A review of things you need to know before you go home Monday; no rate changes, record car sales, bond detail released, irrigation prospects improve, water watch, swaps firm, NZD unchanged, bitcoin volatile

A review of things you need to know before you go home Monday; no rate changes, record car sales, bond detail released, irrigation prospects improve, water watch, swaps firm, NZD unchanged, bitcoin volatile

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

MORTGAGE RATE CHANGES
No changes to report today.

DEPOSIT RATE CHANGES
No changes here either.

THE DOMINANT CLASS
63.3% of all new cars sold in November were SUVs. There were 10,289 passenger cars sold in November and 6,508 of them were SUVs. In the eleven months to November, that ratio was 59.7%. In 2016 it was 56.5%. The 10,289 cars sold was the highest for a November since 1975 when the modern records began. In addition, there were 4,305 commercial vehicles sold, also an all-time November record for these vehicles. Data on used imports will be available in a day or two.

DETAILS RELEASED
Kiwi Property Group has announced more details of its upcoming bond issue. It will be for $75 mln, plus over subscriptions of up to another $50 mln. They will not have a public offer, but will be sold only to clients of issue managers Deutsche Craigs, Westpac, BNZ and Forsyth Barr. A minimum interest rate of 4.25% will apply otherwise it is swap plus about 1.45% to 1.55% for this seven year issue. Swap today is at 2.83% for a seven year term and if that held until December 18 then a rate of almost 4.30% is indicated.

AN EASIER 'FRIEND'
Federated Farmers today sent some friendly signals to Shane Jones about using part of the anticipated $1 bln regional development funding, for new irrigation and water storage projects, especially ones farmers can't afford. The previous governments required commercial justification and heavy farmer financial commitment. Fed Farmers senses the criteria may not now be so rigorous.

NO RATINGS IMPACT
S&P Global Ratings today said that the ratings and outlook for Fonterra (A-/Stable/A-2) are not affected by the outcome of the Danone arbitration.

WATER WATCH
It is getting dry around the country (see map below) so it is reasonable to ask how well we are prepared. In Auckland, its storage is 95% full, exactly average for this time of year. Dry conditions will likely affect milk production, especially in the South Island. There is a dairy auction Wednesday morning and the derivatives market is signaling a +5.0% rise in WMP prices. If that happens it will break a run of four declines.

WHOLESALE RATES FIRM
Swap rates are up +1 bp for two years, up +2 bps for five and ten years. However, the 90 day bank bill rate has slipped to a record low 1.90%.

NZ DOLLAR UNCHANGED
The NZ dollar is little changed at 68.6 USc. On the cross rates we are just under 90.3 AUc, and 57.8 euro cents. The TWI-5 is now at 71.4. Bitcoin is still very volatile. At 10:30 am this morning it fell from a record high US$11,820 to US$10,550 in 90 minutes, a drop of US$1,270. It has since recovered to US$11,346.

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European industries from steel to solar are bracing for a new set of tariff rules that may make it harder to fend off low-cost imports from China and other foreign countries.

European Union governments are due on Monday to rubber-stamp the biggest revamp of the bloc’s method for calculating duties aimed at countering below-cost -- or “dumped” -- imports. The move is a response to longstanding Chinese government demands for more favorable treatment while stopping short of saying those shipments are fairly priced.

The overhaul will end an EU presumption that Chinese exporters and those in nine other members of the World Trade Organization operate in non-market conditions. That approach, which has allowed for higher European anti-dumping duties, is being replaced by a more opaque procedure for determining whether imports unfairly undercut domestic producers. Read more

In return, will Europe expect to dump cheap, stockpiled dairy production on China?

Japanese investors are falling out of love with Australia’s currency and bonds as the South Pacific nation’s economic growth slows and its yield premium vanishes.

Funds in Japan bought a monthly average of 38 billion yen ($337 million) of Australia’s debt this year, down from 49 billion yen in 2016 and 53 billion yen in 2015, data from the Ministry of Finance show. The value of Australian dollar-denominated mutual funds sold to retail investors slid to a one-year low of 2.81 trillion yen in October, from as much as 5.45 trillion yen in February 2012, according to the Investment Trust Funds Association of Japan.

The Aussie has weakened against all except one of its Group-of-10 counterparts in the past month as slowing growth pushes back expectations for when the Reserve Bank of Australia will raise interest rates. The currency has also been weighed down by a slowdown in China, Australia’s biggest trading partner, and concern about the health of Chinese banks. Read more

The reality is that those currency and bonds are passed on to Japanese savers through Japanese retail banks. The Japanese banks don't really lose (and can hedge accordingly anyway). The problem is the sentiment of the Japanese bank customer. If there is no demand for AUD or NZD term deposits, there is good reason for institutional interest to wane.

Australia’s central bank is on track for its longest stretch of unchanged interest rates as it bets a tightening job market will begin to put upward pressure on wages -- at some stage.

The Reserve Bank of Australia is expected to leave its cash rate at a record-low 1.5 percent Tuesday for a 15th straight meeting. That will match unchanged runs that ended in December 2014 and October 2003. A further pause expected through much of next year could make the central bank something of an outlier as developed-world peers look to withdraw stimulus.

Australian policy makers are grappling with an unusual divergence: business confidence is strong and firms are starting to invest and hire; yet consumers are saddled with debt after loading up on property, confidence is weak and stagnant wages are forcing them to draw on savings. While macro-prudential measures have slowed investor lending and cooled house prices, the RBA is acutely aware of households’ sensitivity to rate rises. Read more

Protracted reliance on the usual head-in-the sand approach is long past it's sell by date.

As one expects, the Herald tries to present as optimistic an impression of housing as is possible. However. "The report showed that of the city's most expensive suburbs, five - Remuera, Stanley Point, Epsom, Mission Bay and Orakei - dipped in value in the three months to the end of September." So much for the argument that such suburbs will be immune from the current downturn.
http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11952937

On a slight digression - Four reasons Chinese house buyers love NZ

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=1195...

and the four reasons could apply to just about anywhere in New Zealand.

Liveability
Environmental health
Food safety
Great outdoors.

90 day 1.9%, and floating mortgage rates around 5.7%.

It’s been a borrower’s market for a long time, in Asian syndicated loans as in the rest of the dollar universe.

But Asia-Pacific lenders are facing increasing funding pressures, and a handful are aiming to pass those costs along -- in another sign that the beginning of the end of ultra-easy money may be coming. Half of the 50 banks in a Bloomberg News survey have experienced an increase in funding cost of as much as 20 basis points over the past few months.

Fitch Ratings also cited higher funding costs as a pressure for banks in its 2018 outlook for the industry, published last month. Competition and the implementation of new accounting standards known as IFRS-9 pose additional challenges, the company wrote. Read more

....and the banks will have no choice but to pass this on. A way of life has been built by many using cheap money. For many, prosperity will be slowly drained away.

The asset values will head south but the debt will still be there.

Money for irrigation is like throwing it in the creek.
For Southland they should connect Gunns Camp on the Milford Road to Jacksons Bay in Westland and bypass the Queenstown mafia.

Dp

European agriculture commissioner Phil Hogan told dairy markets in no uncertain terms last week that the 380,000t of skimmed milk powder (SMP) sitting in intervention across Europe had to be sold.
Hogan also sent a clear message to Europe’s dairy industry that the European Commission would not prop up the market in 2018 as it has done over the last two years.
Demand for milk remains strong globally, but it is being outpaced by supply and a correction is needed to address the current imbalance to avoid stock build-up, the MMO has warned.
Ireland and the rest of the European Union continues to produce milk since the abolishment of quotas, with EU milk production up 3.9% in September, EU Milk Market Observatory (MMO) figures show.

World milk production also continues to increase. However, the MMO’s economic board has warned that growing global milk production is causing some bearish market sentiment.

In its November update, it said that demand remains strong but is being outpaced by supply.

A correction is therefore needed to address current imbalance and avoid stock build-up, according to the board.

“I was the only buyer for SMP in 2017, but I won’t be the only buyer next year. At a time when the next EU budget is being negotiated, I cannot enter negotiations with half a million tonnes of SMP sitting in intervention stores,” said Hogan.
Despite the comments, SMP prices remain at rock bottom levels this week, around the €1,450/t mark.

The Commission sold 40t of SMP out of intervention last week for €1,390/t, which highlights how little appetite there is in the market right now.