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ANZ NZ Morning Brief

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Contributor:
Fuseworks Media
Fuseworks Media

OUTLOOK

CURRENCY: Q1 NZ CPI is expected to tick higher, supporting NZD. Q1 GDP from China will drive global sentiment (ANZ 7.2%). GBP has the employment report; CAD the BOC; and there are 4 Fed speakers and the Beige Book.

RATES: Local rates will be biased lower following global moves.

REVIEW

CURRENCY: Early US April data remains patchy, but USD strengthened as March CPI increased. German expectations continued to fall and UK inflation remained well contained, leaving EUR and GBP unchanged.

GLOBAL MARKETS: Financial markets feel like they are winding down for Easter. While there was a decent amount of data released on both sides of the Atlantic, the main figures generally printed within a tick of market expectations and thus market reaction was relatively mild. It was a positive day for the US dollar on FX markets, spurred on by safe haven buying on rising tensions between Ukraine and Russia, although moves were relatively restrained on the whole. Sovereign bond markets also rallied, with the biggest moves seen in continental Europe. Equities remain heavy, with European bourses underperforming the US. The stronger USD weighed on gold and base metals prices.

KEY THEMES AND VIEWS

TAKING THE CREAM OFF. Overnight, GDT registered its fifth successive decline. The headline TWI fell 2.6% to US$4,047/mt and there was softness across all product categories. However, on the positive side, wholemilk powder (WMP) only declined by 1.6% to US$3,990/t with near-term delivery contracts (June/July - where larger volumes were for sale), showing stability compared with the previous auction. And while the prices for the August and September WMP contracts showed declines, the shape of the forward curve remains upward sloping. Both indicate the worst of the correction in WMP could be behind us. Skim milk powder (SMP) prices declined by 4.4%, but had a flat profile for prices across the contract periods, perhaps suggesting increased Northern Hemisphere exports. However, SMP prices are now in line with WMP for the first time in a long time indicating a more balanced market. On balance, we believe the recent softness in GDT prices could shave $0.20-0.25/kg ms off Fonterra’s current milk price of $8.65/kg ms for 2013/14 sounds dramatic, but this would be in line with what many of the other independent milk companies have been forecasting for some time. This would only take the cream off the top of an otherwise stellar year. On the opening milk price for next year (2014/15) the next auction could well prove influential. A bounce would give dairy companies more confidence the worst of the correction is behind us and combined with the higher forward looking prices could see a more aggressive opening milk price set. At the moment, current monthly prices only translate into a mediocre farm-gate price around the mid $6/kg ms mark. However, the actual prices achieved for the first quarter of 2014/15 at US$4,475/t translates into a farm-gate price in the low-mid $7/kg ms range. So while the opening milk price in May may be weaker, we continue to hold a forecast milk price for 2014/15 in the low to mid $7/kg ms range.

OTHER EVENTS AND QUOTES

- Tensions are escalating between the Ukraine and Russia, with the Ukraine government saying it has identified Russian military in Slovyansk.

NZD/USD: Still becalmed in April…

US April data was largely underwhelming. The New York Empire Survey declined to 1.29 with declines in New Orders and Shipments, but improvements in Employment. NAHB House Price Index at 47 was below 49 forecasts and only a point better than March. March CPI did lift to 1.7% (ex food and energy y/y) a tenth above expectations. But at the same time, GDT dairy auction prices fell a further 2.6%. NZ CPI today should continue to show support for NZD.

Expected range: 0.8580 - 0.8710

NZD/AUD: Chinese money supply…

There was little new from the RBA minutes, but weaker Chinese money supply has weighed on AUD more than NZD.

Expected range: 0.9180 - 0.9280

NZD/EUR: German confidence…

German confidence recorded another fall, with the ZEW expectation series falling to 43.2. The Current Situation series improved to 59.5 from 51.3, while the trade balance remained strong. Thus EUR was little moved.

Expected range: 0.6200 - 0.6300

NZD/JPY: Driven by NZD…

The yen remains twinned to the USD, and there is little to change this today. This cross will be driven by NZD/USD direction.

Expected range: 87.50 - 88.50

NZD/GBP: Employment…

As expected, UK inflation remains well under control. This gives this BOE plenty of room to remain patient. However, tonight’s UK employment report is expected to show continued improvements in the labour market.

Expected range: 0.5160 - 0.5250

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