Here's my summary of the key news overnight in 90 seconds at 9 am, including news of new China stimulus moves.
But first up, a surprise. The Fonterra dairy auction overnight did not fall. The GlobalDairyTrade index was in fact unchanged from the previous event; that was the US dollar index. In NZ dollar terms it was up +1.25%. That is the first rise since May and the largest rise since February. This was not a result the economists were expecting. Prices for cheese and butter did continue their declines, but the important milk powders was where the strength was. Looking over the last three auctions, it is possible that wholemilk powder pricing has now bottomed. The volumes sold in this event were the second highest of the year.
In China, their government said overnight it is providing 500 billion yuan (NZ$100 billion) of liquidity funneled through the country’s five biggest banks. This is being seen by markets as direct stimulus to support economic growth. The Aussie dollar rallied on the news.
They need it because it was reported overnight that foreign direct investment into China has slumped to a four-year low amid antitrust probes into foreign companies, and more importantly the slowing of their manufacturing sector.
The anti-corruption campaign which has swept across China in the last two years has gone global. There was another dramatic story about one particular fraud overnight. Unrelated to that case, Communist party officials have launched an investigation into assets and individuals based in New Zealand, according to a report in the FT today. It is unclear whether that investigation was conducted inside New Zealand or from China, but investigators have requested permission to interview people here.
Back in New York, the UST 10yr benchmark bond yield fell overnight and closed at 2.57%. Equities are on the rise based on the China stimulus signals and in expectations of tomorrows Fed announcements.
The price of oil rose overnight. The US oil price is now just under US$95/barrel and the Brent benchmark is just on $99/barrel. Gold rose again from its sharp fall at the end of last week and is now at just US$1,236/oz.
We start today with our currency slightly higher against nearly everyone although the moves are not major. We are now just on 82.1 USc, at 90.1 AUc, and the TWI is at 78.6.
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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7 Comments
There is no good news from this auction beyond the lower exchange rate.
My take on the latest GlobalDairyTrade auction. The data is here:
http://www.globaldairytrade.info/results-json/latest/Trading%20Events%2…
It was reported yesterday that the volume of milk powders on auction had been reduced. Fonterra will be building inventory.
The actual quantity sold was 50,801 tonnes. That is down 11% from the 57,010 tonnes sold in the first acution of the month. Details of individual product volumes aren't released for 3 months so we don't know the milk powder volumes but it is reasonable to expect them to be lower by more than 11%.
Overall there were more price falls than rises. Where there were rises they were generally small and in contracts 2 and 3 (normally the larger volumes). There were bigger falls further out (contracts 4 and 5). Prices are now essentially flat across the next 5 months.
For the milk powders a likely 12-15% drop in volume has resulted in a less than 1% rise in price. That reflects a fall in the demand curve - prices have effectively dropped again.
The building of inventory here and in Europe suggests that there won't be increases in dairy commodity prices this year.
and flak re industry policy
what do you make of the WACC numbers. (attachment V, page 157 - 161
they use an unleveraged beta of 0.45, seemingly this is an industrials/diversified? beta
however it would seem as food processor one's unleveraged asset beta would be 0.69
http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/Betas.html
the description also has an effect on "bau" leverage - D/E% of 97% v 28%
Not considered good news here either:
http://www.agrimoney.com/news/caution-over-dairy-market-despite-milk-pr…
Current prices suggested a level in the mid-NZ$4s per kilogramme of milk solids, below the cost of production for many farmers, he said.
hmmmmm - The worst combination for currencies right now is to be a high-beta currency in a slowing commodity-exporting economy with a large current account deficit. Read more
http://www.agrimoney.com/news/english-dairy-herd-expands-for-first-time…
mediation goes on
and
swapping spray dryer capacity with Ireland, looking for an extra 60,000 cows worth by 2020.
the Australian and New Zealand businesses are run as one.
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