Here are the key things you need to know before you leave work today:
MORTGAGE RATE CHANGES
No changes to report today.
TERM DEPOSIT RATE CHANGES
None here either.
HIGHER PRICES FOR MORE MILK
Dairy giant Fonterra has lifted its 2017-18 season milk price forecast to $6.75/kgMS from $6.55, but says the dividend may be more than halved. China woes are the reason. The milk price forecast for the new 2018-19 season is being estimated at $7/kgMS, and that is much higher than any analyst was expecting. National milk production is on the rise again.
New research indicates the Chinese dairy market will grow at about the same rate as their overall economy, about +6.6% per year until 2022: Since 2014 yogurt has posted an annual retail sales growth of over 20% in China, and between 2015 and 2017 cheese saw a growth rate of between 15% and 25%. Yet consumption remains low per capita: Chinese consume just 14 litres of milk a year compared to more than 40 litres in New Zealand, 37 litres in Japan. 36% of Chinese believe local milk sources are not reliable, with 43% preferring imported dairy products. If the Chinese raise their average consumption from 14 to 19 litres as estimated, that will require the world to produce an extra 6.5 bln litres of milk annually. That would be the equivalent of expanding New Zealand's current dairy output by one third.
NEW TOOL, NEW TRANSPARENCY
The RBNZ has confirmed that its new Dashboard tool will be launched at 3pm on Tuesday, May 29, one day before their next Financial Stability Report. This new tool is expected to make inspecting and comparing bank financial metrics much easier for customers and investors (rather than having to use the current individual General Disclosure Statements and do manual comparisons).
Ratings agency Moody's likes the new Government's Budget 2018. It currently has a sovereign rating for us of Aaa Stable, its top rating. Its review of the budget out today said: "The budget highlights the government’s commitment to maintaining fiscal surpluses and reducing debt, supporting our assessment of New Zealand’s very high fiscal strength. New Zealand's strong public finances provide greater fiscal flexibility to counter shocks than is the case for some other high-income and highly rated sovereigns." Fitch rate NZ as AA+ Stable. Standard & Poor's also rate us as AA+ Stable. These are just one notch lower than AAA.
LGFA "UNDER CREDIT OBSERVATION"
Meanwhile, Standard & Poor's have changed the way it rates public co-operative funding agencies like the LGFA and as a consequence it is reviewing its rating for the LGFA (which is currently AA+ Stable). S&P has estimated that 75% of the 15 agencies of this type would get unchanged ratings, the rest may get a lower rating. No date has been announced for when the updated ratings will be published.
As we noted in our Comment thread recently, Budget 2018 is very opaque about Pharmac's funding. In previous years it was separately disclosed in its own line item. But not in this budget. We asked Treasury for the equivalent data for 2018-19. They didn't supply it, but this is what they said: "PHARMAC manages the Combined Pharmaceutical Budget (CPB) on behalf of DHBs which hold the majority of Vote Health funding. As a result, the CPB is funded from within DHB appropriations and PHARMAC’s total CPB funding isn’t itemised in the Budget data." You can't find it within the individual DHB budget allocations either. Perhaps the lack of transparency has something to do with a negotiating stance when it comes to the CTTP trade treaty, and the possibility the US may one day wish to join? All we have on Pharmac funding is partisan statements from Ministers and Opposition politicians. The only time we will know is when Pharmac files their Annual Report, For 2018-19 that will be in about 20 months.
Property consultant Stephen Grubb, who in 2003 was convicted of fraud and sentenced to 4 years prison, was today convicted of fraud again and sentenced to 2 years, nine months in prison for defrauding Hughes Developments of $300,000 in 13 commission payments in a Selwyn District Council business hub development.
BENCHMARK INTEREST RATES SLIP/FLATTEN AGAIN
Local swap rates are little changed today, with only a -1 bps fall for durations of three years and longer. The UST 10yr yield has also slipped -1 bp to 3.05% today. The Aussie Govt 10 yr is now at 2.85% (down -2 bps). The China 10 yr is at 3.70%, up +2 bps. And the NZ Govt 10 yr is down another -1 bp to 2.83%. The 90 day bank bill rate is up +2 bps, back to 2.00%.
BITCOIN UNDER US$8,000
The bitcoin price is now at US$7,915 which is down -4.6% from this time yesterday.
NZ DOLLAR SLIPS
However, the NZD is also softer at 69.1 USc. We are little changed against the Aussie at 91.5 AUc, and down slightly against the euro at 58.7 euro cents. That has the TWI-5 now under 72.
This chart is animated here. For previous users, the animation process has been updated and works better now.