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WMP up strongly especially in NZD; US data positive; EU jobless high but less; China factories weak, more 'reform'; UST 10yr yield 2.17%; oil lower, gold higher; NZ$1 = 63.4 US¢, TWI-5 = 67.8

WMP up strongly especially in NZD; US data positive; EU jobless high but less; China factories weak, more 'reform'; UST 10yr yield 2.17%; oil lower, gold higher; NZ$1 = 63.4 US¢, TWI-5 = 67.8

Here's my summary of the key events overnight that affect New Zealand, with good news on the dairy front.

This morning's dairy auction has produced another large rise in prices, especially for the important wholemilk powder product. That was up another +12.8% on top of the last auction's +19.1% increase. Overall, prices rose +10.9% on top of the last auction's +14.8%. But in US dollars they are still -20% below the same level a year ago.

But their is better news and that is how these changes translate into NZ dollars. The index in local currency is now back over 1030 and up +15.2% this time from two weeks ago. It was last at this level in April, and in fact this is now at a higher level than for the same auction a year ago. The 'automatic stabiliser' that is our free-floating exchange rate is working.

In the US the data out overnight has been mixed. Construction spending in July came in better than expected and a 7 year high, but factory activity monitoring showed softer results. The Markit PMI didn't slow as fast as expected while the ISM PMI did. Both were expanding however. Car sales were much stronger than expected in August so that will no doubt improve future factory activity.

In Europe, their jobless rate came in better than expected at 10.9%, down from 11.1%. About the only good thing you can say about this is the direction; levels however remain shocking. To be fair, they did fall in 23 of the 28 member states, year-on-year, and they are now at their 'lowest' level since 2012.

But it is China that is once again setting the real tone for markets this morning. Weak data is casting a pall over stock and bond markets. The latest 'reform' from Beijing is to lower the deposit requirements for second homes. The minimum down payment level for second-home buyers was lowered to 20% from 30% if buyers had paid off their previous mortgage. Despite this, Shanghai stocks took another pounding triggered by their poor PMI report.

In fact, Hong Kong authorities had to intervene twice yesterday to protect its currency as mainland Chinese rushed to convert out of the Yuan.

In New York, the UST 10yr yield benchmark is marginally lower at 2.17%. Our swap rates have also softened.

The oil price is lower too, now at US$45/barrel and the Brent benchmark back to US$49/barrel.

The gold price is higher today at US$1,139/oz.

The New Zealand dollar starts today at just 63.4 US¢ having received no support at all from the higher dairy prices. It is at 90 AU¢, and 56.1 euro cents. The TWI-5 is now at 67.8.

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

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

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5 Comments

So how much inventory has Fonterra held back to get the prices back up?

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I was looking for that too....

They said the volumes sold at the latest auction (35,865 MT) were down on the 36,904 MT sold in the previous event and well below the 57,010 MT sold this time last year.

The recovery in the prices at the last auction and the latest one came following drastic action from Fonterra to reduce the amount of product, particularly WMP, it makes available through the GDT.

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Another commodities dependent economy into recession - Canada - following hot on the heels of the news of the collapsing Brazilian economy:

http://www.bbc.com/news/business-34116189

Phew. It is a good job that NZ's economy bares no relation to these nations in terms of dependence on commodities exports.

Oh. Hang on a minute...........(makes loud clucking sound).

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It's OK. The definition of a recession is being revised as we speak.

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I hear fontera is hedged up to .80c >USD into next year, by then the NZD may well be back there.

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