Dairy prices rise. US logistics pressures don't ease. US trade deficit falls. China's trade surplus falls. equity markets rise sharply.
Kia ora,
Welcome to Wednesday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.
I'm David Chaston and this is the International edition from Interest.co.nz.
Today we lead with there is a major relief rally going on at present, relief that Omicron won't derail the global economic recovery.
Firstly and at first sight, the overnight dairy auction was a lackluster affair, not delivering the good increases the derivatives market was counting on. In USD terms, overall prices rose just +1.4% from the prior auction to be +31% higher than a year ago, and +12% higher than the end of August. Today's event however came after a -3% devaluation in the Kiwi dollar, so in local currency terms today's prices are +4.6% higher than the prior event three weeks ago. It is this rise that will underpin the farm gate milk price pay-out forecasts.
In terms of product, WMP rose only +0.6%, SMP rose +1.3%, while butter is on a foodservice tear, up +4.6% and is up +30% since the beginning of July.
In the US, their Logistics Managers Index (LMI) is still expanding. Growth is increasing at a decreasing rate for inventory levels, and warehousing utilisation. Growth is increasing at an increasing rate for inventory costs, warehousing prices, transportation utilisation, and transport prices. Warehousing capacity and transport capacity are contracting. The supply chain pressures are not over yet despite the holiday shopping season crush coming to its natural end.
As expected, the giant American deficit in international trade of goods and services shrank sharply in October, reducing from -US$81 bln in September to -$67 bln in October, and a six month low. Exports rose sharply, imports changed little. Their politically sensitive deficits with both China and the EU each shrank, as did their deficit with Canada, but their deficit with Mexico rose.
China recorded a smaller trade surplus in November where exports changed relatively little, but imports swelled unexpectedly.
Weak investment and sluggish demand in China now has the attention of the highest authorities in Beijing. 'Of course', none of these issues have been cause by their own policies.
Taiwanese exports starred again, with another very strong performance in November.
In Germany, investor sentiment sank, although not to as low a level as was anticipated.
In Australia, their central bank kept its key rate at a record low 0.1% and said it would be ‘patient’ in reaching its employment and inflation goals before tightening policy. About the only interesting aspect of this announcement was the omission of the suggestion of how long these policy setting might last.
The UST 10yr yield opens today at 1.46% and up +3 bps overnight.
On Wall Street, the S&P500 has started their Tuesday session up a very enthusiastic +2.1% and on top of Monday's big gain. Overnight, European markets all rose even more, all up more than +3% (except London which was up less than +1.5%). Yesterday Tokyo ended up +1.9%, Hong Kong was up +2.7%, but Shanghai closed up a tame +0.2%. The ASX200 closed up +1.0% while the NZX50 was the outlier, ending with no gain.
The price of gold will start today at US$1785/oz and up +US$7 overnight.
And oil prices are up +US$4.50 at just under US$72.50/bbl in the US, while the international Brent price is up a bit less and now just over US$75.50/bbl.
The Kiwi dollar opens today marginally firmer at 67.8 USc. Against the Australian dollar however we are softer by another -½c at 95.3 AUc. Against the euro we are also firmer at 60.3 euro cents. That means our TWI-5 starts today at 72.6 and a little higher.
The bitcoin price has risen to US$51,381 and up a strong +4.5% from this time yesterday. Volatility over the past 24 hours has been high at just over +/- 3.2%.
You can find links to the articles mentioned today in our show notes.
And get more news affecting the economy in New Zealand from interest.co.nz.
Kia ora. I'm David Chaston and we’ll do this again tomorrow.