mart Second-Quarter Forecast Trails Estimates - Bloomberg Why U.S. Manufacturing Can’t Get Off the Mat - Business Week, Prag Cap Philly Fed Manufacturing Survey Shows Contraction in May - Calculated Risk Occupy...

It’s been a week to remember, especially for those who have AUD exposure. The kitchen sink has been thrown at the AUD this week and finally the bond market has not been able to save the currency as it closes in on a commodity price-based fair value model of around 0.9400. The AUD has lost 1.4% on a trade-weighted basis this week and 2.6% against the greenback, with AUD/USD also making six consecutive daily lower lows. This week we have had BHP and Rio lowering capital expenditure by 18%; a number of well-known hedge funds shorting the AUD; talk of Japanese funds preferring Mexican bonds to...

Cross-posted from The Conversation More than a decade ago the federal treasury produced the first Intergenerational Report (IGR), warning of the challenges facing the Australian economy due to demographic change. The IGR warned that the living standards of future generations would depend on the decisions made at that time. Unfortunately budgetary decisions made in the past decade have not begun to meet the challenges of an ageing population, and in most cases have taken us backwards. We are not, on the current trajectory, headed for a smart, productive workforce enjoying high living...