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US growth cools, confidence holds; Greece eyes drachma comeback; China wary of deflation; Aust to tax bank deposits; bond yields rise; oil and gold falls; NZ$1 = 75.6 USc, TWI = 80.2

US growth cools, confidence holds; Greece eyes drachma comeback; China wary of deflation; Aust to tax bank deposits; bond yields rise; oil and gold falls; NZ$1 = 75.6 USc, TWI = 80.2

Here's my summary of the key issues from over the weekend that affect New Zealand, with news of a new tax on bank deposits.

But first, American economic growth cooled somewhat in 2014 Q4 coming in at +2.1% and less than half the +5% in Q3.

Meanwhile the latest reading of American consumer sentiment fell in March from February, a survey released on Friday showed, though the reading was better than expected, and a lot better than the same month a year ago.

And also over the weekend, Federal Reserve Chair Janet Yellen signaled that the US central bank will likely start raising borrowing costs later this year, even before inflation and wages have returned to health, but she emphasised the return to normal interest rates will be gradual.

In Europe, officials there are raising the possibility of Greece having to adopt to parallel currency to pay local bills. They say it could keep Greece inside the euro-zone, essentially allowing it to default on its own people, but it would still owe its international creditors in euros. Such a 'solution' would be very humiliating, more so than a 'Grexit', but it would sheet home to the locals the folly of their endemic corruption and past extravagances.

China's central bank governor warned on Sunday that the country needs to be vigilant for signs of deflation and he said China's policymakers were closely watching "slowing global economic growth and declining commodity prices". His comments are likely to add to concerns that China is in danger of slipping into deflation and underline increasing nervousness as their economy continues to lose momentum despite a raft of stimulus measures.

In Australia, it looks like they are going to get a new tax on bank deposits. Oddly, the idea now has bipartisan support, although it will come with the usual aggressive political bile and recrimination. The idea was first Labor's, now about to be adopted by the Coalition. Banks say they will pass on the cost. It will improve the New Zealand advantage; over here we do pay slightly higher home loan rates but we also get much better term deposit rates. Our differential is smaller than in Australia and is now likely to be an even better advantage. And the Aussies are also reassessing their commitment to dividend imputation.

In New York, the UST 10yr yields rose on Friday to 1.96%. Similarly, New Zealand swap rates start this week on the rise.

The crude oil price however fell and is now at US$48/barrel and Brent crude is at $56 a barrel. Energy analysts are divided over where exactly the price of oil is going to go. Late on Friday, the US rig count showed the smallest decline in active rigs in months, one small sign that the steep tapering off in drilling may be coming to an end. In addition, the crisis in Yemen may not be having the impact on the market that analysts first suspected.

The gold price also fell to US$1,198/oz.

The New Zealand dollar will start the week lower at 75.6 US¢, it is at 97.8 AU¢ a new post-float closing high, and the TWI is at 80.2.

If you want to catch up with all the local changes on Friday, we have an update here.

The easiest place to stay up with event risk is by following our Economic Calendar here »

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18 Comments

Two cents away from Aussie parity. 

NZ - the Rockstar with the high interest rates. 

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Savers....pfffft....suckers.

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Nicely put. Certainly seems to be the view of the politicians and those who work in central and local government and banking.

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Reaching parity, paying twice as much for fuel while dairy farmers in Australia getting $6 a kg and 300k cash incentive to join Fonterra.

 But hey, we are going to have a surplus, 'yeah right'

 The wheels are coming off the export sector.

 

DairyNZ chief executive Tim Mackle said the challenge for farmers would be working through their cashflow position for the coming season after Fonterra announced its half-year results this week.

Low retrospective payments by Fonterra this winter would likely be about a third of that received last year, with many farmers dipping "into the red" this spring, he said.

"For many, they may not pop back up into the black for some time. Banks are telling us that many farmers will hit $1.50/kg to $2/kg in overdraft this September."

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Indeed.  Motorhomed around Vic and SA for 10 days mid-month.  Good coffee for $3 odd a cup, diesel at 1.22/litre, camp for $15/person/night in the cleanest camps I've ever seen.  Lotta dairy around western Vic, Fonterra plant at Warrnambool, and all on paddocks that resemble an office carpet where not irrigated.  Lotta forestry around Milliicent (Kimberley-Clark have a plant there), and of course coastal scenery (Limestone Coast) by the hundreds of k's.  Scale - the thing NZ doen't really have..... 

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how do you like these wheels

https://www.nzx.com/files/attachments/210532.pdf

page 18.

 

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European Milk Board president, Romuald Schaber, said it was likely farmers would boost production in many member states following the abolition: "The most likely scenario is that dairy farmers will boost their production in many EU countries, regardless of the situation in the milk market. Another drastic price collapse seems inevitable, along with the next market crisis."

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Henry, How do you think Fonterras redemption risk is looking?

Well-known North Island agriculture consultant Will Wilson said Fonterra's performance had been "appalling" and two businesses he was involved in as a trustee and shareholder were switching to Open Country Dairy supply next season.

 

n Southland, industry talk is that after the result announcement Fonterra farmers kept Open Country Dairy's switchboard busy with inquiries about supply. Open Country, which is understood to have a waiting list of more than 500 farmers between Waikato, Southland and Taranaki, declined to comment.

 

In the greater Waikato, processor and exporter Miraka is getting two to three inquiries a week about supplying milk, chief executive Richard Wyeth said. The company did not want to increase supply this year, and had experienced a challenging year with lower global milk powder prices, he said.

 

  http://www.stuff.co.nz/business/farming/dairy/67545575/fedup-farmers-ri…?  

https://keithwoodford.wordpress.com/2010/02/20/fonterras-redemption-ris…

 

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;) Fonterra don't have a redemption risk. Shareholders do, and the funny part is they never saw it coming, well most didn't.

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Henry, the bad news is all around us this morning. Your link won't work on this computer.

Synlait Milk's share price dropped by 8.6 per cent after the South Island dairy company said said unrealised foreign exchange losses drove the company to a $6.4 million net loss for the six months to January 31 from a $12.1 million profit a year earlier.

The unrealised foreign exchange losses came to $6.8m, Synlait said

http://www.nzherald.co.nz/rural-business-agriculture-farming/news/artic…

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snap, it was the synlait NZX release power point deck, with their view from the top.

you're right not happy, many feeling a bit Alexi at present ... A big man who can move like lightning …

http://www.theguardian.com/stage/2013/jan/22/alexei-sayle-still-full-hate

 

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80's were a great time to be in London

https://www.youtube.com/watch?v=DSjwl8lHEVE

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Commodities are tanking across the board, and it's a Sunday.

 

http://finviz.com/futures.ashx

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A question about taxing bank deposits; clearly this will actively discourage banks from accepting savings so why would the Government want to do this? I think banks should pay tax on their profits, lots of it, but on deposits?

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Has anyone seen this unfolding story .......nothing like a big shock to jolt us down here ?

I wonder what the consequences will be for NZ ?

10 Hours ago , AFP put out a wire stating that the EU is to remove ALL QUOTAS  on Dairy in the EU

The EU dairy famrers wil now be able to " produce as much milk as they like " according to the press release .

According to the stuff I have read , Ireland intends to increase production by a staggerring 50%.

Anyone who was planning an Aussie $  Parity Party ,  should have re-think , becasue we are about to have SERIOUS  competition on our turf in China

 

 

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'specially since all the EU states are a couple of short border-hops away from the robotic milkers - deLaval and Lely.....

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The Chinese are good at playing tit for tat, and may not buy European dairy because the EU has slapped some anti-dumping fines on some of their steel exports...

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Not sure if that would impact the auction price at all? Probably not...that must go on pure supply and demand?

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DC - coupla Interesting sidelights on AIIB:  the WaPo article descends into Anglo-Saxon.....and Spengler is always worth reading.

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