A review of things you need to know before you go home on Thursday; rates cut, ministers try to change Fonterra management, ComCom suggests Fonterra paying to much for milk, NZGB demand soft, swaps & NZD stable

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

ASB has cut rates on its three most popular home loan offers.

NZCU Baywide has cut its rates by -10 bps for terms 18 months to 3 years.

Residential property sales rose strongly in May and prices were also firmer says the REINZ. But that was not the case in the largest market, Auckland; prices there are still at levels first seen in September 2016 and volumes sold were only +120 more than the same month a year ago but -24% lower than for May 2016. The national data was boosted by momentum in the provinces and drag in Auckland and Christchurch.

In timing that is rich in irony, a headline-grabbing Government minister is criticising Fonterra aggressively for essentially not delivering good enough returns for farmers. And the Commerce Commission has launched an investigation into Fonterra on the basis that it has been paying too much to farmers for their milk. Maybe the Ministers and the Commission should have met first to iron out which one it is.

The Commerce Commission has opened an investigation into Fulton Hogan proposed acquisition of Stevenson Group construction materials business. A key focus will be on the potential competitive effects of the proposed acquisition on quarry markets in Auckland and North Waikato.

The latest $200 mln tender for 2025 NZGBs saw the yield rise to 2.60% and the coverage rate 2.2x, its lowest level in the last nine auctions for this bond. There have been 22 auctions of the 2025 bond and 19 of them have have stronger demand than today's.

The new $100 mln fixed rate notes from China Construction Bank will pay 4.005%. They will be rated A by S&P.

Bankrupt Auckland builder Li Dong Xie has been sentenced to three years and four months in jail for multiple breaches of the Insolvency Act. Xie (also known as Lidong Xie, Frank Xie and Solomon Xie) was bankrupted 2010 and last month pleaded guilty to 10 breaches of the Insolvency Act after he continued to run his business illegally and gambled away more than $1.5 mln in earnings on pokie machines at Sky City Casino, money which should have gone towards repaying his creditors. The charges he faced included acting as a director of a company without the consent of the Official Assignee (OA), obtaining credit, failing to file a Statement of Affairs and attempting to leave the country without the consent of the OA.

Australia's unemployment rate fell to 5.4% in May, but fewer people sought work. Still the jobless rate beat market expectations. Employment grew by +12,000 but that was well under market expectations of +19,000. The participation rate dropped however to 65.5%.

A new survey has revealed Kiwi businesses expect technological change and an ageing population to have more impact on their operations than globalisation or the rise of Asia. Of the nine ‘global megatrends’ identified in the Chartered Accountants Australia and New Zealand, nearly a quarter (24%) rated technology as having the biggest effect. At the other end of the scale, climate change and resource scarcity were picked to have the least impact (each 7%). The ageing population (16%) was also on many business leaders’ minds. Like climate change and resource scarcity, growth in Asia (8%) was low down on the list.

Some key data out of China has come in soft today. Retail sales sagged far more than expected. And industrial production data also come in lower than expected

Local swap rates are basically unchanged today although the 10yr is down -2 bps. The UST 10yr is now at 2.97%, unchanged, even after the US Fed hike. It was clearly all priced in. The Aussie Govt 10yr is at 2.74, down -5 bps, the China Govt 10yr is at 3.70% (up +1 bp), and the NZ Govt 10 yr is at 3.01%, down -2 bps. The 90 day bank bill rate is down -1 bp to 1.99%.

The bitcoin price is now at US$6,419, down -2.2% from this time yesterday. At one point in the past 24 hours it got down to US$6,146 and its lowest level since October 2017.

The NZD is similar to where we opened this morning, now just on 70.2 USc. We are firming against the Aussie at 92.9 AUc and at 59.5 euro cents. That has the TWI-5 still at 73.

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At first glance, the drop in unemployment across the ditch looks promising. On further delving into the data, they created 9.9k full time jobs in the last 6 months but have actually lost 18k full-time jobs in the 3 months to May 2018.
Corporations seem to be benefiting the most from this setup as corporate profits rose 6% last quarter. CPAA's latest periodical details how the country is increasingly outsourcing and automating several back office functions to improve efficiency and productivity.
Could that be the reason that corporate activity and worker wages are moving in opposite directions?

RBA Governor Phil Lowe had a crack at explaining it in a speech yesterday. See page 8.

Despite Phil's hoping and praying the next RBA move will be cut. And it will be needed just to keep lending rates flat(ish) as bank funding costs rise.

Say, what?
Perhaps you need to look a bit harder at what's being said because both are right on the money.
Fonterras have been investing poorly creating poor returns for shareholders while at the same time paying a high milk price to suppliers which may be outside or at least stretching the bounds of the milk price manual for their own reasons.
Note, suppliers and shareholders are two distinct but overlapping groups.

Have you been to the latest round of Fonterra meetings redcows? I'm hearing that there is an emerging trend of two different views re dividend among shareholders. Those that want a strong dividend and those that are happy to have a lower dividend and and a higher milk price. Perhaps it comes down to what shareholders paid for their shares and if there are any borrowings involved for their purchase.

I'm currently a contract milker so I tend to hear from supplier side rather than shareholders. I'm also involved with a Maori trust and what I'm hearing on those lines is they wish to expand but the share price is to high so they would switch as fast as if there was a choice, the dividend is comparatively irrelevant as its never going to return as good as their other plans.

Fonterra conflicting criticism?
Well not necessarily so. There is nothing that prevents a poorly run company from paying too much for it's raw ingredients. Indeed it is just evidence that it is poorly run and in this case, the management is doing so in a desperate attempt to hide their shortcomings and curry favour with their shareholders, the farmers.
The well run dairy companies are running rings round Fonterra. Tatau have returned in the order of twice the return to their farmers and have done so for years. A2 have grown from nothing to totally eclipse Fonterra in the period since Fonterra was handed the NZ dairy market on a silver platter. (to make matters worse Fonterra had full rights to this IP and turned their noses up at it) The growth of Synlait over a similar period has been enormous.
Fonterra would be able to both pay more realistic prices for milk fat and also richly reward farmers as shareholders if they were able to run the company at even a modest fraction of how well these other companies are run.
Shane Jones is right and instead of politically correct tut tutting, the media would be far better employed balancing their reporting with some hard headed analysis of just how poorly run Fonterra is.

Without farmers supplying the milk and getting a decent return there would be no income for shareholders. Farmers come first.

Two fabulous articles from Pepe Escobar - a longtime stalwart at Asia Times.

The possibility of a G3 - China, Russia, US - and the delicious quote "G8 is the Walking Dead'

The denuclearisation of the Korean Peninsula - the Panmunjom Declaration written into the document recently signed amidst the usual MSM derangement about what it means.