Dairy prices rise sharply. Hong Kong struggles economically. Beijing preparing for "downward pressures". RBA's policy shifts hesitant.
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 news downward pressures are starting to build in China.
But first, the overnight dairy auction was a very good one with overall prices up +4.3% in US dollars and up +5.1% in New Zealand currency. There are many positives. The key WMP price rose slightly more than expected, up +2.7% but the foodservice products were all stronger than expected with SMP up +6.6%, butter up +4.7% and the star of the show was the cheddar cheese price up +14%. And in a virtuous influence, all this came as the Kiwi dollar retreated. On a pure calculation basis that suggests a farmgate milk price of NZ$8.80/kgMS and far above the new higher estimate of the dairy analysts. This is all 'good news' because we are now heading into the peak milk flow part of the dairy season.
Global attention is now turning to the US Fed's policy review tomorrow. The expected unwind of their easy money policies has traders watching for how that will reverberate through financial markets.
Elsewhere, Canadian building permits rose more than expected in September and making back some earlier weakness.
Hong Kong retail sales rose +7.3% in September from a year ago, but that is still very disappointing for them and they remain in a deep funk. This data is still -6.4% lower than the September 2019 level, and an amazing -23% lower than the September 2018 level. China's takeover has left the City very badly damaged in a way it is now illegal to discuss there.
In Beijing, a notice on an official website sparked online alarm after it urged local authorities to stabilise food supply, and families to stockpile daily necessities. The official explanation said it related to weather and pandemic risks (and not war with Taiwan and some has assumed).
Adding to unease is Premier Li's acknowledgement that China’s economy faces new downward pressures.
China's shrinking steel industry is having the expected ripple impact on iron ore prices, with them falling below US$100/tonne yesterday. They have fallen -45% since peaking in May this year.
Going the other way is the price of oats which hit a new all-time high yesterday. The cost of your breakfast cereal is about to jump.
Yesterday, the RBA signaled it is ending its interest rate targeting via the three year Government bond. This was part of a shift in focus brought about because it is acknowledging inflation will be higher there than they have assumed, but they claim it will be milder than for everyone else. The era of easy money and ultra cheap property debt is ending. However, it is holding its 0.1% policy rate and tolerating inflation in a bid, some say, to drive up wages in Australia.
The UST 10yr yield opens today at 1.54% and down -3 bps overnight.
The price of gold will start today at US$1788/oz and down -US$3 from this time yesterday..
And oil prices are -50 USc lower at just under US$83/bbl in the US, while the international Brent price is now just over US$84/bbl.
The Kiwi dollar opens today sharply lower, down almost -1c to just under 71.1 US. Against the Australian dollar we are marginally firmer at 95.6 AUc. Against the euro we are also sharply softer at 61.3 euro cents. That means our TWI-5 starts today well down than at this yesterday at just under 74.7, but still well over the top of the 72-74 range of the past eleven months.
The bitcoin price has risen +4.3% since this time yesterday, and now at US$63,813. 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.