Here's our summary of key economic events overnight that affect New Zealand, with news we are in for a day of significant announcements, both locally and internationally.
But first up today, the overnight full dairy auction brought higher prices, up +4.6% in USD terms and up +3.0% in NZD terms. Of note, the butter price hit a new all-time record high of US$7992/tonne. Also, cheddar cheese rose a very sharp +12.0% from the prior full event, and the dominant WMP price was up a heady +6.2%. This has been a very positive outcome, even if it was on relatively low off-season volumes.
There seemed to be two big background drivers. First, EU production is slipping and today's NZ auction prices seem to be equalising with European pricing. And secondly, there was a substantial increase in demand from Southeast Asian buyers, shifting from EU supply. Today's result will bring upside to the payout - if it is maintained in future events.
Elsewhere, there was a good rise in US retail sales last week, up +6.9% from the same week a year ago in the Redbook survey. But as we have noted previously, it is now hard to separate the inflationary effect of the tariff taxes from volume gains. It is about now that the tariff-tax impact will start happening. All eyes are on Apple, because they won't be able to avoid price hikes much longer now.
Retaliatory tariff taxes also juiced up US exports in both goods and services in March but it was minor and similar to February. US imports however shot up to a new all-time record high. So the American trade deficit also hit a new record exceeding -$140 bln for the month.
None of this is helping sentiment. The latest survey, this one the RealClearMarkets/TIPP Economic Optimism Index retreated in May from April when a gain was anticipated. It was at its lowest in seven months.
Meanwhile, the US logistics managers index returned to more usual levels, but allowing it to do that were rises in inventory and freight costs, rather than the efficiency components.
There was a well-supported US Treasury 10 year bond auction earlier today, and that delivered a median yield of 4.28% which was down -6 bps from the prior equivalent event a month ago.
Tomorrow will be dominated by the US Fed's meeting outcome. Changed interest rates are unlikely, but there will be intense interest in how they view the present and future economic landscape.
In Canada, the widely-watched local Ivey PMI turned into contraction in April.
In China, the Caixin Services PMI expansion eased back in April, down from March’s three-month high to be below analyst forecasts. This is now the softest expansion in their services sector in seven months. But this Caixin version reported a slightly faster expansion than the official version.
There is a lot going on today, and amongst that we are expecting a significant Chinese briefing by their central bank and other regulators about new moves to respond to their economic pressures triggered by the tariff war.
In Europe, their April services PMI didn't fall into contraction as expected. Rather it stayed just on the positive side. But it is an anemic expansion all the same.
In Australia, household spending slipped in March from February, to be +3.5% higher than March 2024. Of special note was the very sharp -1.3% dive in Queensland.
There was an even sharper retreat in building consents in Australia in March with a big -15% dive in consents for building apartments.
The UST 10yr yield is now at 4.31%, down -3 bps from this time yesterday. The key 2-10 yield curve is still at +52 bps. Their 1-5 curve is now inverted by -10 bps. And their 3 mth-10yr curve is now flat. The Australian 10 year bond yield starts today at 4.37% and up +6 bps from yesterday. The China 10 year bond rate is up +1 bp at 1.63%. The NZ Government 10 year bond rate is up +7 bps at 4.57%.
Wall Street is down -0.5% in Tuesday trade on the S&P500. Overnight, European markets were mostly lower by -0.4%. Yesterday Tokyo rose +1.0% in Tuesday trade. Hong Kong was back trading and up +0.7% and Shanghai was up +1.1% after their holiday. Singapore was up +0.2%. The ASX200 ended its Tuesday down -0.1% and the NZX50 finished unchanged.
The price of gold will start today at US$3414/oz, and up +US$101 from yesterday, and heading back towards its April 23 record high.
Oil prices are firmer today, up +US$2 at just on US$59/bbl in the US and the international Brent price is now just under US$62.50/bbl.
The Kiwi dollar is now at 60 USc, up +40 bps from yesterday at this time. Against the Aussie we are up +10 bps at 92½ AUc. Against the euro we are up +50 bps at 52.8 euro cents. That all means our TWI-5 starts today just under 68 and up +10 bps. The Japanese yen has strengthened to limit the TWI-5 shift.
The bitcoin price starts today down a mere -0.3% from yesterday at US$94,563. Volatility over the past 24 hours has been low at +/- 0.9%.
Join us at 10:45am for the release of the important March quarter jobs report for New Zealand. We are expecting no rise in employment and a rise in the unemployment rate to 5.3%. Variations from that might be market-moving.
And then at 1pm we will be covering the RBNZ's half-yearly Financial Stability Report. This will be Christian Hawkesby's first big set piece presentation as Governor, a role he holds until at least October.
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15 Comments
Outlook for dairying continues to improve. It is though questionable as to why it has been decided to dispense with further processed and/or added value product and concentrate on commodity. While that may streamline and add efficiency to processing it means that exports will not attract any greater revenue than what’s on offer commodity wise. That would not matter so much if the production base, farmland in other words, had potential to expand but there seems to be consensus that just about all suitable pasture is already being used. Therefore if to rely solely on commodity, without adding any value to it, then the ability to increase revenue in the long term, will depend on the overseas markets ability to pay higher prices.
It is though questionable as to why it has been decided to dispense with further processed product and concentrate on commodity
Profits amoung all else?
I don't think we've exactly said we won't do any further processing in NZ, just Fonterra have decided they're terrible at it and want to sell that part of the business. Presumably the new owners will keep doing what we're doing, and potentially even increase the value-add in New Zealand although they may have less incentive to do so. For example they might already own processing in cheaper nearby countries...
And it does mean the profits from that processing will tend to flow offshore in the future, rather than back to farmers and other Fonterra shareholder pockets.
There're big hooks in that attitude though. Losing the Value-Added chain, can ultimately result in less demand for the raw product. A buyer, and let's face it they will be from overseas to have the level of funds required, will ultimately try to source the raw product at cheaper costs, and either go else where to competitors or force the price down here.
If Fonterra are terrible at the Value-Added bit, then surely with shareholder approval they could set up a new company that specialised in that? Big job, but the costs of the alternatives could be bigger.
Didn't Fonterra shareholders reject the "separate value added company" idea a decade or so ago?
Did they? Probably a lousy sales job then.
Yes, I think long-term it will be seen as a poor decision. Shareholders enticed by the big pay off today at the expense of future profits.
New Zealand business needs to understand the real benefit always flows to the owner.
Quit selling off our stuff offshore.
How else do we deal with the current account deficit? The current government are rolling back on most of the programs we had running to reduce our need for imported fossil fuels (NZ battery project, cycle lanes, EV incentives) so not much hope there.
Will people put up with having to buy less stuff? How did Trump put it, 2 dolls instead of 30?
The Commerce Commission have given permission for Contact to acquire Manawa (the generation assets from the old Trustpower, the retail arm having already been bought by Mercury). Contact claim the Manawa portfolio is complementary with more winter generation giving them more certainty of supply year-round and allowing more fixed price contracts.
I'm a shareholder, so I guess it's good for me but I am surprised, and I suspect the media will run some hit pieces on high electricity prices and lack of competition, and maybe they'll have a point.
What a disgrace, the use of urgency to ram through the change to pay equity. This lot have no moral compass and are tapped out of ideas. No wonder we get the Trumps when our representatives are so removed from every day life.
I must admit I am concerned, but I was also concerned with some of the comparisons that the existing law was drawing between groups. Pay equity is not just about a gender gap it is also about workers in different groups not being recognised for the skills required or risks they faced. This government is pushing too hard on a flawed theory of 'fixing the economy'. It won't work.
slowlearner,
This lot have no moral compass. I agree totally. I spent most of my life in Scotland and Brooke Van Velden reminds me of Thatcher. TINA( see Private Eye) seemed to despise most women and it's hard to escape the conclusion that the same applies to Van Velden. This legislation is immoral.
The govt is resetting the legislation to where it was when multiparty employer / union agreement had originated it in 2017. Then Labours moral vacuum under pressure from their constituent state services unions weakened it in 2020 to enable blatant rorting & defacto national awards (give an inch & they'll take a mile).
The equal pay act is 50 years old.
Even if what you claim is true, it doesn’t excuse using & abusing urgency does it? Yes, the other mob did stuff that most think was wrong. I am not accross what you say, so I concede that for now. But this was said by ACT to be about saving money, not what you say. Bad process, bad purpose. I deserve better from the governance that I am partly funding, or I want my money back.
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