A review of things you need to know before you go home on Friday; rate changes from ASB and Kiwibank, dairy jolt, PMI dive, fuel tax bite, swaps fall sharply again, NZD falls too

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

MORTGAGE RATE CHANGES
ASB has launched a 4 year ‘special’ rate, well below its rivals.

TERM DEPOSIT RATE CHANGES
Kiwibank have changed their 200 day TD rate, raising it from 3.25% to 3.40%, a +15 bps rise.

A DAIRY JOLT
Today Fonterra slashed its dividend and trimmed its milk price. Fonterra says its dividend will be just 10c, down from 40c previously indicated, while the final milk price for season just gone has been cut to $6.70 from the expected $6.75. The Shareholders’ Council says situation is ‘unacceptable’. You can put the milk price and dividend rates into perspective here.

GROWTH AT RISK
Reinforcing the various falling business confidence surveys, today’s factory PMI index for July has fallen into contraction territory on an ‘actual’ basis, the first time for a July since 2012. The seasonally adjusted level is not showing a contraction but the expansion it records is very weak. As BNZ notes, being a survey of actual activity – not confidence or expectations – the PMI results through June and July are not a good look for overall economic growth. A Government charm offensive is on the way.

HIGHER FUEL TAX KILLS OFF OTHER RETAIL
On the other hand, consumers are still spending, ignoring the business gloom. Transactions via electronic cards were +4.7% higher in July than the same month a year ago, and that is a faster rate of growth than we saw in the year to June. But much of that can be attributed to the +11.5 new petrol tax excise in Auckland which saw fuel spending jump more than +18% year-on-year. Hospitality has a +4.5% rise, service a +6.9% rise. But it is bad news for clothing, down -5.8%, and consumer durables, up only +1.6%. Basically the fuel tax increase is sucking the life out of the other retail sectors.

OFF A HIGH
International guest nights fell -8.2%
in June 2018 compared with June 2017, when the Lions rugby tour boosted guest nights. These falling international guest nights caused a -1.8% decrease in total guest nights spent in short-term commercial accommodation, compared with June 2017.

WILDLY POPULAR
Today’s April 2029 NZ Government bond tender for $250 mln was wildly popular receiving bids exceeding $870 mln or 3.5x covered. It is only the second time the 2029 has been offered and this time it delivered a yield of 2.59%, down from the 2.86% in the initial tender in July.

RBNZ GREENLIGHTS SALE OF CO-OP MONEY’S LIFE INSURANCE BUSINESS
Co-op Money, the credit union industry association, says the Reserve Bank has approved the sale its life insurance business to Pinnacle Life. The Reserve Bank had previously approved the sale of Co-op Insurance’s non-life business to Provident Insurance. Co-op Money is facing significant financial challenges and its insurance business has been required to hold a minimum of $5 million in solvency capital.

MEASURING AGAINST FUZZY STANDARDS
The Government has changed course in the international education sector. The new Strategy “recognises a maturing industry and strikes a balance between sustainable growth and marking a clear commitment to student experience. The focus on wellbeing and student experience supports our ongoing efforts to lift quality across the system” they claim. “In line with this Government’s commitment to measure success and wellbeing more broadly, the Strategy provides a stronger focus on social and cultural outcomes for New Zealand, alongside the economic benefits.”

AGAINST THE GRAIN
Most major stock market indexes in our time zone are slightly lower today, following Wall Street down. But surprisingly, the NZX is the exception, up +0.4% today

APOLOGIES
For readers frustrated with access to our service, our apologies. Yes, we have been fighting server gremlins all day. We aren’t sure we are on top of it, even now.

SWAP RATES DROP SHARPLY AGAIN
If you thought yesterday’s wholesale rate fall was impressive, well today these rates have fallen further, by about -7 bps more across the whole curve. That takes the two year rate back to levels we last saw (very briefly) in August 2016. The five year swap rate is now back to levels last seen in October 2016, and the ten year is back to November 2016 levels. One thing that hasn’t reverted however is the curve; we are now just under +90 bps for the 2-10 curve and it has been like that for more than a year. Meanwhile, international rates are on the move lower for their separate reasons. The UST 10yr is weaker and now at 2.93%, down -2 bps from where it was this time yesterday and pushing their 2-10 curve lower, now at +27 bps and erasing the steepening of the past month. Remember this curve was positive +120 bps at the start of 2017 so its been basically downhill since then. The Aussie Govt 10yr is at 2.63% (down -2 bps), the China Govt 10yr is at 3.58% going the other way and up another +4 bps, while the NZ Govt 10 yr is at 2.63%, dropping a heavy -6 bps on top of yesterday’s -9 bps. The 90 day bank bill rate is unchanged at 1.91%.

BITCOIN UP
The bitcoin price is now at US$6,530 and up +3.6% from where it was this time yesterday.

NZD DUMPED
The NZD slumped again today on the Fonterra announcement. We are now just on 66 USc, so from the start of the week we are down -1½c or -2.3%. That is the largest one-week fall since October 2017 (when the Coalition Government was announced). We are holding on the cross rates at 89.7 AUc, and the euro at 57.3 euro cents. That leaves the TWI-5 up just under 69.8.

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Source: CoinDesk

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