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A review of things you need to know before you go home on Thursday; inflation looming, Govt forces RBNZ on housing, Fonterra raises profit guidance, A2 Milk savaged, swaps up, NZD up, & much more

A review of things you need to know before you go home on Thursday; inflation looming, Govt forces RBNZ on housing, Fonterra raises profit guidance, A2 Milk savaged, swaps up, NZD up, & much more
ID 22702269 © Daniaphoto | Dreamstime.com

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

MORTGAGE RATE CHANGES
There are no changes to report here.

TERM DEPOSIT RATE CHANGES
None here either.

INFLATION COMING
The ANZ Business Outlook survey shows a 'jaw-dropping' 67% of retailers expect to increase their prices. It is a clear signal consumer price rises are now ahead of us, and quite soon.

PUSHING GOVT POLICY ON TO RBNZ RATE DECISIONS
The Government is to require the RBNZ to consider house prices when setting monetary policy and through the way it regulates banks. It seeks more info on Debt-to-Income ratios and interest only mortgages. The announcement boosted the level of the NZD (see below). It also added to the bond yield rise.

FONTERRA RAISES EARNINGS GUIDANCE
Fonterra (FCG) has lifted the bottom end of its 2021 forecast earnings guidance and narrowed the range to 25-35 cents per share, from 20-35 cents per share. If that level is achieved at year end (July), then it will be Fonterra's best profit result on a e/p/s basis since 2016/17 and back to similar levels it achieved in the 2006 to 2013 period, basically the period when Andrew Ferrier was the Fonterra boss.

LENDING GROWS, PROFIT GROWS MORE
Kiwibank says operating income rose +$10 mln to $287 mln, while customer lending growth was +$1.6 bln (+6%) and customer deposit growth was +$1.3 bln. Seven branches are to be closed. Profits rose +8% to $55 mln.

RECORD HIGH WEATHER CLAIMS
The Insurance Council says extreme weather events have cost insurers a record of $248 mln in the year for 2020. There were more than 13,600 weather related claims involved. $248 mln is about 40% of all household claims in the last year reported (2019).

'CAREFULLY CRAFTED' CRIME
A company which falsely claimed to offer a savings scheme to assist low-income families buy a home has been fined $400,000 following a Commerce Commission investigation. Home Funding Group was convicted on two charges under the Fair Trading Act 1986. However, they are in liquidation and did not appear at the hearing.

REVENUE SHRINKS
Xero is reporting that in January, SME revenue was down by -6% year-on-year, while jobs were up +2%. Revenues dropped across all regions, with Queenstown remaining the hardest hit (-23%) followed by Otago (-15%), Waikato (-8%), Bay of Plenty (-5.6%), Hawkes Bay (-4.6%) and Auckland (-4%).

DOWN & BLEEDING PROFUSELY
Our national airline says its 'monthly cash burn' is expected to be between $45 mln and $55 mln a month for the remaining five months of the financial year. A capital raising is still planned by June. Air New Zealand's (AIR) share price is unchanged today and unchanged since the start of the month.

SHARES SAVAGED
Milk company a2 (ATM) has downgraded its expected profits for the second time in two months after reporting a 35% drop in half-year earnings. So far today, their share price has fallen almost -14%. So far this month it is down -20%. Somewhat related, Synlait Milk's (SML) share price is down -4% today and down -14% since the start of February.

EVERYBODY IS TRYING TO GET A BARGAIN
The strength in performance of some of the country's retailers during this supposedly down time continues to amaze. The Warehouse (TWG) has sharply upgraded its half-year profit forecast for the six months to the end of January for the second time since the end of December. It's now forecasting a 'normalised' (after taking off the effect of paying back the $67.8 million it received in wage subsidies) after tax profit of $110 million, up from a forecast of just $70 million as in December. 

BUSINESS SUPPORT
If you're a business or organisation that experienced a revenue drop of at least -30% due to the recent rise in COVID-19 alert levels, you may be eligible for a Resurgence Support Payment. It’s not a loan and doesn’t need to be paid back.

EVEN HIGHER
Wholesale electricity prices are rising further, now well above the high levels we reported a few days ago.

HIGH BUT UNSUSTAINABLE
Fitch is reporting that spot freight rates will remain high in the short term, which will flow through to contracted rates for 2021. However, they say the current rates are unsustainable in the medium term, as a weak economic recovery and trade protectionism will bring them down again.

'UNCONSCIONABLE CONTACT & MISREPRESENTATIONS'
In Australia, regulator ASIC has commenced proceedings in their Federal Court against National Australia Bank (NAB, parent of BNZ), alleging that NAB charged fees for making certain periodic payments when it was not entitled to under the bank’s contracts with its customers. The issues relate to changes between 2015 and 2019.

DEMAND DROPS SHARPLY, YIELDS RISE
Today's tender of $450 mln in Government bonds was not well supported. They had only $708 mln in bids, the first time in a long time less than $1 bln was bid. That left only $258 mln unsatisfied, an unusually small level. Yields for the May 2024 $200 mln rose from 0.44% pa to 0.63%. Yields for the Apr 2027 $150 mln rose from 0.84% pa to 1.24%. Yields for the $100 mln May 2041 issue rose from 2.20% to 2.73%.

GOLD DOWN
Gold is trading in Australia, and soon in Asian markets. So far today it is at US$1798 and down -US$9 from where it was this time yesterday, and -US$7 below where it closed in New York earlier today.

EQUITIES UPDATES
The S&P500 rose +1.1% at the end of the Wall Street session today. All Asian equity markets have strongly recovered at their opening with Tokyo up +1.6%, Hong Kong up +1.8% and Shanghai up +1.1%. The ASX200 is up +1.0% in early afternoon trade while the NZX50 Capital Index is down -0.7%.

SWAP & BONDS RATES RISE & RISE
Yesterday, swap rates rose sharply across the curve in a steeper bias. Thursday they rose even more, and more noticeable at the shorter ends. We don't have today's closing swap rates yet. If there are movements today, we will note them here later when we get the data. It is likely there will be higher and steeper again. Today the 90 day bank bill rate is up +1 bp at 0.29%. The Australian Govt ten year benchmark rate is up +10 bps at 1.72%. The China Govt ten year bond is up +2 bps at 3.29%. And the New Zealand Govt ten year is up +16 bps at just on 1.84%. And that is well above where the earlier RBNZ fix was, at 1.79% (+16 bps). The US Govt ten year is up +7 bps from this time yesterday at 1.42%.

NZD RISES SHARPLY
The Kiwi dollar has risen sharply today and is now at 74.3 USc and almost +1 higher than this time yesterday. On the cross rates we are +½c firmer at 93.3 AUc. Against the euro we are also much firmer at 61.1 euro cents (+¾c). That all means our TWI-5 is up to 75.2 (+80 bps).

BITCOIN BACK UP
The price of bitcoin is back up over US$50,000, now at US$50,672 and a gain of +6.8% since this time yesterday. Volatility over the past 24 hours has remained high at +/- 3.5%.

This soil moisture chart is animated here.

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

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50 Comments

So consumer price inflation is just around the corner ...followed by OCR hikes then?

Wouldn't the government simply ensure that our economy never turns that corner with migration and whatnot to keep our household debt-binge going?
They'll throw the kitchen sink at it if that allows them smooth sailing without tough choices on tax, education and industrial policy reforms.

CPI rise around the corner followed by… no OCR hike

16
up

Bingo.

These crooked ***** will roll out every excuse under the sun to keep the house prices high.

Interest rate rises will NEVER be permitted.

Agreed. NZD rising will provide RB with plenty of cover in their desire to keep rates low forever.

Yes, look out for the term "pent up inflation" or something similar. We will know when the s@#t is about to hit the fan, guarantee Orr and Bascand will decide to retire just before the pop.

From some suppliers we've seen price increases either side of Christmas of 5%+ each from China... This plus shipping costs (2x-3x normal rates) means price rises are inevitable. Guarantee a lot of importers are in the same boat...

Wholesale electricity prices are rising further, now well above the high levels we reported a few days ago
Our lake levels are well-below historical average with no signs of rain relief until mid-next week (hopefully).
https://www.transpower.co.nz/system-operator/security-supply/hydro-infor...

20
up

Well done Grant Roberston. The largest cost we have in our lives needs to be considered - the cost of the family home. DTIs for investors ? Yes, and we all know NZ incomes dont match 1.1 million dollar housing investments.
The RBNZ cant hide any longer. This obscene money market and tax payer subsidised 'investment' of residential housing needs to be addressed. Give the next generation who dont have parents to give them 300k deposits a fair go. I bought my house myself in 1997 at 3.5 times one persons income.

Also consider Grant Robertson has publicly stated he wants house prices to increases. To what end does Minister Robertson want the RBNZ to consider house prices?

No DTI "tools" have currently been given. This week has been full of housing-news-releases and waffle. Far from creating housing - This Week HAS Created MUCH Uncertainty

I agree these are good things. I'm all for anything that tries to address NZs housing crisis and everything that comes with it like inequality etc. I also have to remind myself that GR & co have to take their share of the responsibility. Price is a function of demand and supply. Yes the RBNZ has played it's part in creating an imbalance from the demand side but equally the govt has failed miserable to do their part on the supply side. Who's going out in the media to blast him?! Given the constraints the RBNZ face in terms of their remit I'm inclined to say that Labour is more to blame than the RBNZ. Either way they've both failed a majority of NZer's and future generations.

Yes and no. Old Labour (J T Paul, Lee, McMillan etc) were about the welfare state - good-hearted folk in the main. Their oppo we more about the farmer and the richer, but neither ever though about Limits. Then Labout got hijacked by Douglas & Co, the vernacular got more self-centred, more narrow, more immediate gratification. But depletion, degradation and pollution went on as background drum-beat, always louder, always louder.

Now, we are a generation adrift from anything based in physical realities; we're on-screen, remote, virtual, arrogant, confident, ignorant. But we've sprawled over the finite landscape, pushing urban into farmland, farmland into virgin, emptying the good mines, starting the dispersed ones.... Atop that, we laid ever-bigger bets on tomorrow being ever-bigger - one spin-off being the inflating-away of the bets.

That phase is in the rear-view mirror; they're hoping (since 2005/8) like heck, for inflation. It's always just around the corner. But debt-issuance has continued exponentially and unabated; the only home was housing, shares, virtual tokens, collectibles. So they've 'gone up'. But looked at another way, I'd suggest that incomes have 'gone down'. Perhaps we should look at housing as the real measure, and wages as trending towards slave levels. Certainly that would fit the energy story

Justa comment
“Just a comment of caution” :)
There is this common perception - that underlines your thinking - that investors are usually mum and dad investors with one (or even two) rentals and that there are some investors with four or five.
I don’t have the figures handy, but there are a number of property investment companies with well over 200 properties each and numerous smaller but larger investors with 20 or more properties. I can’t recall the exact figure but something like 25% of rentals are owned by these large investors.
DTI, LVRs and the like are immaterial to them.
It does concern me greatly that homeownership for 25 to 35 year olds has fallen from 65% to 35% over the past 30 years, that there are serious affordability issues, and that renting for life is increasingly going to become common amongst many more Kiwis.
However it also concerns me that while this change is unacceptable, it is also a concern that we may be shutting out the mum and dad one property investor and leaving the door wide open for these very large - and often faceless -investors to become far, far more dominant. That is the situation in many European countries where the norm is many renters, very few mum and dad investors, but numerous large faceless property companies concerned little about the individual and only about the balance sheet.
Yes, we need to address current affordability issues, but care needs to be taken that the solutions are not simplistic knee jerk and create another serious issue.

Except that those faceless corporate landlords are actually better for renters. They hold for the long haul and they’re not as emotionally invested — if you want to live in the same place for ten years, have a dog, in other words have a decent life while renting— all that is much less likely with a MumNDad owner. We should get MumNDad *out* of rentals if we can — their obsession is blighting the lives of a generation.

How about Sell your house at price 3.5 times on persons income to lower house price now ?

Not interested in selling the house, I LIVE in mine ( an unusual concept these days I know) lol

Our dollar against the US looks like its going to the moon. Probably about time with all their money printing and its going to get worse. No idea why we are not already over the 80cent mark, I guess its coming. Yep inflation is coming.

Isn't that a good thing in the NZ mind? Cheaper holidays to Disneyland. High NZD. Team of 5 mio punching above its weight.

Agreed, the notion that New Zealand cannot have a strong currency always comes with the same flawed outcry. Interestingly, although its early days, the RBNZ which updated its TWI monthly forecasts to 74.5 in yesterdays MPS now see the TWI (17) at an impressive 76.68 today. We have been nibbling away at the NZD/CHF in recent times. Technically there are a number of crosses which favor continued NZD strength

Slight flaw in your logic there J.C....aint no body going to Disneyland, or anywhere for that matter, any time soon!! So all a high dollar is doing is hurting out exporters, who are the back bone of the country. Might help offset the rising oil prices a bit (since we will have to import it all i the future) but we all know those greedy petrol companies just put the price up anyway :/

Yep, and then people don't understand why there is reluctance to bump up the OCR to bring housing in check. Gone are the days when NZ was paying a significantly higher rate of interest than other developed countries. Any OCR move north in the near future is likely to be following our trading partners.

14
up

'67% of retailers expect to increase their prices'

67% of consumers expect to be worth more, via their houses

67% of that issued debt is probably unrepayable, even now.

67% of people seem to be unable to see where this is going......

Well, if all debt was paid back, there would be NO fiat currency - money is destroyed when it's paid back. Money printing is designed to inflate debt away. However, you're right, trying to solve the problem of money printing [under our MMT system] by printing more money is to stretch-logic-thin.

People can always buy Bitcoin and neo-exit the fiat system.. well, at least give themselves a hedge against inflation.

Trying to buy bitcoin over last 3 days. Still no luck, brokers all overloaded it seems and us assholl of world have to wait longest I guess.

Where are you trying to buy from? I used easycrypto yesterday and had no problems.

We still waiting for verification email that's easycrypto. We tried binance only option to transfer money is credit card. Independent reserve is in Aussie we wanted to transfer 100$ in account. Rabo call wanted 25$ then westpac 50$ independent reserve 15$ so we would have 10$ left. We bought ledger nano S. could take fortnight to receive. Got phone call again rabo because they never heard about company. Coin base doesn't work because connection issues.

You dudes come along into the cypto woo.

kiwicoin?

You can use exodus wallet as a temporary storage location until your cold storage arrives.
Can do P2P, there are several traders on the NZ facebook page who can do a range of trade sizes.
https://www.facebook.com/groups/buyandsellcryptocurrencynz/

We are here to replace the currencies and be our own bank. All the tech for this is in development

Rickett Benckiser considering pulling out of China infant milk formula business. Danone also hurting because of import restrictions. Not looking good for anyone accept the Chinese mnfers / brands.

https://www.chinabevnews.com/2021/02/chinas-infant-formula-market-loses....

Today's tender of $450 mln in Government bonds was not well supported. They had only $708 mln in bids, the first time in a long time less than $1 bln was bid. That left only $258 mln unsatisfied, an unusually small level. Yields for the May 2024 $200 mln rose from 0.44% pa to 0.63%. Yields for the Apr 2027 $150 mln rose from 0.84% pa to 1.24%. Yields for the $100 mln May 2041 issue rose from 2.20% to 2.73%.

I bet banks and third party sellers to them are pleased they off-loaded ~ $47 billion of NZGS+LGFA positions at lower secondary market yields to the RNBZ via QE actions.

Is this and the NZD confirmation of central bank impotence when it comes to the power of contrary market forces?

There may be a few battered shareholders in A2 , including those that have recently embraced share ownership. It would appear that those holding onto GME and others , may get another orbital ride looking at after hours action.

100% on GME

To the moon :)

And more after hours before the halt - https://finance.yahoo.com/quote/GME

Audaxes, TradingView gives me 284% in past 24 hours.

I've actually broken even!

But why sell now, when I can hold forever? Apes strong together.

You can bid up a Can-Full-of-Sh*t, heck.. short squeeze it up!!.. but it's still a Can-Full-of-Sh*t.

So long as you keep that in mind, go hard :)

I wonder if one of the 5 eyes is being punished.......

Adrian Orr confirms (again) that housing is a 'consumption good'. Of course, this is his opinion.

https://www.rnz.co.nz/national/programmes/morningreport/audio/2018774440...

David can you find out the fund outflows from NZ fixed income funds?

This bond rout has just about seen all my returns for last eleven months gone and I'll be looking at losses soon. Luckily I had halved before end of last financial year, but kept some in hoping for a final rally as shares corrected, but this rout now is out of control - at least out of RBNZ control.

And I'm appalled at RBNZ setting up the FLP so banks can continue to fund credit at cheap rates while leaving prudent savers like myself sheltering in bonds from destroyed term deposit returns hanging out to dry.

David, I'm also following (MH and I appear to be in similar position).

Maybe you should look at diversifying a small portion into Bitcoin. Heres a god article to start with:
https://chrisgimmer.com/bitcoin-reserve-asset/#:~:text=Portability%3A%20....

(DP)

Personally, I don't care if someone pays these prices. I just don't want to be liable should it all go to seed. And therein lies the unfairness of the stupid bubble.

Fonterra raises profit guidance.
S2 savaged.
I reckon you need to check this, I'm sure you've got it the wrong way round ;)
Seriously though, fonterra making a profit with a high milk price is almost staggering. Theo and John and co really were absolutely useless.

Pretty sure they did wanted best for farmers. To call them all useless might be wrong.

Ask any farmer what they thought of Theo

Last I cheched 1 btc was still 1 btc. It's the centralised digital national currencies that we will see hyperinflation occur in the next 3 months. Fed has/is having problems reconciliating its transactions right now.