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Dairy prices up in USD; equity markets tumble; economic data uninspiring; US Govt has big Sept surplus; oil price slumps; NZ$1 = US$0.794, TWI = 77

Dairy prices up in USD; equity markets tumble; economic data uninspiring; US Govt has big Sept surplus; oil price slumps; NZ$1 = US$0.794, TWI = 77

Here's my summary of the key news overnight in 90 seconds at 9 am, including news of skittish global markets.

First up today, the latest GlobalDairyTrade auction overnight saw prices rise +1.4% in US dollars, but because our currency also suddenly surged on the news, the overall prices in New Zealand dollars actually fell -0.4%.

Prices were up for butter and wholemilk powders, but fell for cheese and skim milk powders. Volumes sold were a respectable 50,800 tonnes and US$134 mln of product was sold.

Even though you could not claim this was a strong auction, it is the highest rise in 17 auction events and since the January 21, 2014 auction. Markets noticed and seem to be crediting the difference we have as a soft commodity producer as opposed to other hard commodity economies.

And this news is in contrast to weaker than expected data out of the US. Weaknesses in retail sales and car sales, along with producer prices were very minor and only very marginally lower than expectations. But markets are nervous about what is going on in Europe and it was enough to see a strong selloff on Wall Street. In late afternoon trade the Dow is below 16,000 and the S&P500 is approaching 1,800, both now a very long way from their 2014 highs. It is a big sell-off, and this is despite a fairly up-beat Beige Book from the US Federal Reserve.

A much larger than expected US Federal budget surplus for September seemed to impress no-one.

Adding to the gloom, an RBA official warned of a 'violent crash'. Citing the 1994 global bond market crash as a "good example," an Assistant Governor said at a conference in Sydney there were several reasons to suspect that the next sell-off, particularly in bonds, "could be relatively violent when it comes". His warning comes just as worldwide bonds make spectacular gains.

In China, consumer inflation moderated to +1.7% in September, down quite noticeably from 2.0% in August.

The UST 10yr yields continued their spectacular fall today and are now at just 2.06%. Bond investors have seen the value of their holding jump dramatically since the beginning of October. New Zealand swap rates fell yesterday on the previous move down, and are likely to fall even further on this morning's even steeper decline. Even China's swap rates slumped.

The oil price just keeps falling and is now only just over US$81/barrel with the Brent price now just over US$84/barrel. These are huge moves down and will rock the oil industry.

Gold on the other hand has taken another good jump and is now up to US$1,245/oz.

We start today with our currency level sharply higher across the board. The NZD is up more than 1c at 79.4 USc, up to 90.9 AUc, and the TWI is now just a tad under 77. 

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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21 Comments

Adding to the gloom, an RBA official warned of a 'violent crash'. Citing the 1994 global bond market crash as a "good example," an Assistant Governor said at a conference in Sydney there were several reasons to suspect that the next sell-off, particularly in bonds, "could be relatively violent when it comes". His warning comes just as worldwide bonds make spectacular gains.

 

 

A bad hair day for a 1% apparatchik - best not to let the public servants loose in the real world. A graphic view of bad timing.

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Radio NZ reported earlier this week that Fonterra was reducing volume for this auction by 1600t. This amounts to 3% of the 50kt actually sold. So no surprise that prices of WMP rose by 3% and overall prices just over 1%. In reality looks like another weak auction and without Fonterra trying to "do an OPEC" on supply restrictions, one suspects prices would have fallen again.
Oh, and lower volumes sold mean less cash in the til even if marginal prices are a touch higher.

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Actually, we have been charting sold offer qualtities in this auction.

See the third tab in this chart series:

http://www.interest.co.nz/charts/commodities/dairy-prices

 

The so-called 'lower volumes' are immaterial - the sold level is near all-time high levels, and +12% above the same auction a year ago.

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... agree with my cousie Bear , what we saw overnight in the dairy auction was just a " Dead Cow Bounce " ...

 

Actually , you'd think they'd splatter , wouldn't you ..

 

... .whooooooooooooooommmmmmmmmmmmmmmmmppppppppp ..... splork ....

 

 Unless  of course , it was pre- iced , block Friesian ....

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fonterra is not the only seller within the market last night

the market does not sell all product (for one price on one day off one spec)

http://www.globaldairytrade.info/assets/Uploads/resources/GDT-Chart-Focus-interactive-September-2014.pdf

 

April is a long way (time and volume) away

http://www.globaldairytrade.info/en/product-results/whole-milk-powder/

 

for flows

http://ec.europa.eu/agriculture/milk-market-observatory/pdf/mmo-economic-board-meeting-of-24092014_en.pdf

Q: is China importing and is it from us.

- remember book end dates on FTA volumes - the season within a season.

 

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The so-called 'lower volumes' are immaterial

 

I presume you can provide stats on gobalDairyTrade price-volume relationships to support that assertion?

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the sold level is near all-time high levels, and +12% above the same auction a year ago.

 

I just checked the quantity sold (both auctions combined) in October 2012:

October 2012: 112,135 tonnes

October 2014: 105,873 tonnes

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Did anyone see that Herald article yesterday about how "wealthy " Kiwis are by world standards?

It confirms you should never believe  what you read .

According to that article , I am in the top 1% of the World's  wealth

 WTF?

Okay so I have assets , some savings,  a paid up home , but I drive a 10 year old Honda and my wife drives a 990cc Toyota , we live modestly , dont have or need a credit card , turn off the lights when not in use , go on camping holidays , dont eat junk food  , only eat out twice a month , only go to movies on Tuesdays , and live well within our means .

I dont feel like the 1% !

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There's a lot of people in Africa, Eastern Europe and the sub continent who would be drooling over the assets and life you describe.

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... which assets ... the 990 cc Toyota , or his wife ?

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Neither are assets , the both depreciate without the tax deductions .

Anyway , my point is I am not part of the 1% over whcih we saw widespread demonstrations during the GFC

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New Zealand's (and also Australia's) position in that report is calculated on the basis of our awesomely high house prices compared to other countries, so by the report methodology that makes us all immensely wealthy.

On the other hand, if you were to take the unorthodox step of normalizing each country by a square meter of floorspace, New Zealand would be immensely poor. I'm not actually suggesting doing this, I'm just illustrating the way the size of the housing market relative to the rest of the economy distorts things with international comparisons like this.

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Damn right GH , we are quite poor ..........just go overseas to see how most young Kiwis on their OE live compared to their young Eurpoean relations .

We are a bunch of poor farmers and country bumpkins from the the other side of the planet

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sounds about right.  Many employees in the developed would live on credit, pay rent/mortgages, and live within 2 weeks of bankruptcy.  That is the norm, if you've grown up with more than that, congrads, you are the 1% (not the 0.00001%.  What you consider "normal" is lifestyle inflation that many others can only dream about.

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We are in the process of seeing how big the US shale oil bubble really is:

http://wolfstreet.com/2014/10/15/toxic-mix-for-fracking-oil-price-colla…

When this particular bubble bursts its role in propping up a considerable part of the US economy will be revealed.

And a particularly good article on the reality of the oil markets (requires registration with seekingalpha but very much worth it):

http://seekingalpha.com/article/2563915-daze-of-peak-oil-or-at-least-pe…

 

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Dairy prices up? Sounds a bit more like the buyers had a bit of a rummage round behind the couch squabs and found a bit of loose change and chucked it in the charity box

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One in one hundred of us are in the 1%.  (Yeah. Obvious.  But has to be said).   What is remarkable is how small the amount is that you need to be in the one percent of New Zealanders.    I suspect many of us common taters in this blog are 1%ers and some might be surprised to find that about themselves.

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I am very surprised that I am in the 1% .

I still dont believe it

I thought that the RICH PRICKS that Labour leaders  euphemistically refer to were everyone else , and I was not included in that lot .

I wonder what the three Labour contestants would say if we suggested they were al in the 1%

I would guess that nearly every Labour MP were in the 1%

Go Figure !

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Oil  dropping like a rock,

http://oil-price.net/

hmm, so why so fast?

 

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There's quite a good summary here on what's going on in the world at the moment - http://www.afr.com/p/markets/four_worrying_signs_for_world_economy_rWSw…

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Yep....a good piece.

So a wee dip or something a lot bigger?  AndrewJ posted a zerohedge comment on is QE4 coming?  EU looks way bad.

"they are betting that central banks and other policy makers are not going to be able to get a handle on global deflationary forces that have been unleashed. That means we could be in for a slow grind in which both global growth and inflation stay below where people across the advanced world would like it to be." 

Interest rates still going to rise in NZ?

hmmm.

 

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