Here's our summary of key economic events overnight with news commodity prices are on the rise again, and this may be a decade long commodity super-cycle if you believe the big miners.
First up today, the overnight dairy auction saw prices rise +4.2% in US dollar terms and up +4.0% in NZ dollar terms. It is the third very good result in a row and prices have now risen +14% since the start of 2022. The dominant WMP price is up +4.2% and the SMP price is up +6.0%. We also need to give a shout out to the butter price, up +5.1% to reach more than NZ$10,000/tonne for the first time ever.
The farm gate payout price forecasts won't be hurt by this and may get a late season burst, welcomed because milk volumes are under pressure. We are on the downside of this dairy season with the milk peak well passed, so more attention will now be on the next season forecasts. With global foodservice markets ramping up again, things look bright on that front.
In the US, Wall Street is in a hesitant rally on mixed signs the Ukraine-Russia tensions may be easing. Or it might be a head-fake by Russia.
Meanwhile, US retail sales are rising, and last week the pace picked back up to be +15.4% above the same level a year ago, and clearly there are gains here far above inflation.
US producer prices are still rising and at a very elevated rate, up +9.7% from a year ago in January and about the same rate as for December. There is no respite yet and they rose +1% in January alone. Even their 'core' PPI was up +8.3% year-on-year. The case for a Fed rate hike is bolstered by this data.
The New York Fed's Empire State factory survey saw future optimism dip slightly and the overall situation not improve as much as expected. But new orders and shipments held steady, and unfilled orders increased. Delivery times continued to lengthen. Labour market indicators pointed to a solid increase in employment and a longer average workweek. The prices paid index remained near its recent peak, and the prices received index reached a new record high. Plans for capital and technology spending remained strong.
Canadian housing start data continues to trend lower. But Canadian house prices continue to surge higher in a new frenzy.
In China, foreign direct investment is rising, but a slower pace and the fall-off in pace is now quite noticeable. They like to report year-to-date data which masks the recent fall away. As a side note, the upgrade to the China-New Zealand Free Trade Agreement is now approved by both countries and will come into force on April 7, auspicious because that marks the 50th anniversary of diplomatic relations, and 14 years since the original FTA was agreed.
China is facing a severe labour market crunch. Millions of graduates are entering the market just as some major companies are laying off workers. Beijing officials are concerned and are looking to SMEs to grow and pick up the slack. But SMEs are having their own rough ride at present.
Japan reported its advance Q4-2021 economic activity data yesterday. They say their GDP rose at an annualised rate of 5.4% in the period, lower than the 5.8% expected but much better than the -2.7% fall in Q3 (which was revised to be less than the originally reported -3.6% fall).
In Germany, economic sentiment improved in February (despite the Ukraine issues) but not by quite as much as was expected.
The price of lithium carbonate raced to a new record high yesterday. And China is reporting that prices for some of its rare earth minerals are also rising sharply.
The big Aussie miners are saying they see ten years of high commodity prices ahead of them.
In NSW, there has been a rise to 8,201 new community cases reported yesterday, now with 50,802 active locally-acquired cases, and another 16 daily deaths. There are now 1,583 in hospital there, off their high. In Victoria they reported 8,162 more new infections yesterday, also a rise. There are now 50,967 active cases in that state - but there were 20 deaths there. Queensland is reporting 5,286 new cases and 10 deaths. In South Australia, new cases have slipped to 1027 yesterday and 2 more deaths. The ACT has 455 new cases and no deaths, and Tasmania 513 new cases and no deaths. Overall in Australia, almost 24,000 new cases have been reported.
The UST 10yr yield opens today at 2.04% and +4 bps higher than this time yesterday. The UST 2-10 rate curve starts today steeper at +46 bps. But their 1-5 curve is steeper at +86 bps and their 30 day-10yr curve is out to +201 bps. The Australian ten year bond is up +7 bps to 2.24%. The China Govt ten year bond is +1 bp firmer at 2.82%. And the New Zealand Govt ten year is higher by +4 bps at 2.82%.
On Wall Street, the S&P500 is up +1.4% in their Tuesday afternoon trade. Overnight, European markets all closed sharply higher, mostly by +1.8% or more, except London which rose +0.8%. Yesterday, Tokyo ended down -0.8%, Hong Kong was also down -0.8% but Shanghai was up +0.5%. The ASX200 ended its Tuesday session down -0.5% but the NZX50 fell only a minor -0.1%.
The price of gold starts today at US$1852/oz and down -US$10 from this time yesterday.
And oil prices are down -US$1.50 to just over US$90.50/bbl in the US, while the international Brent price is just over US$92/bbl.
The Kiwi dollar will open today marginally firmer at 66.3 USc. Against the Australian dollar we unchanged at 92.8 AUc. Against the euro we are holding at 58.4 euro cents. That means our TWI-5 starts today little-changed at just on 70.8.
The bitcoin price is up +3.3% since this time yesterday and now at US$44,110. Volatility over the past 24 hours has high at +/- 3.2%. In India, their central bank is calling for a ban on crypto currencies, likening them to a ponzi scheme and saying they threaten “financial sovereignty” and “undermine financial integrity” of a country given that there are no underlying cash flows.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
Daily exchange rates
Select chart tabs
53 Comments
The US has accused zero hedge of amplifying Russian propaganda and that five sites took direction from Russian spies.
https://apnews.com/article/russia-ukraine-coronavirus-pandemic-health-m…
'Look over there' - Sullivan at centre of Durham probe, as Clinton allies spied on Trump
Oh please - the MSM spent spent years running Hillary's dirty politics fake Russia narrative and now they have a crack at ZH?
"So Mr Durham has very much not exonerated Mr Trump from having shady dealings with Russia. But he has underlined that the most lurid allegations were, at best, unsubstantiated rumour. That is embarrassing to the FBI, which used the Steele dossier in part to justify a wiretap on one Trump adviser, Carter Page.
But it is also damning of many journalists and Democrats. The Steele dossier was presented by many in the more left-leaning media as a highly credible investigation by a highly respected British former spook, involving “deep cover sources inside Russia” (in the words of one MSNBC anchor). In fact it was outsourced to people outside Russia such as Mr Danchenko, who seemingly gathered information by reading newspapers and drinking with pals."
https://www.economist.com/united-states/john-durhams-indictments-reflec…
Oh please - have you ever considered it might be true. Just saying. At the moment everything is just talk , and talk and more talk (people confuse talk with action) Until there is some action by Russia it is a stalemate
There is talk from both sides for a diplomatic solution. Putin doesn't want war - the risks are many and varied and the longer he leaves any decision to invade the more likely it is just a bluff - which the US has called.
As northman46 put it yesterday - "Welcome to the internet. First day? "
.
US retail spending buoyant? Some normalcy returning as the people learn to live alongside covid perhaps. For example our old neighbours, elderly but mobile, have spent two years hunkered down, very limited social contact, family, shopping, church & golf by themselves. Have had their three vaccine shots. Now prepared to train down from the Nth East to Florida and have their usual vacation. These are very conservative, careful people & also have a couple of medical practitioners in the wider family for advice. Tallyho!
First up today, the overnight dairy auction saw prices rise +4.2% in US dollar terms and up +4.0% in NZ dollar terms. It is the third very good result in a row and prices have now risen +14% since the start of 2022. The dominant WMP price is up +4.2% and the SMP price is up +6.0%. We also need to give a shout out to the butter price, up +5.1% to reach more than NZ$10,000/tonne for the first time ever.
great for exporters, not so great for us consumers though...if only we could decouple the domestic price from the international one more
Legit question Keith - why can't it happen? All it needs is for the manufacturers to charge a cost reflecting the cost of manufacture and transport, rather than linking to some international market price. To not do that is a political decision to profit in an area where there are less costs. This is about will, not fundamentals. An open economy does not constrain a business from doing this.
To argue that the 'open economy' is sacrosanct, as you are effectively doing is to ignore that the 'free market' is failing the people dramatically in the name of profits.
A key question is which manufacturers should supply product to the local market.
Taking butter as an example, the company that relies most on butter sales is likely to be Westland Milk Products. So would they be forced to sell their butter on the local market at a price lower than the export price? And how much of this 'local butter' would they be forced to produce? And would their farmers then be paid less for their milk? Or would their parent company be forced to bear the cost thereof? And who would make these decisions? The fundamental philosophy behind such systems is called 'central planning'.
KeithW
The threat of export tarifs could be used to motivate them to supply local consumers at a local price.
In fact, why not slap a 2% export surcharge on dairy products and use the proceeds to subsidize local prices by a large amount? Could be done with the stroke of a pen.
The only real answers you will get against it are dressed up neoliberalism.
I'm pretty sure Argentina tried export tarrifs.
It works for a little while until the international milk price gets cyclically low, and our farmers become uncompetitive because of the extra cost. Especially when competing with subsidised farmers elsewhere in the world. Then our FX earnings take a hit.
Interesting to reflect that it wasn't that long ago our farmers were heavily subsidised. At least they are self sufficient now I guess.
However farmers come out and state they should be supported by their communities. Their political movement is quite strong in lobbying the Government on various things such as GHGs waterways etc, and you're now suggesting that they should not have to supply the local market?
From a market perspective the diary product producers choose to auction their products rather than set a fixed price based on the cost of manufacture plus a profit margin. But people buying in the local market do not get to determine that auction price. If farmers want local support when times are tough or when they are trying to avoid paying the costs of their impact on the environment, then that requires some quid pro quo, don't you think? Is every last scrap of our dairy products exported? If they didn't sell on the local market would they be able to move all that product internationally?
There are plenty of stories of how NZ butter and cheese is cheaper in Aussie, the UK and Europe than it is here, and putting aside the fact that Supermarkets are doing a big part of that rip off, why shouldn't the basic price of our dairy products to us reflect the cost of manufacture plus a profit margin and transport costs that are not to the other side of the world?
The answer to all these questions are: We are one of the most open/free markets in the world, by virtue of all of the international trade commitments we have made (WTO/FTA's etc).
What you are essentially suggesting is that we should put some more local tarrifs/subsidies, which would make us less free and open, which would impact these commitments. Probably it's best not to mess with them as the blowback could be massive (like China refusing our dairy products suddenly because we are selling it to them at a premium compared to our local sale price and feel it's a breach of our FTA).
The high local prices are the downside to all the trade commitments. If someone overseas wants to pay a higher price than us, then that sets the local price.
Keith is right, the only thing we can/should mess with is things not related to the supply price of those products. Removal of taxes for those products, encourage supermarket competition etc.
And who is going to determine the 'cost of manufacture' including the cost of the raw product?. And who is going to decide on a 'fair profit margin'? It can be done and was done in the USSR for many years.
As for export tariffs, Argentina has run its economy for many years that way. So yes, it can be done, but the outcomes have not been exciting. There was a time when Argentinian living standards led the world.
KeithW
The cost of manufacture should be relatively easily determined, but this is a distraction and off point. The point is that the move to ever increasing profits means that business's, in this case farmers cooperatives, a becoming increasingly greedy at the expense usually of their communities. The current 'market' models focus more on greed than providing a service at affordable costs.
Simple gardener sums ,i can not see much mark up in it, 10$ kg at international auction ( has no gst?), $12 kilo local retail( including gst of $1.57) mark up of 17 cents per half kg,500g ,to subdivide production blocks wrap ,handle transport ,store ,pack to shelves ,through checkout, and all the while chilled,at Energy cost ,for 17cents per block? Must have a lower supplier price ,contracted at a lot less than international market price ,just to get it to the shelves,@$6/ 500g,right. So ,where is the beef about this?
The government used to have reduced prices on bread and milk. But Roger Douglas removed them. His reason was that rich people did not need the government subsidies. He was right. On the roughly simultaneous introduction of GST, he said everyone pays GST on everything, "and we will help the poor people to pay for it." What could possibly go wrong? Everyone pays. The poor get their money back, therefore only the rich pay. Why go back to helping the rich pay for stuff? Oh, and possibly remind our current government that they should really be honouring the above deal made by Roger with the poor.
Keith GSt on food removed - I thought you would know better.
The mistake many make is that they forget about the output (expense) adjustment
Any country that tries that end up with a burden with respect to reporting, compliance time and calculation.
Simple example -
Truck delivers both gst and non gst items - so they have to adjust for the gst claims on fuel, repairs and so on. Waana do that everyday?
Same with a supermarket - try working out the gst on their power bill when they sell non food items.
Is a chocolate bar food? Is KFC even food? A Milkshake? And on it goes.
I suggest you do some GST research on the Australian compliance burden and the added cost that gets passed on - to the consumer.
Better off just going down the route of a tax free income bracket of 0 - $18k. Assuming the average person spends $200 per week on food that would theoretically qualify as GST exempt, that's $1560 per year in GST exemption. The income tax on $0 - $14k is $1470, so bump it up to $18k tax free as an apology for not adjusting the tax bands for a while.
Of course the Oz miners are excited. The rush to Electrify Everything needs more production of:
- Cu and Al for the wires
- Li and Pb for the batteries
- Ni, Sn and Sb for alloying
- Fe for, well, everything
- U for the fuel
- And a host of rare earths which also exist in combination with some of the above
And they have free cheerleading in the MSM to create demand in the end consumer population.
What's not to like?
"From a pre-pandemic baseline, by 2030 we expect: global population to expand by 0.8 billion to 8.5 billion, urban population to also expand by 0.8 billion to 5.2 billion, nominal GDP to expand by $74 trillion to $161 trillion and capital spending to expand by $14 trillion to $37 trillion.3 Each of these basic fundamental indicators of resource demand are expected to increase by more in absolute terms than they did across the 2010s."
Back-casting to project forward. On that basis, I should be as tall as the Eiffel Tower. Limits to Growth, here we are; we knew we would meet (at some disputed barricade?) hereabouts. As I've said, we are looking at inflation of prices for essentials and deflation of discretionary. The questions are over debt; we aren't paying our way NOW, let alone as mineral resources get ever more dilute (taking ever-more energy resources to obtain - to build the energy infrastructure to supply the...........
Several years ago I made the point in an article reflecting on my own experiences in Russia that 'Western politics' were inevitably leading to China and Russia coming closer together. The combination of Russian energy resources and strengths in the fundamental sciences, combined with Chinese engineering and consumer markets, is a very powerful combination. Both China and Russia understand this, and they will manage their political arrangements accordingly for their mutual benefit.
KeithW
Several years ago I made the point in an article reflecting on my own experiences in Russia that 'Western politics' were inevitably leading to China and Russia coming closer together.
Agree. What I found interesting about Russia is that they're not particularly self sufficient in food production, which is surprising given their years of collectivism and landmass.
Yeah but a lot of Russia's land isn't bread basket country, it's way too cold. That's why they always want the NE part of China and close to Korea and have often in the past occupied it. If you ever take the train from Harbin (which itself is a city full of Russian architecture) to Beijing, there are absolutely massive wheat fields through the whole area supported by a whole bunch of slow flowing rivers.
What I found interesting about Russia is that they're not particularly self sufficient in food production, which is surprising given their years of collectivism and landmass.
""of a country given that there are no underlying cash flows."
Leaving aside that most tech stocks don't have any dividends to pay out, it is a myth that modern day cryptos (specifically defi protocols or various ethereum competitors) have no cash flows. Obviously cash in this sense are transactional volumes as people trade or transact in crypto (or stable coins)
Since March last year I haven't accumulated bitcoin. Almost all my holdings go into tokens or defi protocols that produce yields. And compounding those yields produces impressive results. From fire and forget staking with 6-15%, to liquidity pools with up to 300% APR, to the more risky auto-compounding smart contracts (up to 1000%). These are all based on actual trading activity (with defi having billions of volume per day)
In India, their central bank is calling for a ban on crypto currencies, likening them to a ponzi scheme...
It would bode well for India to banned Crypto and divert young people's money from unproductive speculation to more useful future investments like buying their own houses.
NZ should also ban Crypto for the same reasons.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.