Breaking news: Fonterra raises milk price forecast range by 30c, to possibly as much as $7.55. More soon.

Dairy prices retain gains; Wall Street opens stable; HSBC reports giant results; EU confidence dips; RBA sees no acute threats; UST 10yr at 2.91%; oil holds and gold drops; NZ$1 = 73.5 USc; TWI-5 = 74.5

Dairy prices retain gains; Wall Street opens stable; HSBC reports giant results; EU confidence dips; RBA sees no acute threats; UST 10yr at 2.91%; oil holds and gold drops; NZ$1 = 73.5 USc; TWI-5 = 74.5

Here's our summary of key events over night that affect New Zealand, with news of a giant profit at a global banking giant.

But first, after three consecutive rises, today's dairy auction paused for breath, down an insignificant -0.54% and holding on to +12.9% of the 13.5% gains over the last four auctions. In New Zealand dollars today's slip was a little higher at -1.2% but still represents a 'hold'. Disappointingly, WMP prices were signaled tro rise +2.3% again by the derivatives market but in the end only managed a +0.3% firming. SMP dipped -3.0%. Today's auction won't change any payout forecasts.

Also taking a breather is Wall Street where opening prices after their Washington's Birthday holiday are lower. The S&P500 was down although right now is is back about even.

And back from the weekend, the US Treasury sold US$179 bln of securities as it works to rebuild its cash balance, with yields at its auctions of three-month and six-month debt rising to levels unseen since 2008. And more US debt will be sold later in the week, also in beefed up volumes.

Banking giant HSBC has reported a big rise in profits in 2017. It is a bank that has US$2.5 tln in assets and makes US$11.9 bln in tax-paid profit, up +245% on 2016 which was considered a tough year. It paid 30.1% in income tax this year, boosted by the impact of the new US tax measures. HSBC is nominally a British bank but it is so global that can arbitrage its position among many jurisdictions. Most of its assets and profits are based in the Asia.

In the EU, the recent strong improvements in consumer sentiment stopped in January. A further +1% rise was expected but only a decrease was measured, its first in over a year.

In Australia, their central bank says there are "pockets" of financial stress among the highly-indebted household sector, and it is closely watching how customers with interest-only loans manage when they are required to start paying back principal over the coming years. But they are playing down the threat to the overall banking system from high housing debt, saying the risks to financial stability from mortgage debt were "not particularly acute."

In New York, the UST market has opened higher and the 10 yr yield is up strongly to 2.91%.

The gold price is down sharply and now at US$1,329 a fall of -US$17.

Oil prices are holding high, with the US benchmark now just under US$62/bbl and the Brent benchmark under US$65.50/bbl.

The Kiwi dollar is little changed this morning at 73.5 USc. On the cross rates we are stable too at 93.1 AUc and 59.6 euro cents. That leaves the TWI-5 unchanged at 74.5.

Bitcoin is now just on US$11,630, up another +5.9% in the past 24 hours. And Venezuela's last-ditch effort to prevent collapse by launching a new 'virtual currency, the Petro, has begun today. That makes it cryptocurrency #1385.

This chart is animated here. For previous users, the animation process has been updated and works better now.

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

Daily exchange rates

Select chart tabs »

The 'US$' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The 'AU$' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The 'TWI' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The '¥en' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The '¥uan' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The '€uro' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The 'GBP' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The 'Bitcoin' chart will be drawn here.
Loading...
USD 
NZD
End of day UTC
Source: CoinDesk

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

14 Comments

Comment Filter

Highlight new comments in the last hr(s).

Thos epesky EU dairy farmers are screwing the market up.

"EU-28 milk production reached 27.9 billion pounds in December. That is up 4.5% from the previous year – when
the European Commission was paying dairy producers to limit output – and up 1.4% from the record-breaking
volumes of December 2015. Up-and-comers like Poland and Ireland have fostered impressive growth. Compared to two years ago output is up 13.6% in the Emerald Isle and 7.2% in Poland. The Netherlands improved on its long-running dairy tradition, boosting milk output by 7.3% from 2015 to 2017, although nearly all of the growth occurred in 2016. In 2017, Europe sent 1.7 billion pounds of skim milk powder (SMP) overseas, an increase of 49.6% from 2016. Sales of SMP from Europe to Mexico were up nearly four-fold, eroding U.S. market share. "

While the beef market is turned into a casino

"Cattle, feeders and hogs are NOT bonds, crude or equity futures.

The displacement of humans in the pit who had some understanding of the underlying cash markets by the computer algorithms of High Frequency Trading firms is driving these hostile conditions. Conversations were had years ago predicting this and the forced exit of smaller participants. The rest of the story goes, when there is nothing left, the HFT traders will move on to another market. Unlike a loyal population of pit traders who were vested in the vitality of the market they traded, these interests are only opportunity driven. These observations have been ignored just like those that warned years ago of the dangers posed to negotiated price discovery of captive supply.

There is so much more to be said. Futures trading used to occur in broad daylight, visible and this mitigated the human fear factor. It’s now conducted in a dark room. Every horror movie uses the dark as the trigger to human fear. The fear factor is off the charts because this is being conducted in the dark. There are loud noises coming from places we cannot see and quantify."

The displacement of humans in the pit - From Pit to Screen - A long time ago

This article was written in 2001 by a local pit trader at the Sydney Futures Exchange - was once available on the web, in the public domain - you wont find any memoirs of this stuff any more - it's all gone
http://camron.co.nz/camron/citation/pit-2-screen.htm

There is still a human factor. Hear about the poor futures trader who actually ended up with a the delivery of a few loads of cattle.
https://www.npr.org/sections/money/2014/07/04/327763487/episode-471-the-...

What about the futures trader that had the wrong code in their custom software and had to take delivery of a very large amount of coal.
https://thedailywtf.com/articles/Special-Delivery

There is so much more to be said. Futures trading used to occur in broad daylight

robots in a trading environment - 2007

Bandwidth - a market-maker's privilege.
One article on algorithm development discusses data speeds. Prime-brokers are moving their data-centres as close to the exchange as possible as speed is critical. Nano-seconds are vital. Network connections from the exchange are arteries with veins feeding off to data-vendors, brokers, traders etc. The main pipe (artery) or backbone is 1mb speed/bandwidth while distribution veins are 500kb speed/bandwith. Data is transmitted as packets down the main pipe. With natural latency, a 1mb connection at the front of the network has first access to data, while the furthest 500kb connection has last dig at the data. When dealing in nano-seconds, if the market-maker is at the front of the queue with a high speed connection, detects a sudden move in the underlying instrument, they, the market-maker is able to react and move their order away, or withdraw, before the last in the queue even knows about it. With any reticulation system, the further from the source, the service diminishes. One privilege exchanges can provide is to allocate first connection to the market-maker. While the market-maker cannot "see" packets of other traders passing through, they have first access to any changes in the physical index, and changes to the market-depth not generated by themselves. Have seen it happen. Observed that one night on Sycom. There were 10 on the offer, 5 points above the bid. One lot tried to hit the offer. The offer disappeared, the re-offer came back 1 point higher, with a re-bid at the previous offer price. The market-maker was able to move the 10 offer, instantly. The three data transactions happened simultaneously. The very best retail software and hardware cannot beat this.

Institutional Trader response - 14 March 2008
Well I just got done by one of these today. Working an OTD buy order in a stock. Initially I noticed the bot because it was constantly placing 100 to buy in front of me if I put anything on the bid. I put in a bid at 150, it put on 100 at 151. I go in at 152, it goes in at 153. Forcing me to hit the offer. So I did. There was 800 shares on the offer. The 800 was composed of 1 parcel of 600 and 1 of 200. I entered an order to buy 800. Theoretically I should get that entire 800. The difference in execution time between the 600 and 200 should be a nanosecond. Or less. I got the 600 but the parcel of 200 disappeared before the remainder of my order was executed. So someone/something was quick enough in the nanosecond between the first lot of 600 being done and the time the second lot, to pull the 200 order. This begs the question: If I was wanting to, for example, negatively influence a stock, and I had the capability, I could stick 10M shares on the offer. Composed of 2 orders. 1 of 1000 followed by 1 of 9,999,000. If someone steps up to hit me, as soon as the 1000 (or 1 or 10 or 100) is done, the remainder automatically disappears. I get all the benefits of the downside pressure, with no risk of someone hitting me and me being short when I really don't want to be.

They are in about 90% of stocks now. Little bots, working away.

flash orders

August 2009. It now emerges high-frequency-trading algorithms can pay the exchange a fee to obtain a peek at orders coming down the pipe. The exchange flashes incoming orders to fee-paying users. Flashes last for 3 nano-seconds. Mary Schapiro of the SEC is currently looking at it. In the meantime thats whats you're up against.

While we are on the Ag industry , we are not the only ones facing 'rationalization'

The USDA forecasts that net income for farmers in the United States will fall to $62.3 billion in 2017, about half of their earnings in 2013. And recent quarterly earnings reports from several of the world’s biggest grain traders have shown sharp revenue declines in their grain origination and processing segments.Bunge CEO Soren Schroder, in a Nov. 14 presentation at the Morgan Stanley Global Chemicals and Agriculture Conference in Boston, Massachusetts, U.S., said he believes this “highly unusual” period of global grain glut will self-correct through economics at the farm level and changing weather patterns, but that a permanent shift may be taking place in some pieces of the agricultural chain, namely the U.S. grain origination and export industry.

“If there’s one place in the world where we do see that there’s a shift and there is a structural amount of overcapacity that somehow has to be rationalized, it’s in the U.S. grain origination and export industry,” he said.

http://www.world-grain.com/articles/news_home/Commentary/2018/01/From_th...{2FB753DB-D9BF-4494-A9FD-D3AB15917D90}

Bit of rationalization/socialisation about to hit South African farmers of the wrong colour.
https://www.cnbc.com/2017/12/20/ramaphosa-advocates-south-africa-seizing...

jeepers, Zimbabwe re-run in South Africa. Very bad.

Pockets of stress in Australian households is a result of a country with greed built in the genes. Not a good place to be in on the day all confidence of future gains is lost.

Finally someone at Fonterra makes a good business decision..
The a2 Milk Company Limited ('a2MC') is pleased to announce the formation of
a comprehensive strategic relationship with Fonterra Co-operative Group
Limited ('Fonterra') encompassing a range of supply, distribution, sales and
marketing arrangements in targeted markets.

Times change

"In the South Island, milk is being supplied by International Dairy Ventures, where one of the directors is Brent Thornton, who has complained that Fonterra had been using its industry muscle to prevent farmers from supplying A2 milk to independent processors.

Dr McLachlan said it had been a struggle to get A2 milk on to the market as Fonterra had been using clauses in the Dairy Industry Restructuring Act 2001 to prevent or delay its farmers from supplying A2 milk.

The Act allows Fonterra to prevent its farmers from supplying any speciality milk protected by any patent processors other than Fonterra.

Farmers supplying milk to A2 Corporation licensees had either terminated their Fonterra supply contract or had divided up their herds to establish a separate A2 herd."
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=3451537

Looks like Fonterra folded and A2 prevailed..thanks for link Andrew

From 2012:

Fonterra's approach to A2 milk has not changed or softened over the last five years. Group director technology and chief technical officer Jeremy Hill said Fonterra had reviewed the "A1 versus A2 issue" and "found no cause for concern". The dairy giant clings to the EFSA findings from 2009, with Hill saying its position was "confirmed" by the eight independent expert reviewers who "concluded the weight of scientific evidence did not support claims that A2 milk is a healthier alternative".

http://www.stuff.co.nz/business/farming/7374629/A2-milk-soars-overseas-b...

For the attention of Gareth Vaughan - could be registered here in NZ also

Ventnor Investments Pty Ltd

The face of money laundering
No answering machine, phone runs dead, no website, no public info but this mob makes $5B income. Zero tax http://bit.ly/2CzwMzc #Top40
https://twitter.com/MichaelWestBiz/status/966069543759052800