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A review of things you need to know before you go home on Tuesday; Truckometer slows with wholesale trade, Synlait cuts current season payout, trumps Fonterra for next season, swaps down -6 bps, NZD steady

A review of things you need to know before you go home on Tuesday; Truckometer slows with wholesale trade, Synlait cuts current season payout, trumps Fonterra for next season, swaps down -6 bps, NZD steady

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

TODAY'S MORTGAGE RATE CHANGES
No changes today.

TODAY'S DEPOSIT RATE CHANGES
None for savers either.

TOUCHING THE BRAKE?
ANZ's survey of transport road taxes indicates an evaporation of gains. ANZ said: "Both the Heavy Traffic Index and the Light Traffic Index fell in May. We must be wary of reading too much into one month of data, particularly given extreme volatility of late, but it is probably fair to say the upward trend is no longer as conclusive as it was. The Heavy Traffic Index fell -1.7% (+0.6% 3m/3m) in May, while the Light Traffic Index, which leads growth in the economy by six months, fell 1.3% (+1.3% 3m/3m).

WHOLESALE SECTOR SLOWS
Mining and the rural sector led Q1 2016 wholesales sales lower in data released by StatisticsNZ today. Oddly, they also saw a fall in vehicle sales (down -4.2%), which does not really match with the steadily rising retail sales data we have been seeing. Overall, wholesale sales were up +2.0% compared with the same quarter a year ago, a slower pace of increase than the +2.4 we saw in Q4 2015.

IT'S ONLY ONE SECTOR
Today, Treasury released a review of the outlook for the dairy sector. They note that milk production growth continues to outstrip dairy demand growth. Dairy prices are expected to recover only slowly. Many dairy farms are facing a third consecutive season of negative cash-flows, with a 'significant' flow-on effect to the economy as a whole although overall economic growth remains solid. The conclusion seems to be that despite its importance, dairy's woes are not so dominant that they will spoil NZ's growth story. These days, New Zealand has a number of strings to its bow.

SYNLAIT MILK TAKES and 'GIVES'
Meanwhile, Synlait has today forecast their milk price for the 2016 / 2017 season at $4.50 kgMS. Fonterra forecast $4.25 plus dividend. (No added value dividend return applies to Synlait suppliers.) Synlait, like Fonterra, are also adjusting payments for the current season to give suppliers earlier cash flows. In the same announcement however, Synlait dropped its current season 'estimate' to $3.90 from $4.20, matching Fonterra.

NOT JOINING THE PARTY
All major exchanges in our timezone are higher today - except the NZX50 (and Shanghai is closed today). The Aussies are benefiting from a surprise lift in the iron ore price, something that had been expected to track down.

RBA HOLDS 
The Reserve Bank of Australia left the cash rate unchanged at 1.75% as expected. The RBA's statement is here.

SWAP RATES FALL
Following the US non-farm payrolls 'slump', local wholesale swap rates fell today by about -6 bps. In fact, the NZ 10yr is now down at an all-time record low of 2.79%. Other terms have not reached that yet. The 1-5 curve is back to just +16 bps, the flattest it has been in over a year. The 2-10 is flat too, now at just +58 bps. NZ swap rates are here. The 90-day bank bill rate fell as well, now back -3 bps to 2.37%.

NZ DOLLAR HOLDS
The Kiwi dollar is holding on to the gains from the weekend, especially against the US dollar. Is now at 69 USc, at 93.7 AUc, and 60.8 euro cents. The TWI-5 is now at 72.4. Check our real-time charts here.

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6 Comments

Following the US non-farm payrolls 'slump', local wholesale swap rates fell today by about -6 bps. In fact, the NZ 10yr is now down at an all-time record low of 2.79%.

The unfunded credit derivative supposedly gains fixed receiver support while the funded NZDMO TBill tender fails miserably to do the same. View tender results

I don't know if there is a liquidiy issue associated with this event, but last week the Australian authorities felt a pressing need to partially extinguish a legacy issue alreadly monetised by the RBA.

Australia repurchased a record A$9.3 billion ($6.7 billion) of February 2017 bonds and canceled them.

The bonds were bought from the Reserve Bank of Australia and A$11.8 billion of the debt remains on issue, the Australian office of Financial Management said in an e-mailed statement. The buy back was the largest on record in data from the AOFM that goes back to the 2002-3 financial year.

The AOFM’s move helps smooth out the maturity profile of Australian government securities as well as for benchmark bond indexes, according to Commonwealth Bank of Australia. It will also add to liquidity in market as the AOFM gears up to sell about A$90 billion of bonds in the year to June 30, 2017. Read more

I cannot reconcile how AOFM's action adds market liquidity since it is extingushing the printed cash liability the RBA balance sheet demanded to offset the prior held asset position obtained directly from initial off market issuance or on market buy back operations.

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Perhaps the press release is not quite technically correct on that point and just refers to the return of the "investment" back to the open market.

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Not quite the issue I would highlight since the AOFM cancelled the existence of the securities.

Nonetheless, coming back to NZ failing to issue it's proposed short term sovereign IOUs, the debt needs of Australia are threatening to crowd us out of the global debt issuance market.

The Aussie State is planning to sell about A$90 billion of bonds in the year to June 30, 2017. The Aussie banks are going gangbusters issuing foreign US liabilities to swap into AUD equivalents. Does New Zealand even meet the standards of deep liquid repo eligible government issuance?

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If I read the Aussie political mood correctly they feel the economy will bounce back and faster than the kiwi. So there seem to be zero plans for fiscal restraint. Which would imply the crowding will continue unabated.

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Were the trucks all stuck in traffic?

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With traffic on Auckland motorways traveling at 20km p/h average, no wonder the trucks meter is down.
The trucks can't move.
The cars can't move.
Sales reps and business callers now giving up on face to face calls & meetings now.

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