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Dairy prices fall; major shifts in beef markets; India tames inflation; China house prices moderate; LIBOR replacement starts; El Niño disappears; UST 10yr yield 2.16%; oil and gold fall; NZ$1 = 72.4 US¢, TWI-5 = 76.9

Dairy prices fall; major shifts in beef markets; India tames inflation; China house prices moderate; LIBOR replacement starts; El Niño disappears; UST 10yr yield 2.16%; oil and gold fall; NZ$1 = 72.4 US¢, TWI-5 = 76.9

Here's my summary of the key events from overnight that affect New Zealand, with some big issues to the fore today for food producers.

Firstly, the overnight dairy auction was a bit of a damp squib. Prices in US dollars were down -0.8% but were down -1.5% in NZ dollars. It was the WMP price that weighed on this auction, coming in almost -4% lower and bucking the indication from the derivatives market which thought a small rise was coming. In local currency, we are now level-pegging with prices at the beginning of 2017, but we are still +50% higher than this time last year. It was an auction that saw the lowest volumes purchased in just over a year.

There are major political forces at work in the beef market. Firstly, China has re-allowed US beef back into the country, its first access since 2003. And in India, a new ban on the export of buffalo meat will choke off a huge supply of very cheap product on to the international market. Australia and Brazil will be the main beneficiaries, but New Zealand beef will likely get some impact as well.

And staying in India, they are having remarkable success at taming inflation. About 4 years ago it was running over +10% pa. But the latest data shows it at just +2.2%. One of the key reasons for the change is removing volatility in their food markets.

In China, the latest data shows that the heat is going out of their housing markets. Price growth is either moderating, or prices are actually falling is some places.

In financial markets, the first step is about to be taken to move financial benchmarks away from LIBOR. It will be a slow process however. Contracts based on LIBOR as a benchmark currently exceed US$150 tln.

In Australia, they have cancelled their El Niño climate watch - because the chance of the weather pattern re-emerging soon has evaporated. Ocean temperatures have apparently cooled back to normal ranges.

In New York, the UST 10yr yield is lower today at 2.16%. And across the Pacific, the Chinese 10yr govt bond yield fell again yesterday and the curve inversion widened, with the 2-10 variance now -9 bps.

The price of oil is down more than US$1 today and is now under US$43.50 a barrel, while the Brent benchmark is now just under US$46. That is now a seven month low and the global over-supply shows no signs of ending soon.

And the price of gold is lower as well, down another -US2 to US$1,243/oz.

But the Kiwi dollar is holding its own and still at 72.4 USc. On the cross rates we are higher at 95.6 AU¢, and 65.1 euro cents. Against the British pound, we are up to 57.4 UKp, the highest in more than 3 months. The TWI-5 index is at 76.9.

If you want to catch up with all the 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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34 Comments

if house prices fall in china that is a real problem the rest of the world should worry about, the Chinese have a history of bubbles and crashes in markets, and soon or later it will spread outwards

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Thanks sharetrader. Can you please elaborate why, if house prices fall in China, it will spread "outwards". I'm not being sarcastic, leading or anything like that, I would genuinely like to understand the logic.
Thanks

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they have a huge debt mountain, at like all debt it has to be repaid sooner or later, most count on later but sometimes sooner comes along.
and for sooner to occur it needs a trigger, like the loans and the GFC 1

http://nationalinterest.org/blog/the-buzz/the-next-global-financial-cri…
http://www.abc.net.au/news/2017-05-22/china-faces-financial-crisis-with…
https://www.nytimes.com/2017/05/23/business/moodys-downgrades-china-eco…
https://www.nytimes.com/2017/04/25/business/china-zouping-debt-bank-cri…

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Now lets make some money!
- and look up the backend if the ASX.

http://www.smh.com.au/business/markets/macquarie-advisers-ploughed-clie…

There are many penny mining stocks on ASX!

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Miss May should get him on the Brexit team. pdq!

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Been watching the movie Gold with Matthew McConaughey?

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So is this 'global warming' thing happening or not? I suppose the ice caps are melting because the oceans are cooling. Just like my ice creams melts in my freezer. Climate change the new peak oil? Sad.

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Yes the global warming trend is on track and looks to be accelerating with last year the warmest on record. Sixteen of the 17 warmest years in the 136-year record all have occurred since 2001, with the exception of 1998.
https://climate.nasa.gov/vital-signs/global-temperature/
The El Nino is an oscillation (caused by Pacific waters interaction with the Southern Ocean) not a trend.
https://www.ncdc.noaa.gov/teleconnections/enso/enso-tech.php

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DG, good work.
How much of the movement in data is man made?

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I really don't know Henry but there is nothing (other than the rise in Human population and our animals and use of fossil fuels) else that would explain the rise of CO2 over the same period from 280 ppm to over 400.
I read somewhere that scientists can tell the difference in the carbon/oxygen molecule (isotope?) if it is produced from the combustion of a fossil fuel but I didn't fully understand it.

I found this, seems the change in the carbon isotope due to fossil fuels over time is measurable: http://www.realclimate.org/index.php/archives/2004/12/how-do-we-know-th…

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I claim my prize, where do I collect the $10?

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?

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Enough to convince the vast majority of those studying it that action is required. What's your alternative hypothesis for why such sudden warming is occurring if it's not man made?

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While I totally believe that what we are now seeing is man made, I am currently reading a book on the history of the Middle East and one of the points that it mentions is that there was a significant change in the 4th century AD. Malaria around the North Sea, rising oceans, agricultural failure of the stepes, reduced salinity of the Aral Sea and altered glaciation. This gave rise to famine on the stepes, so people migrated toward the Mediterranean. This was peaceful initially but turned nasty when they formed armies and started raiding the Middle East and Europe i.e. the Goths, Huns etc.
Something strange also happened to the climate in in 535-536 as the result of a volcanic dust veil. But then we have seen that sort of thing in our own lifetime.

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Is a 136 year record relevant when talking about 4.5 billion years of Earths history?

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I don't know but it is certainly a lot more relevant than something (El Nino) that changes from year to year as you have foolishly tried to suggest.

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So you measure El Nino's relevancy based on the relevancy of something which you do not know the relevancy of. What was that about foolishness?

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I will simplify for you: an annual change will tell you very little about a long term trend. Try thinking instead of trying to score points, you're making a fool of yourself.

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Really? So an asteroid the size of the Empire state building (or your ego) impacting on the earth this year will tell us nothing about the future trend of our species survival?

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If that's what you believe I was saying you're far more deranged than I suspected. Hopefully Nurse will come and take the computer away.

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I guess it's not easy for you to explain yourself as English is not your first language. Keep practicing, you're almost there

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Well this escalated quickly.

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I don't think he did anything of the sort, he just pointed out that you suggesting that an El Nino cycle is an argument against climate change is ridiculous. I agree with him.

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Here is a helpful comic that looks at the record since the last ice age https://xkcd.com/1732/. Puts it into perspective

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It does, and it certainly highlights how important that long term perspective is when considering recent change.

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Well, I don't expect to live for as long as 136 years, so that's certainly a relevant timescale for me. If a significant rise in temperature is predicted over my lifetime, that's much more relevant to me than a rise in temperature over the next million years. What is your point?

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I'm highly sceptical about colonising other worlds - even a heavily compromised earth is better than anywhere else. Here's professor Stephen Hawking:
"I am convinced that humans need to leave Earth. The Earth is becoming too small for us, our physical resources are being drained at an alarming rate.

"We have given our planet the disastrous gift of climate change, rising temperatures, the reducing of polar ice caps , deforestation and decimation of animal species.

"When we have reached similar crisis in our history there has usually been somewhere else to colonise. Columbus did it in 1492 when he discovered the new world. But now there is no new world. No utopia around the corner. We are running out of space and the only places to go to are other worlds."
http://www.nzherald.co.nz/technology/news/article.cfm?c_id=5&objectid=1…

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Colonising other worlds? Tell him hes dreaming ...
this article puts it in perspective ...
https://dothemath.ucsd.edu/2011/10/why-not-space/

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If the world spent just a little over 1% of GDP annually on space exploration we would have about a trillion a year to play with. I reckon that would be enough to start our conquest of the Milky Way.

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"Wherever we go we will need to build a civilisation, we will need to take the practical means of establishing a whole new ecosystem that will survive in an environment that we know very little about and we will need to consider transporting several thousands of people, animals, plants, fungi, bacteria and insects."

Stupid intelligence. Would require a complete adjustment of "lifestyle" and living habits to achieve. We already have the ideal ecosystem in an environment we know a great deal about. We're not able to address the cause of our environmental issues now let alone choose to adjust our living habits to solve the problem.

And we call ourselves the intelligent species. Intelligence without wisdom = stupidity.

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In New York, the UST 10yr yield is lower today at 2.16%. And across the Pacific, the Chinese 10yr govt bond yield fell again yesterday and the curve inversion widened, with the 2-10 variance now -9 bps.

Hmmmm....

Central bankers spent years saying low interest rates were stimulus. They have yet to explicitly correct their interpretation, preferring the more subtle approach of instead altering their operations as noted above. As I wrote back in December:

"In the realm of “How Do We Get Ourselves Out Of This Mess We Created?”, it doesn’t seem as if they yet have any actual answers. In the department of the smallest silver linings, at least central bankers have finally been introduced to curves. For the global economy, it remains a highly negative signal that central bankers used the last seven years of global depression just to arrive at Finance 101."

Flat curves mean a whole lot when combined with low nominal interest rates – and it isn’t what “stimulus” is supposed to be about. Given the sensitivity to flatness of late, it should not be surprising that yet another government authority has tested the waters of steepening. China’s Ministry of Finance today used for the first time its new authority to “boost liquidity” in that country’s treasury bond market. The MOF bought 1.2 billion yuan of 1-year notes that it said were not attracting enough demand. Read more

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Oops!!!!

Even a stock market soaring to record highs won’t rescue America’s struggling state and local pension plans.

A "best case" scenario of a cumulative 25% investment return during the 2017-2019 period will not offer a respite for chronically underfunded U.S. public pension plans, according to a Moody’s Investors Service report.

The growing gap between how much state and local governments are projected to pay employees and how much funds they actually have set aside has risen to over $4 trillion nationwide. New Jersey sports the widest funding gap, followed closely by Kentucky and Illinois.

The optimistic "best case" of cumulative 25% investment return would reduce net pension liabilities by just 1% through 2019 year-end because of past bad investment returns and weak contributions. Meanwhile, the "base case" scenario of 19% returns would see net pension liabilities rise by 15%. Read more

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After humming and hawing for a number of years, MSCI has decided to include domestic Chinese shares (A-shares) in its emerging market index, although only at low levels (https://www.msci.com/eqb/pressreleases/archive/2017_Market_Classificati…).

That will affect quite a few funds tracking MSCI's emerging market index. They will also release a new Chinese A-share large cap index.

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