A review of things you need to know before you go home on Wednesday; RBNZ pulls back, dairy prices rise, producer margins in tough squeeze, fewer farms sell at higher prices, swaps hold, NZD soft, & more

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

MORTGAGE RATE CHANGES
None so far.

TERM DEPOSIT RATE CHANGES
None here either, so far.

UP, BUT LIMITED
Dairy prices rose by +0.3% at the latest auction - in USD. But because the NZD has fallen sharply in the past few days, the rise in NZD was +1.7%. Hesitation by Chinese buyers for what they see as expensive WMP, and strong NZ production levels both limit the upside of this trade.

MARGIN SQUEEZE PRESSURE EXTREME
The June producer price data revealed a sharp squeeze on margins with costs up at the rate of +5.9% pa but prices only up +1.0%. Clearly that can't last. But a significant element of these changes relate to the electricity industry (+51%) where suppliers buy from generators at spot which has had a rocky ride recently, but sell to consumers on annual contracts that can't be broken. To industry, they rose +33% year-on-year. Companies are unlikely to tolerate the sharp margin suppression for very long as they can ill-afford to underinvest. Outside this industry, manufacturers costs rose fast too (+7.9%), which would have been more news if it wasn't overshadowed by the electricity surges. Their prices rose just +1.4% on the same basis, so the margin squeeze was fierce for them too.

NOW'S NOT THE RIGHT TIME
The RBNZ pulled back from its well-signaled OCR rate increase in its Monetary Policy Statement today, but they did resolve to reduce the level of monetary stimulus. They have left themselves the option to make further changes outside the normal review and announcement schedule depending on how the lockdown progresses. The currency markets were recovering somewhat before the release, but dropped back to yesterday's levels after it.

FARMS SELL AT HIGHER PRICES, BUT CHOICE LIMITED
Farm sales were holding in July at 133 for the month, very similar to the level in July 2020. There was a more-than-usual seasonal rise in sales of dairy farms, and a less-than-usual season rise in grazing properties. The changing mix of farms being sold raised the average selling prices/ha by +12% with dairy afrm sales rising more than +40% in a year when they were unusually depressed in 2020. July 2021 dairy farm prices are +9.3% higher than July 2019 levels. The shifting nature of this market is reflected in the number of farms being offered for sale. At the end of July there were 120 farms offered for sale on the real estate portals. A year ago at the same time it was 217, and in 2019 the number was 251.

IF THE REGULATORS WON'T REGULATE, THE BANKS WILL JOIN BNPL
Banking behemoth CBA is making a second run at the BuyNowPayLater sector. First they invested in Klarna. Now they have introduced StepPay to Australia. Its key advantage is that it has far many more merchants in its system than AfterPay, so extending the BNPL advantages across the full retail range.

NOT GOING ANYWHERE
In Australia, wage growth was timid in their June quarter rising less than expected at just 0.4% from the March quarter and +1.7% from a year earlier. It appears the RBA is correct in thinking that any pick up in wages growth will be “gradual”.

PRESSURE IN AUSTRALIA WIDENS, NZ NOW TOO
There were another 634 new community cases in NSW today with another 475 not assigned to known clusters, so they are out of control. It has spread into regional NSW extensively. Victoria is reporting another 24 new cases today, an unchanged number and their lockdown is extended for another two weeks, this time with a curfew. Queensland is reporting 4 new cases. NT has cases now. Overall in Australia, more than 27% of eligible Aussies are fully vaccinated, plus 22% have now had one shot so far. There were 3 new cases in New Zealand at the border, and four more in the community. New Zealand reports 25% of its eligible population having been fully vaccinated with a further 16% having had one jab so far. There was also some stupidity at a protest on the streets of Auckland by the tin-foil hat brigade.

GOLD FIRMER
Compared to where we were at the close of trade in New York on yesterday, the gold price is up at US$1792 in early Asian trade and a rise of +US$6 from then.

EQUITIES POSITIVE AFTER WALL STREET FALL
The NZX50 Capital Index is up +0.8% in late trade today. The ASX200 is down -0.1% however in early afternoon trade. Tokyo has opened up +0.6%, Hong Hong has also opened up +0.6%, and Shanghai has also opened up +0.3%. The S&P500 ended down -0.7% on Wall Street earlier today .

SWAP & BONDS RATES UNCERTAINTY STILL SWIRLING
We don't have today's closing swap rates yet. They are probably falling at the short end with the 1yr down another -4 bps so far. But longer swap rates are rising from yesterday's levels. We will update this when the end-of-day data comes through. The 90 day bank bill rate has slumped by -12 bps at 0.55%. The Australian Govt ten year benchmark rate is down -2 bps at 1.14%. The China Govt ten year bond is little-changed at 2.90%. But the New Zealand Govt ten year is up +3 bps to 1.66% and now above the earlier RBNZ fix of 1.61% (-13 bps). The US Govt ten year is now at 1.27% and firming slightly.

SOFT NZ DOLLAR HOLDING
The Kiwi dollar is now at 69.4 USc and marginally firmer. Against the Aussie we are also marginally firmer at 95.5 AUc. Against the euro we are at 59.3 euro cents. The TWI-5 is now unchanged at 72.7.

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BITCOIN LOWER
The bitcoin price is now at US$44,806 and down another -3.5% from where we were this time yesterday. Volatility in the past 24 hours has been high at +/- 3.3%.

This soil moisture chart is animated here.

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