At the last GDT auction two weeks ago the headline price index jumped 3.2% following four consecutive declines.

The average price for whole milk powder, which has the most impact on what farmers are paid, gained 1% at the last auction and the futures market is picking a further 1.5% gain at this week’s overnight auction on Tuesday, on expectations supply may be dwindling while demand holds up.

“The futures market is picking another lift at this week’s auction on the back of the last one,” said HighGround Dairy global dairy consultant Stuart Davison. “Buyers are starting to realise that it might be a bit tight trying to get their hands on milk powder over the next few months, so that’s driving a little bit of price appreciation.”

He noted that Algeria, the world’s second-largest importer of milk powder after China, is seeking more supply through its Government tender process.

“They’ll consume a little bit more whole milk powder out of the world market and tighten things up a little bit,” Davison said. “We are moving back towards a tighter supply and demand balance and there’s a potential we are going to flip over a little bit into an undersupply story.”

The outlook for Chinese demand was becoming more positive after the country’s Covid-19 restrictions lifted and growth improved, but there appeared to be an overhang of inventories which had be worked through before demand for whole milk powder returned to historical volumes, he said.

Fonterra has forecast a farmgate milk price of $8 to $8.60 per kilogram of milk solids for this season, with a midpoint of $8.30 per kgMS, which is the price farmers are paid off.

Davison noted the futures market was pricing it a little lower at $8.27 per kgMS but said that could rise to meet Fonterra’s midpoint forecast on a positive auction result this week.

Dairy products are New Zealand’s largest commodity export.

The NZX Corporate Bond index is up 3.7% in the last six months, the best performance since mid-2020 when interest rates were collapsing during the Covid-19 pandemic.

Craigs Investment Partners investment adviser Peter McIntyre said bonds have come into favour as investors turned their focus to future declines in interest rates.

The five-year swap rate, a proxy for interest rate expectations, peaked at 5.06% on October 25 last year and is now sitting at 4.23% as markets price in future rate cuts.

“Any decline in interest rates, or forward rates, is good for bond prices, and that’s essentially what we’ve seen,” McIntyre said. “The market’s expectation is that over the next 12 months we’ll see interest rate cuts.

“There’s been a definite shift in focus – 2022 was all about interest rate increases, and now 2023 is about peak interest rates and interest rate declines.”

Market watchers this week will be focused on reaction to the Federal Reserve’s interest rate decision on Thursday morning New Zealand time.

In his Monday morning note, Westpac head of New Zealand markets strategy Imre Speizer said markets were pricing the Fed funds rate to be 22 basis points higher at this week’s meeting, with the peak of 5.10% priced for June, but then around 60bp of cuts by year-end.

In New Zealand, markets were pricing the Reserve Bank official cash rate to be 22bp higher at the next meeting on May 24 and to peak at 5.53% in July.

The benchmark S&P/NZX 50 Index slipped 0.1%, or 16.867 points, to 12,002.97 on Monday. On the broader market 73 stocks rose and 61 fell with $111 million shares traded.

Medicinal cannabis company Cannasouth detailed its upcoming $9m capital raising.

The company’s shareholders on Friday approved a plan to merge with Bay of Plenty-based Eqalis. Cannasouth chief executive Mark Lucas told shareholders the merger would create New Zealand’s leading medicinal cannabis company, giving the combined group critical mass to accelerate innovation, combine technologies and grow faster.

As part of the merger, Cannasouth is seeking to raise $4.5m each from Cannasouth and Eqalis shareholders by selling them new shares for a discounted price of 29 cents apiece. It will accept offers for up to $11m of shares.

The merger is conditional on Cannasouth raising at least $7m by June 9, and it said it has already received commitments of $4.2m.

The offer will open on May 10 and close on May 24 with the new shares expected to start trading in June.

On Monday, the shares traded at the offer price of 29c.

Cinema software company Vista Group gained 1.6% to $1.25 after announcing it had signed an agreement to transition its existing client, premium United Kingdom cinema group Everyman Media Group, to its cloud platform this year.

Vista is in the early stages of a plan to transition its business model to software-as-a-service (SaaS), which allows customers to access software over the Internet and which it believes will offer it higher recurring revenue from each site.

Everyman has 40 cinemas with more than 130 screens, and plans to open a further three cinemas this year.