Here's our summary of key economic events overnight that affect New Zealand with news markets are reacting today to the rising expectation that the Fed will move against the inflation threats earlier than they had priced in.
But first, today's dairy auction was a good one - even if perhaps not quite as good as the futures market was expecting. Overall prices were up +4.6% in USD terms and +5.2% in NZD terms. Starring was the butter price, rising to a record high and breaching the US$6000/tonne mark for the first time ever. The global recovery in the foodservice market is one driver of these strong prices. The other is a falloff in global dairy production, and that includes New Zealand. But it is a good result when local production will be down -1.6% but prices are up +4.6%. Clearly this will be positive for the farm gate milk payout. On a formula payout calculation basis, this would support a NZ$9.10/kgMS price if these prices lasted for the rest of the season - and it is likely that many analysts will be raising their forecast after this latest auction.
Lower milk production is only a part of it. Agricultural production is slipping worldwide and that is keeping prices very high, and they will probably go much higher yet - making life very hard for emerging economies.
But the big overnight international financial market news is the emergence of a taper tantrum on Wall Street as markets reprice for the end of QE, earlier Fed rate hikes to push back against inflation, and sharply rising benchmark bond yields. In the situation going forward, asset valuations won't be supported by cyclically low yields.
And the booming US economy may come off the boil somewhat. Certainly the NY Fed's Empire State factory survey suggests that things leveled off abruptly in response to the Omicron surge, but that expectations remain buoyant in this key manufacturing region. Prices remain elevated and investment intentions remain very strong.
Canadian housing starts eased back in December, although they were revised higher for November.
Japan's industrial production data for November was up a strong +5.1% year-on-year, and up a stronger +7.0% from October. This augers well for Japan, and also suggests international demand for their high-tech exports is rising.
The Bank of Japan raised its inflation forecasts but said it was in no rush to change its ultra-loose monetary policy, as rising prices fan speculation it may soon signal a shift in its decade-old stimulus experiment.
Also improving is Germany economic sentiment which rose strongly and unexpectedly, even if their current conditions haven't improved. Germans seem to like what they see when they look ahead in 2022.
In the US, there is an emerging high-stakes struggle between high-tech telecom companies and the airline industry. It seems that older and especially wide-body passenger jets, of which there are thousands still in service, are at safety risk from the rollout of the US's new 5G services interfering with airplane electronics. Much aircargo is carried on older widebody aircraft. Some international airlines are grounding flights to the US. All this of course adds a further impediment to global supply chains.
In China, more details are emerging of their efforts to get their struggling economy going again. China’s top state planner said that it will "appropriately" front-load infrastructure investment. Plus, financial markets are expecting some big official reserve ratio cuts over the next few months. Not long ago, a Chinese economic slowdown would have assumed to have had global implication. But it isn't working out like that it seems. The world is generally immune to their woes, although there will be some emerging markets badly affected no doubt.
In Australia and NSW, there were 16,067 new community cases reported yesterday, a sharp fall, now with 326,356 active locally-acquired cases (and undoubtedly an undercount), and 33 more deaths. There are now 2,850 in hospital there. This is confirming the NSW Chief Health Officer's recent warning there will a high number of deaths in coming days. In Victoria they reported 20,180 more new infections yesterday, and little relief. There are now 235,035 active cases in that state - and there were 22 deaths. A "Code Brown" (mass casualty event expected) has been declared in most major Victorian hospitals. Queensland is reporting 15,962 new cases and 16 new deaths. In South Australia, new cases have risen to 4,685 yesterday with no more deaths. The ACT has 1601 new cases and 1 death and Tasmania 1310 new cases. Overall in Australia, 73,580 new cases have been reported.
The UST 10yr yield opens today at 1.86% and up +7 bps from where we closed last Friday. The UST 2-10 rate curve starts today little-changed at +81 bps. Their 1-5 curve is slightly steeper at +109 bps, while their 3m-10 year curve is much steeper at +181 bps. The Australian Govt ten year benchmark rate is up +7 bps at 1.98%. The China Govt ten year bond is down -3 bps at 2.77%. The New Zealand Govt ten year is down -2 bps at 2.52%.
Wall Street has opened after their long holiday weekend sharply lower on the rising yields in a bit of a taper tantrum. The S&P500 is down -1.8% in afternoon trade. Overnight European markets traded about -1.0% lower. Yesterday, Tokyo fell -0.3%, Hong Kong fell -0.4% but Shanghai rose +0.8%. The ASX200 was down -0.1% yesterday, but the NZX50 rose +0.1%.
The price of gold starts today at US$1815/oz and down -US$5.
And oil prices start today slightly firmer at just over US$84/bbl in the US, while the international Brent price is now just under US$86.50/bbl. These prices are seven year highs. Not helping are terror attacks on oil installations in the Middle East.
The Kiwi dollar will open today lower at 67.7 USc. Against the Australian dollar we are softish at 94.2 AUc. Against the euro we are holding at 59.7 euro cents. That means our TWI-5 starts the today at 72.1 and a slip since this time yesterday.
The bitcoin price has moved down by another -1.3% to US$41,614. Volatility over the past 24 hours has been modest at +/- 1.4%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
We welcome your comments below. If you are not already registered, please register to comment
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.