Dairy prices fall hard; US data more positive; Canada inflation at 3.3%; Japan shines; China's funk deepens; German sentiment better; RBA warns on labour market; UST 10yr 4.22%; gold and oil lower; NZ$1 = 59.6 USc; TWI-5 = 68.6

Here's our summary of key economic events overnight that affect New Zealand, with news the economic clouds are darkening for New Zealand.

First up today, the overnight dairy auction was a terrible one. Prices fell -7.4% in USD terms and -4.8% in NZD terms, principally on an almost -11% dive in the dominant WMP price (-8.5% in NZD terms). Remember these falls are from the prior auction two weeks ago which was also quite weak, so the declines are compounding. And these retreats are far worse than expected, and getting worse quickly. The WMP price is down -8.2% from just last week at the GDP Pulse event. Everyone expected a fall but no-one saw a crash as hard as this one.

The WMP price is back to levels we last had in August 2016. And dairy farmers will be sweating because since then we have had +20% overall inflation.

It's not all grim news; the cheddar cheese price rose +5.8% at this auction. SMP was down 'only' -5.2%, butter down 'only' -3.0%. But WMP dominates the volumes sold and is a serious pall on this market. Recent farmgate milk payout forecasts have clearly not been trimmed hard enough. Why the collapse? NZX dairy analysts remind us that China has produced +25% more WMP domestically over the last 12 months while their domestic consumption of the commodity has fallen almost -9%. That does not suggest there will be a bounceback any time soon.

Elsewhere, things are not so grim. US retail sales topped forecasts to be up +3.2% in July above year-ago levels and the best result in five months. And it came even though car sales dipped slightly. (And remember, US CPI inflation is 3.2% for the same period, so that is a real gain, at last.) The Redbook retail sales measure was up strongly for last week too.

However, New York manufacturing isn't is great shape with the NY Fed's Empire State factory survey retreating rather fast as new orders are harder to find. Perhaps unexpectedly, firms were more optimistic when they looked ahead.

And American home builder confidence weakened in August for the first time this year as record-breaking mortgage rates and still-high housing prices discouraged prospective buyers.

In Canada, their annual inflation rate rose to 3.3% in July from 2.8% in the previous month and this was above market expectations of 3%. So, very similar to the US CPI inflation rate.

In Japan, strong export growth propelled their economy in Q2-2023, up at a 6.0% annualised rate, far higher than expected (+3.1%) or the Q1 expansion (+3.7%). It was the third consecutive quarter of strong growth. Japan not only has unusual growth, it also has unusual inflation which is running at a +3.3% rate.

Japanese industrial production came in unchanged from a year ago however. But it was up +2.4% from the prior month so there is recent momentum building.

Meanwhile, China is in economic defence mode. Their central bank cut its one-year medium-term lending facility rate by -15 bps to 2.50% today. It's their biggest cut since 2020. This came after Chinese new bank loans plunged almost -90% from June to the lowest since late 2009. Loan Prime Rate cuts are expected next week now.

And it came as they released industrial production data that was weaker than expected. This was so even after steel production surged more than +14%, so a sharp cutback there seems almost inevitable. And retail sales were weaker than expected too. However, electricity production was up +3.6% from a year ago, a slightly enhanced rate from June, maybe because they kept production higher than end-market demand. A lot of steel would go into property development, but their national real estate development investment was -8.5% lower than a year ago, and that base wasn't flash in the first place.

And we should note that China is hiding more data, the latest being youth unemployment data.

German economic sentiment got less-bad in August, which is a positive for them.

In Russia, their emergency central bank meeting brought a strong response to the collapsing currency situation. They raised their policy rate to 12% from 8.5%. Observers had expected it to go up to 10%. The aggressive move brought tensions to the surface between the central bank and the Kremlin however.

In Australia, their central bank says soft wage figures have strengthened the prospect of a cash rate pause, and they warn their labour market may be about to turn down.

The UST 10yr yield will start today at 4.22% and up +3 bps from yesterday and matching its October 2022 highs. Their key 2-10 yield curve inversion is a little less, now at -74 bps. Their 1-5 curve is less at -100 bps. Their 3 mth-10yr curve is less at -118 bps. The Australian 10 year bond yield is now at 4.25% and up +2 bps from yesterday. The China 10 year bond rate is down an unusual -5 bps at 2.59%. And the NZ Government 10 year bond rate is up another +2 bps, now at 5.02% and its highest since 2011.

Wall Street is lower with the S&P500 down -0.9% at the end of Tuesday trade. Overnight, European equity markets were all lower with London down -1.6% and Frankfurt down -0.9% and Paris down -1.1%. Yesterday, Tokyo ended its Tuesday session up +0.6%. But Hong Kong ended down -1.0%, although Shanghai had a late intervention by 'the home team' and ended unchanged. The ASX200 ended up +0.4%, but the NZX50 slipped a relatively minor -0.1%.

The price of gold will start today at US$1903/oz and down -US$7 from yesterday.

And oil prices are -US$1.50 lower at just over US$80.50/bbl in the US. The international Brent price is down to US$84.50/bbl.

The Kiwi dollar starts today soft at just on 59.6 USc and near its lowest since November 2022. Against the Aussie we are holding at 92.2 AUc. Against the euro we are marginally softer at 54.7 euro cents. That all means the TWI-5 is now at 68.6 and up +10 bps from this time yesterday.

The bitcoin price is again virtually unchanged today from this time yesterday and still at US$29,293 which is down -0.3%. Volatility over the past 24 hours has still been very low at just on +/- 0.4%.

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