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US construction and manufacturing expanding strongly; Switzerland stalls; surprise rise in Japanese pay; dairy prices fall 6%; oil and gold sink; NZ$1 = US$0.831, TWI = 78.4

US construction and manufacturing expanding strongly; Switzerland stalls; surprise rise in Japanese pay; dairy prices fall 6%; oil and gold sink; NZ$1 = US$0.831, TWI = 78.4

Here's my summary of the key news overnight in 90 seconds at 9 am, including news of another -6% fall in dairy prices in the latest dairy auction.

But first, American construction spending rose strongly in July to its highest level in more than 5 years. Private construction increased and state and local government outlays surged. It is a very positive signal for the US economy.

And backing up yesterday's PMI data, today's ISM survey showed factories in the US are busy and expanding. Their index was at its highest level since March 2011 and records 63 months of expansion. New order levels were especially strong.

The Fed will be looking for rising wage levels now, its key marker for when to consider normalising its interest rates. It might not have long to wait. Markets are now picking June 2015 for that. The end of bond buying is imminent and on schedule.

Across the Atlantic, its not so rosy. Apart from Vladimir Putin saying he could "take Kiev in two weeks", the Swiss economy unexpectedly stalled in the second quarter as stagnating growth in the euro area hurt their exports.

In Japan, their wages unexpectedly logged their strongest increase since 1997, providing a boost to the government's battle against deflation. Labour cash earnings rose by 2.6% in July compared to a year ago. Summer bonuses grew by an annual +7% in July from a revised +2% gain in June.

The latest globaldairytrade auction overnight saw prices fall -6% in US dollar terms, but down less -4.7% in NZ dollar terms. The big falls were for skim milk powder which dropped -9.5% to US$2,600/tonne. Butter fell -5.6%, cheese fell another -4.9% and WMP fell -4.3%. These changes are from the last auction just two weeks ago. Overall, prices are down -42% from a year ago, down -45% in NZ dollars.

US stock markets were lower after their long weekend. The UST 10yr benchmark bond rose to 2.41% which is a big jump on the day and will no doubt be reflected here later in our swap rates.

The price of oil fell markedly overnight. It is now down under US$93/barrel in the US and almost under US$100/barrel on the Brent benchmark. Gold also fell sharply, now at US$1,262/oz.

We start today with the currency lower, not only on the dairy auction, but more on a surging US dollar. We are now just on 83.1 USc - the lowest we have been since February earlier this year - , 89.6 AUc, and the TWI is at 78.4. 

If you want to catch up with all the changes yesterday we have an update here.

The easiest place to stay up with today's event risk is by following our Economic Calendar here »

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2 Comments

Chinese Commodity Crash Continues, But Pigs Are Flying  

http://www.zerohedge.com/news/2014-09-02/chinese-commodity-crash-contin…

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The problem is that the old world producers have a large stable domestic market that is paying well and encouraging more production. This price fall could have a good pair of legs. Commodity markets are often volatile, its pays not to have as much leverage as NZ has.     >>>>>>   Monday, 11 August 2014 Oh No! The 'Perfect Bad Storm' for Dairy Farmers World-Wide   http://pasturetoprofit.blogspot.com/2014/08/oh-no-perfect-bad-storm-for…      From the California Milk Producers;   July milk production was robust, totaling 17.45  billion pounds, up 3.9% from last year. Nearly  every major dairy state reported increased milk production. Output was particularly strong in  Arizona (up 8.9%), Michigan (up 8.2%) and Colorado (up 7.6%). There were 9.27 million cows in the milking herd in July, 37,000 more than in July 2013. Texas accounted for nearly the entire increase; producers there are milking 35,000 more cows than they did a year ago.   The milking herd is larger than it has been in two and a half years. But after peaking in the spring of 2012, the  herd quickly shrunk. At the time, milk prices were already on their way down and producers had every incentive to cull aggressively. Today the outlook is very different. Milk prices remain elevated and producers have had plenty of opportunity to lock in large milk checks for months to come. The futures project that revenues will remain above the cost of production well into next year. Dairy producers are not feeling any pressure to reduce the herd; indeed, expansion is more likely. As prices begin to slip, low corn prices will leave farming dairy producers with few options. Rather than sell their corn at a loss, they’ll probably choose to feed it. These producers will likely keep their barns relatively full even if milk margins signal the need for contraction. The dairy herd and milk supplies should remain large through much of the next year, which could pressure prices. Foreign milk production is also robust. The European Union collected 27.8 million pounds of milk in June, a 4.3% increase from last year. Production in the first half of the year was 5% greater than last year. New Zealand’s season has just begun in earnest, and production there exceeds last year’s levels. Weekly dairy cow slaughter totaled 53,307 head, down 9.4% from last year. For the year-to-date, slaughter is down 10.5% from last year. year ago.
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