What happened Friday

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A review of things you need to know before you go home on Friday; ANZ cuts milk price forecasts, FMA issues stop order, RBNZ retains floors, beef cattle numbers up, dairy cattle numbers down

6th May 22, 3:48pm by Gareth Vaughan

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

MORTGAGE RATE CHANGES
China Construction Bank increased mortgage rates for six-month to five-year terms by between 20 and 50 basis points. Its six-month rate is now 4.35%, and its five-year rate is 6.35%.

TERM DEPOSIT RATE CHANGES
Westpac increased its three-month to five-year term deposit rates by 10 basis points, The three-month rate now pays 1.20%, and the five-year 3.80%.

FMA MAKES STOP ORDER RELATED TO HOUSING DEVELOPMENT
The Financial Markets Authority (FMA) says it has made a stop order against The One Management GP Limited regarding an offer in relation to The One Property LP, which is only available to wholesale investors, including eligible investors.

ANZ REDUCES ITS FONTERRA MILK PRICE FORECASTS
ANZ's economists have revised their farmgate milk price forecast for the 2021-22 season down 40 cents to $9.30/kg milksolids (MS), the bottom end of Fonterra’s current forecast range of $9.30-$9.90/kg MS. ANZ has also cut its forecast for the 2022-23 season by 80c to $8.50/kg MS. The reason for the reductions is the expectation commodity prices will keep falling over coming months. ANZ is NZ's biggest rural lender.

RBNZ TO RETAIN FLOOR SYSTEM FOR MONETARY POLICY IMPLEMENTATION FRAMEWORK
Following an internal review of its monetary policy implementation framework, the Reserve Bank says it will retain a floor system for monetary policy implementation, and doesn't intend to reintroduce credit tiers. It says a floor system is where all Exchange Settlement Account System (ESAS) accounts are remunerated at the Official Cash Rate (OCR). This framework was implemented in March 2020 following the removal of credit tiers on ESAS accounts. The Reserve Bank says the current settlement cash level (SCL) is more than sufficient to keep short-term interest rates anchored at or near the OCR and for payment and settlement needs. However, it expects the SCL to decline in coming years.

Separately, the Reserve Bank is advertising for a Director of Risk, Resilience and Compliance.

BEEF CATTLE NUMBERS RISE
Statistics NZ says the number of beef cattle in NZ rose 82,000, or 2%, to 4 million at June 30, 2021. Just over two-thirds of all NZ beef cattle are farmed in the North Island. Total beef exports were $3.6 billion for the June 2021 year.

SHEEP NUMBERS DIP
Statistics NZ also says the number of sheep fell 296,000, or 1%, to 25.7 million in the June 2021 year. A total of 22.9 million lambs were tailed, down 265,000, or 1% from the previous year. There are 13 million sheep in the South Island, and 12.7 million in the North Island.

DAIRY CATTLE NUMBERS SLIGHTLY LOWER
And finally Statistics NZ says the total number of dairy cows and heifers in milk or calf fell 32,000, or 1%, to 4.8 million. There was little change in the total number of dairy replacements, being the remaining dairy cattle to restock herds, with 1.2 million in total. That's down 1%, or 9,000, year-on-year. There are 3.7 million dairy cattle in the North Island, and 2.5 million in the South Island.

COAL BOILERS GOING FROM SCHOOLS
Climate Change Minister James Shaw says a $10 million investment from the Government’s $220 million State Sector Decarbonisation Fund will see all remaining coal boilers in New Zealand schools replaced with renewable woody biomass or electric heating sources by 2025. This will reduce carbon emissions by around 35,400 tonnes over 10 years, Shaw says.

SHARE MARKETS WEAKER
At the time of writing the NZX50 is down 137.68 points, or 1.17%. In Australia the ASX200 is down 169.80 points, or 2.31%.

NZ DOLLAR A LITTLE HIGHER V GREENBACK & AUSSIE
The Kiwi dollar is a bit higher on the day against both the US dollar and the Aussie dollar. At the time of writing it's at US64.28 cents, up about 20 basis points on the day, and it's up about five basis points against the Aussie at 90.38c. Against the euro it's at 61.01 euro cents.

Daily exchange rates

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Source: RBNZ

Source: CoinDesk

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Source: NZFMA

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29 Comments

by Foxglove. | 6th May 22, 4:11pm 1651810308

Incredible fall off on the national sheep flock. Virtually 66% reduction from the numbers of the halcyon mid 80s. Except then of course the product itself was vastly inferior to that of today. Presumably beef tonnage growth on the other hand, is largely courtesy of dairying which as such produces beef virtually as a by product, that is manufacturing grinding meat, a 100% commodity trade. There is there, some irony then. That was the nature of the majority of sheep meat in mid 80s.

by hum | 6th May 22, 4:25pm 1651811133

I think lamb prices has increased as much a nz houses over the last 2 years

by JimboJones | 6th May 22, 4:35pm 1651811709

Inflation is a funny thing isn't it. We seem to have gone from too much supply of almost everything (except houses) which was causing deflation, to too little supply of almost everything which is causing inflation, in a very short period of time.

by Squishy | 6th May 22, 5:36pm 1651815419

We'd had this demographic bulge making labour was really cheap, an extraordinary period where international trade was growing rapidly which drove down commodity prices and really subdued demand due to monetary conditions after the financial crisis. Now those trends are normalising gradually.

by Miguel | 6th May 22, 7:17pm 1651821467

Bringing the population of China (20% of the worlds population) into the global workforce was always going to have a big impact. Demographic shifts (low birth rate, and slowing rate of urbanization) were always going to reduce China's deflationary impact on global labor/manufacturing costs - but Covid and now Ukraine situations have highlighted the risks to companies of outsourcing so much production to the lower costs countries and the question is how much of a retreat we see in globalization as a result.

Developed countries could run ultra loose monetary policy while the inflationary impacts were masked by imported deflation. Will be interesting to see how things unfold over the next decade.

by JimboJones | 6th May 22, 7:35pm 1651822544

Also technology is taking away the labour component of a lot of production, so why make it offshore? Why not make electronic components in the US, Japan, etc considering there is very little labour involved.

by KiwiinSpain | 7th May 22, 12:28am 1651840100

Valid point JJ.

Paradoxically in my industry it was felt that technology would ultimately bring jobs back to the higher wage western countries. Almost depressingly we see that in fact the mega Chinese businesses have used the massive gains from outsourcing to invest in technology and obtain volume based discounts on the multiple componentry required by these machines to manufacture dentures, crowns, etc. Sadly the small scale NZ manufacturing company in this space pays a premium for the technology and consumerables. Supply chain issues are giving us a point of difference spasmodically but as for the future???

Laws of unintended consequences????

Economic sabotage???

Who knows ...

by Pa1nter | 7th May 22, 8:42am 1651869739

Companies are always trying to save a buck, but perhaps the real cost of the massive amounts of outsourcing is only just being felt, so perhaps the pundits' prediction about manufacturing coming back may bear fruit.

I guess the added issue for dentistry is the high value of the produced item relative to size, if the labour is 1/20th the price then you can afford to spend more on priority international freight.

Is 3D printing of teeth a thing yet?

by KiwiinSpain | 7th May 22, 12:20am 1651839609

Astute observation. My sentiments exactly.

Popcorn ready!

by Rumpole | 6th May 22, 7:40pm 1651822800

Duplicated in error

by Rumpole | 6th May 22, 7:38pm 1651822720

This will come as a revelation to our "finance minister and the reserve bank governor"

by Squishy | 6th May 22, 5:17pm 1651814225

I can't help but notice the weakening of the Kiwi. The Reserve Bank don't seem to be getting much help fighting inflation.

by fortunr | 6th May 22, 5:32pm 1651815174

Yes, they will be forced to go higher and higher with interest rates, until something gives. And what is going to give first is the housing Ponzi, for sure. Very interesting times ahead in this market.

by Squishy | 6th May 22, 5:38pm 1651815517

Couldn't care less about housing, it's the real productive economy that should keep people awake at night.

by Pa1nter | 6th May 22, 6:03pm 1651816987

The prosperity of that are largely dependent on international fortunes. Which are potentially not looking great, although fortunately we peddle in basic commodities which will have a lot of demand pressure in the next 12-24 months. There's going to be a shortage of calories out there.

by J.C. | 6th May 22, 6:18pm 1651817935

Couldn't care less about housing, it's the real productive economy that should keep people awake at night.

Housing and the NZ economy are not mutually exclusive for a number of reasons. Considering the wealth effect, the SME capital base, services.

If housing goes, the neg imacts will be immense. Can I prove and quantify it? No I cannot.

by Pa1nter | 6th May 22, 6:57pm 1651820252

It's circular.

You can't have a booming housing market with a dead economy.

A flat housing market stifles internal economic activity.

Housing gets a way, way disproportionate level of news and mental energy, because I guess most people's experience with the economy involves going to their job, and going home.

by KH | 7th May 22, 8:14am 1651868064

I don't see a downturn in 'the economy' comes about if house prices correct to somewhere sensible. Can someone explain that to me

by Pa1nter | 7th May 22, 8:49am 1651870176

There's not a massive amount of profit building homes, so a fallback in values will mean less houses being built. So the building sector takes a hit, as well as ancillary industries like architecture, trade supplies, whiteware retailers.

I predict more $2 shops and cash converters opening.

by J.C. | 6th May 22, 7:03pm 1651820611

On Wednesday, a federal appeals court in New York upheld the dismissal of lawsuits against the securities regulator brought by Madoff investors. The court said the SEC’s actions and “regrettable inaction” were protected by a law that shields federal agencies from liability.

The lack of acccountability is dreadful.

https://www.reuters.com/article/us-madoff-sec-idUSBRE9390X420130410

by Jonny.Foe | 6th May 22, 7:22pm 1651821741

It says a floor system is where all Exchange Settlement Account System (ESAS) accounts are remunerated at the Official Cash Rate (OCR)

So, commercial banks currently have about $46 billion of deposits in their RBNZ deposit (settlement) accounts. These balances are earning interest at OCR levels. That's nearly $2 million a day of Govt cash being paid to the banks. Why exactly?

by Audaxes | 6th May 22, 8:24pm 1651825450

Are you kidding or just missing the point that the Crown in respect of the RBNZ has a liability to authorised QE bank agents which entails a cost of funding?

Banks don't take deposits and they never lend money. They are in the business of purchasing securities. The RBNZ purchases government securities from bank sellers. Now the RBNZ owes those banks money and it creates a record of the money it owes, which we call deposits - source.

by Justa comment | 6th May 22, 7:37pm 1651822650

Re the MFB controversy this week, ignoring the inappropriate personal comment, Henry was correct about the float being overpriced. But you cant stop people from buying into a float that was clearly at least 40% overpriced its a free market. Seasoned market watchers could see what it was and did not subscribe.

by Gummy Bear Hero | 7th May 22, 10:11am 1651875117

... as the father of a Euro-Asia lady , I get the offensiveness of Henry's comments ...

Nevertheless , Nadia sold out ... when MFB listed , 88 % of the IPO money went to insiders , for them to bail out ... just 12 % went to the actual company , for growth & debt ... all except one of the insiders took the money bag & ran ... absolutely disgraceful that the NZX still permits this sort of BS to occur , to mislead investors ...

by Pa1nter | 6th May 22, 8:46pm 1651826816

A lot of the big stocks look to have took a bitch slapping. I hadn't seen that on here, but it could be significant, there's some sectors out there that are over valued way more than housing.

by Gummy Bear Hero | 7th May 22, 10:07am 1651874824

My Food Bag ... down 50 % since listing a year ago ... proves the point that a hot chick looks great in the prospectus when you're offloading your stake , but ain't sustainable if the company was floated overpriced , overhyped , overpromised ...

... go Nadia !

by HouseMouse | 6th May 22, 10:25pm 1651832756

It’s good to get out of the tiny echo chamber that is economic commentary in little ole NZ.

over at the excellent Macrobusiness in Aus, they reckon the market’s expectations of how high the OCR will peak are ‘delusional’:

https://www.macrobusiness.com.au/2022/05/markets-forecast-interest-rate…

by Gummy Bear Hero | 7th May 22, 10:03am 1651874601

... the flip side could be that unless the Reverse Banks raise their OCRs aggressively , they'll entrench higher inflation rates than their desired target ...

by Gummy Bear Hero | 7th May 22, 10:00am 1651874444

Countdown are gonna freeze the prices on 500 lines , throughout winter ...

.... forgive me if this point has been raised already , but does that mean none of those 500 will be " specialled " too , as supermarkets do , rotating weekly specials around the aisles ? ..

.. if so , the cost to CD of the " freeze " may be negligible ... price dont go up , nor down ... A great bit of superb self promotion , & Mr Gumby ( Luxon ) fell for it ...