Here's my summary of the key news overnight with news of an important deal on trade ahead of both the G20 meeting and TPP negotiations.
But first, in a paradoxically good development for the American economy, workers there quit their jobs in September at the fastest rate in over six years, and the number of new claims for jobless benefits rose last week. But their extended sub-300,000 run is the longest stretch since 2000. Firms are well past a cycle of elevated layoffs that began in 2008.
In China however, data out overnight disappointed most observers. Factory production rose +7.7% from a year earlier, the second weakest pace since 2009. Investment in fixed assets such as machinery expanded the least since 2001 from January through October, and retail sales gains also missed economists’ forecasts last month. These numbers cast a pall over equity markets worldwide.
And in somewhat of a surprise move overnight, India and the US have come to an agreement on India’s massive food stockpiling program. That clears the way for India to ratify the Bali World Trade Organization agreement. India seems to have changed very little of the Bali agreement except getting a carve-out for its rice subsidy arrangements, so there seems little now stopping ratification.
In New York, UST 10yr bond yields made back all yesterday's decline and a bit more and are now at 2.36%. Our swap rates seem to be on the rise again, having bottomed out at the beginning of last week.
The oil price dropped sharply today and at one point a few hours ago was below US$75/barrel with the Brent price at US$78/barrel. That Brent price is now below $80 a barrel for the first time since 2010, as more evidence of a slowdown in China's resource-hungry economy reinforced an OPEC warning of a fall in demand next year.
The gold price is up marginally at US$1,165/oz. Gold demand in China shrank for a third quarter as slumping prices failed to boost the purchases of bars, coins and jewelry in the world’s biggest user and officials pressed on with a nationwide anti-graft campaign.
The NZ dollar has held its own against the US dollar and is still at 78.9 USc, at 90.5 AUc, and the TWI at 78.1. We have however risen today against the British pound and are now back above 50p.
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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14 Comments
Bugger me, Australian Miners are transitioning into infant formula. thats a warning
Australian billionaire, Gina Rinehart, Asias richest woman who built her fortune on iron ore, is planning an investment to supply infant formula to a Chinese market forecast to almost double over three years.
Hope Dairies, controlled by Rinehart's closely held Hancock Prospecting Ltd, is seeking to acquire about 5000 hectares of farmland in Queensland state and is targeting first production in the second half of 2016, according to co-investor and director Dave Garcia.
The move comes as Australian miners including Andrew Forrest, Fortescue Metals Group's founder expand into food production to tap rising demand from Asia's middle classes. It positions Rinehart, to compete in an infant formula market in China forecast to swell after the world's most populous nation loosened its one-child policy last year.
http://www.smh.com.au/business/china/chinas-infants-in-gina-rineharts-s…
She may find out that shes not as smart as she thinks
http://www.attenbabler.com/u-s-milk-production-projections-increased-sl…
Euro production looks even bigger.
Expression "bulls in a china shop" springs to mind
Rinehart and Twiggy Forrest might be late to the party, but they sure as heck can do some damage to Fonterra and New Zealand, because the freight advantage becomes increasingly significant as products become commoditised. They will take some market share. Not necessarily profitable. Perhaps Fonterra can sit back and pick up the pieces when it fails.
http://pg.jrj.com.cn/acc/Res/CN_RES/INDUS/2014/6/11/643fac05-f72e-4b31-…
Alibaba maybe the future of formula marketing in China, no room for the middlemen. Direct NZ or Australia to your door. Beats paying billions for existing sales structures. The problem is, it also opens up the world to Chinese consumers.
Aj
http://www.stuff.co.nz/business/farming/dairy/63193276/Fonterra-sinking…
Given your history Colin I admire your shutzpah in asking this.
Fonterra has never had to battle it out with real opposition on a level field.
It's always had the ability to pull down it's cost of supply, and ride in on the back of political deals, that's why it's opposition frequently accuse it of being a government owned company.
It has never had to compete for staff on a bare bones skeleton budget and so resembles the mindset of government bureaucrats rather than true private business. That the suits at the top are so removed from market place, and is the big fish, and likes to play in the political arena (DIRA, TAF) instead of the corporate one shows where their heads are at.
This is a legacy from it's big dairy co-op origins and the dangers were spelt out at the original amalgamation time. But those warnings were brushed off as just being from petty farmers with debts.... experts in suits, report writers, and well heeled family and corporate farms WITH NO SIGNIFICANT DEBT know everything.
They don't make their money or a diversification stock...but they tell us they know all about reading the markets. A they pony up big proces for legacy production in a developing market, paying top dollar, utterly ignoring all the warning and business signs.
Remember melamine? Fonterra gave the management a list of standards (stating zero tolerance) and then some utter moron gave _verbal_ comment to the local manager that the "only one not on the list is X, and their rate is...". If you've EVER done business in China, you will know what they just did.
Basically Fonterra consistently get it wrong strategically (1) from political interference, and (2) They believe their own propoganda about being so big, and endless consumption.
time and time again, I'm told NZ's production is IIRC around 2.5% of the world and consumption is growing a 4-7%. And Fonterra keep telling me this is endless good times. I point out to their people that that means 97.5% of the world supply only needs to breathe a little more deeply at they could produce that 4-7% in a heartbeat... or even 6.5-9.5% if they wanted to make an effort. I get a blank stare and told I'm being negative by the employee involved. That I should trust the company and they where suits and know all the answers I'm not privvy too.
People shouldn't be allowed to run a major corporation unless they're aware of the differences in attitude (and thus awareness) of financial matters as they are differentiated by class. (which is why it's included in breifings to investment salespeople)
Fonterra actually has some major advantages but I doubt they know what they are, and given the dance card over the last 18 months I'd say they have lost the beat.
they actually need to stop playing Big corporate games, and face the fact that they really aren't that big, and that their funding base isn't as deep or well supported as the competition - and that selling off the company (diluting share volume) isn't strategically going to improve their position, it is just going to get them more exposed as their prime position in the past has been build pre-TAF with farmer-supplier support, so investors-shareholders are a entirely different ballgame and aren't going to be happy riding out the bad storms.
As for the Big Rush for Chinese Milk Powder.... it's just the same as any other new field.
Danone and other stable suppliers have built the market _quietly_ and reaped the premiums.
Now that it's big news, like goats, or kiwifruit, or adventure tourism, or dotcom investing, the rush will start, and premium margins will disappear as will the competition. The marketing analysis for the process is as old as the hills. As for Rinehart etc, if Fonterra is smart they'll sell them an established market brand and existing processing share from Fonterra's holding - if they refuse, pay attention to the why :) If they accept, then finally managed to reduce exposure in the old brand, reduced debt, and have a war chest for a fast, tight, _quality_ product.
Roger Kerr, correctly it would seem, predicted that the NZD would more likely go higher than lower. The other side of his prediction, that high inflation remains a significant risk, seems to use logic from a different planet.
As Evans Pritchard on deflation in Asia points out, all the pressures are on lower prices, and that's in countries that are actively trying to win export share by keeping their currencies down. The more passive approach here in that context looks a guaranteed loser.
He also points out the economic risks of deflation, which are severe. Mr Wheeler must/ should be having kittens about the extreme likelihood that inflation will go below his 1% allowable band.
The only elements keeping inflation up are government services, and probably rents in some parts- both surely considered bad inflation in any case. Anything traded at all is under considerable pressure.
Take Cover Now—-They Don’t Ring A Bell At The Top
http://davidstockmanscontracorner.com/take-cover-now-they-dont-ring-a-b…
"different planet" thats because of the Austrian and demand side view he holds I believe, very typical of the right side of the political spectrum.
"Mr Wheeler must should be having kittens"
I hope so, yet he isnt dropping the OCR. January's published results from this 1/4 should be telling (given xmas selling etc) if he still doesnt drop, oh boy.
BTW I'd expect the xmas goods to have been or shipping now yet the BDI "spike" for that looks subdued to say the least. Evey Sept or so there seems to be a bit of a spike, this September's looks low to me,
http://www.bloomberg.com/quote/BDIY:IND/chart
If that is a foretelling of what the xmas shopping season is going to be like, oh dear.
regards
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