A review of things you need to know before you go home on Wednesday; no rate changes, Fonterra ups milk price, China demands more, Moody's likes Budget 2018, Pharmac budget hidden, swaps slip, NZD soft

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.

OVERWHELMING DEMAND
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).

HIGHLY RATED
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.

NOT TRANSPARENT
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.

RECIDIVIST
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.

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11 Comments

HALT the presses , ED !!!!

... new research fresh out of Europe ... a study of 44 000 people has proven that the weekend lie in , in bed , is good for you !

It seems that we can get short or interuptured sleep during the week ... so long as we have a good old sleep in on the weekend ....

... ahhhhh .... I feel so much the better for knowing that .... less guilty , anyhow ...

Maybe the MSD could conduct a study of 44,000 beneficiaries and see what effect sleeping in every day has on a person.

Unless you are talking of pensioners, (for that may be the only way you could find 44k with the luxury of extra sleep), you seem to have a vastly poor understanding of most those receiving benefits & supplements. Sure you can ask a terminal cancer patient how their rest was but I think they would prefer to avoid the long sleep and be able to run freely again.

A terminally ill cancer patient or a pensioner is highly unlikely to be on the Job Seekers benefit, which is what I should have specified in my post.

True but even severely physically disabled and ill people get put on the jobseekers benefit, serious cancer patients included, and aside from the paper work load added there is the same chances and options for them to work as those on sickness, or support carer benefits. Then you have mothers with babies and toddlers also on the jobseeker category and you are not going to see options for them for daycare around anytime soon. WINZ as a group really muffs up it's categorisation from office to office, staff member to staff member. Supporting someone through the process is as much of a nightmare, so it is not hard to imagine how a seriously ill and disabled person would feel constantly having to front up with new reams of forms and notes, given the significant work & access issues, stating 'no, a genetic cure has not been found for a degenerative conditions' or 'yes cancer treatment is still progressing' and employment is still a lottery for the disabled & severely ill. Actually for many you can kind of see why WINZ is often hated and going there is abhorred. You think by know they would have discovered email and the technology of a web form but then again it is a government department. I really had to stop supporting people who need help with applications for WINZ assistance, so massively depressing and the staff are abominable.

Transpower 2018 whitepaper titled Te Mauri Hiko - Energy Futures:

https://www.transpower.co.nz/sites/default/files/publications/resources/...

If I read that properly, it is saying that from 2030 we will struggle if we stay with the commitment to only 'green' energy. They seem to be saying we will need the backup of gas-fired generation the more climate change variability bites. Wasn't expecting that. Apparently, going green increases rather than reduces our power supply vulnerabilities in winter peak demand, increasingly so in about 12 years.

Exactly. Insolation especially in the South Island, is insufficient to supply any prolonged period of self-consumption from e.g. a solar-hybrid-battery system unless absolutely ridiculously large and thus expensive battery storage is present in each household. So at the very point where hydro storage inflow is the lowest - July through October - the distributed generation (household battery) runs outta puff and the Grid is suddenly asked to Deliver. So it better be prepared to handle it.

South Australia is the poster child for grid instability locally: it has so much wind power compared to other sources (it blew up its last (Northern) coal-fired baseload station - literally) and has so little interconnect capacity with VIC next door, that sudden droops in generation are commonplace. VIC has struggles of its own, having closed Hazelwood (1600Mw, brown coal) last year, so is understandably chary of donating too much to SA next door, having run itself short of capacity.

So notices like this one are now common: AEMO ordering up gas or diesel fueled large synchronous generation in order to preserve SA grid stability. Notice below, my bolding and italics.

Market Notice 62920
AEMO ELECTRICITY MARKET NOTICE

Refer AEMO Electricity Market Notice No. 62914

The synchronous generating units expected to be synchronised in SA from 0100 hrs 24/05/18 to 1400 hrs 24/05/18 in Pre-dispatch published at 1330 hrs 23/05/18 are inadequate to maintain sufficient system strength in SA and hence a secure operating state.

AEMO currently estimates that, in the absence of sufficient market response by 1800 hrs 23/05/18, AEMO may need to intervene by issuing a direction requiring one or more SA synchronous generating unit(s) to operate or remain synchronised from 0100 hrs 24/05/18 to 1400 hrs 24/05/18, to maintain power system security in SA.

Manager NEM Real Time Operations

SA is cursed with a system design which has been bent out of shape by massive subsidies for wind and to a lesser extent solar, which have rendered coal and gas fired generation uneconomic: they have to pay swingeing carbon taxes (disguised as Renewable Energy Targets). Yet, and as the Notice makes clear, the large synchronous reliable generators like coal and gas are dispatchable so can be called up. Wind cannot be scheduled, period.

NZ does not have that problem and has large dispatchable hydro and geothermal, which can be spun up on demand. As long as the lakes stay topped up and Gaia does not Cool. And no drunken trawler crew manage to dredge up and break the Cook Strait Cable.....

Yet we should not be too complacent. As SA so graphically demonstrates, letting politicians design large-scale grids is a fundamental mistake.

Yep, some form of peaking will be essential, and if we want to add substantially more wind then we will need to add a lot more frequency support. Hydro gives us plenty of inertia, but we need to be gentle with it because it's a mechanical system and it doesn't deserve to get the bash each time we rely on it.

Yes but that is pretty built in to the technology. The instability is a core feature of the design. Sure people say the sun will always be there, but what is the angle, elevation, cloud cover, weather & wear and tear on the system. Likewise changing wind patterns, varying tides, rain etc etc. The technology is inherently unstable, in the name you might say, and what is needed it dedicated constant loads with peaks at night & in winter in NZ, (& high summer in Australia often because the aircon). You cannot have a decent reliable renewable which is not affected by the weather, which is why battery tech, and alternative fossil fuel generators for emergencies are so important to include. On a country level you need good distribution, a large battery farm which is durable with low maintenance & replacement costs (otherwise the damage from battery manufacture and waste becomes a new issue), and an alternative in case of emergencies & low battery levels. Sure most NZ is already renewable but lake levels and droughts can play havoc and we have at times needed even the old fossil fuel plants to supplement. It will get worse with increasing adverse weather events, funnily climate change increases that vulnerability. As it gets worse so will the need for more stable sources of power. Which is why the results from the Tesla Australia farm build will be quite important, especially the long term maintenance cost included reviews over a few years. Unfortunately that part of Australia may not have similar climate to adequately test over the rough periods, and to compare to the NZ climate, but a couple of European trials may help provide other comparisons.

DC, 'recidivist' is one Stephen Gubb (rather than Grubb).