Dairy prices fall almost -5%; US factory orders rise but flat for year; China pumps in more liquidity support; equity markets rise; Hong Kong in recession; UST 10yr yield at 1.60%; oil holds and gold drops; NZ$1 = 64.8 USc; TWI-5 = 70.3

Dairy prices fall almost -5%; US factory orders rise but flat for year; China pumps in more liquidity support; equity markets rise; Hong Kong in recession; UST 10yr yield at 1.60%; oil holds and gold drops; NZ$1 = 64.8 USc; TWI-5 = 70.3

Here's our summary of key economic events overnight that affect New Zealand, with news an air of optimism is returning to financial markets.

But first, this morning's dairy auction was nowhere near as weak as some had expected. Prices were down -4.7% led by WMP which was down -6.2%. SMP was down -4.2%. But the exchange rate came to the rescue and its recent devaluation means that overall prices were down 'only' -2.8% in New Zealand dollar terms. And there were bright spots. One is that volumes were lighter because this is the back end of the season. And another was Cheddar Cheese which actually rose +6% from the prior auction taking it to its highest price since April 2014. Current shipments to China might be a real stress point right now, but collapsing prices aren't a crisis worry.

American data wasn't so negative either. Factory orders rose in December (up +1.8%) after falling in November (down -1.2%), but the December level was virtually unchanged from the same month a year ago, and calendar 2019 was lower than calendar 2018. (Tariffs haven't helped US factories at all.)

In China, there is no signs yet of the virus emergency easing.

Their central bank pumped almost NZ$90 bln into their banking system with reverse repurchase agreements, the largest single-day addition in more than a year. And it set their currency rate at almost 7 to the US dollar, easing exporters burdens. But local carmakers have mostly halted production. And in many cities, house sales centres are shut. The growth in the number of confirmed cases is still rising, but at a slower rate and the growth in the number of deaths reported is slowing. The human and economic toll on China will be huge. (And in an ugly turn, the Americans seem to be rejecting requests to help, preferring to press economic leverage while the Chinese are down. Racial profiling of Chinese people in the US is widespread, very reminiscent of the early discrimination of Japanese Americans ahead of WWII.)

Equity markets turned very positive in Europe overnight, with most markets up +1.8%. Wall Street is also rebounding today with the S&P500 up nearly +1.7%. This follows Shanghai and Hong Kong which were both up about +1.3% yesterday at the end of their trading sessions.

And the enthusiasm in Hong Kong is after a year of widespread local trouble, with the coronavirus the latest setback. In fact, Hong Kong was in recession in 2019.

In the UK, they have set a new aggressive target of banning fossil fuel (including hybrid) cars from 2035.

And in Australia, their central bank left all its policy rate settings unchanged, convinced the country can ride out the trade and climate pressures in the longer run. Its implication is that the 2019 'normal' will return fairly soon.

The UST 10yr yield will start today at just on 1.60% and a strong +7 bps recovery a day. Their 2-10 curve is little-changed at +18 bps. But their 1-5 curve is now much less negative at -6 bps. And their 3m-10yr curve has turned positive, now +5 bps. The Aussie Govt 10yr has recovered sharply, up +12 bps to 1.00% and rising. The China Govt 10yr has held yesterday's level, now at 2.87%. But the the NZ Govt 10 yr hasn't and will open at 1.22% and that is another -3 bps overnight.

Gold has retreated sharply, down -US$27 to US$1,552/oz as risk perceptions ease further.

US oil prices are holding at just on US$50.50/bbl. The Brent benchmark is also holding at just under US$55/bbl.

The Kiwi dollar is little-changed this morning at 64.8 USc. On the cross rates we are lower by -½c to 96.2 AUc. Against the euro we are firmish at 58.7 euro cents. The net of these shifts puts our TWI-5 just on 70.3.

Bitcoin is marginally lower from where we left it yesterday, at US$9,201. The bitcoin rate is charted in the exchange rate set below.

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

Our exchange rate chart is here.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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The north of the country is looking a beautiful orange, a nice summery glow. And this weeks refreshing gentle rains in the south will make that part the country lovely shades of blue and green. The resulting lower agricultural production will be perfect timing for a big drop off in export demand (Sarc) Genuine sympathies to those struggling with the weather. Kia kaha

If a person was to quote averages - New Zealand is having a favourable summer weather wise.

Appears to be a huge problem with culling surplus stock, some sent back to farms from the overfull works, others simply not pick up from the farm. Not great timing.

From what I understand you can not sell the meat direct unless it has been inspected but you can sell (or half) animal with the contact details of a home kill who could help.
Direct marketing.

I managed to get some prime cattle killed on Monday with only a weeks wait. $5.30, North Waikato.

“press economic leverage when the Chinese are down” reminds me unfortunately of the odd moment on the news you see some broken cage fighter in the same position. Whole world seems to becoming more and more barbaric. On the streets, in sports, in corporates, in politics.

The unspoken story is that we have not only run up against the planetary limits, we've overshot them.

So there will be a period of readjustment, and we are seeing the maneuvering as those-who-would-survive jostle for position. What few people seem to be cranially-wired to grasp, is the exponential nature of our trajectory, and the Seneca-like trajectory we are beginning. Yet peruse the media, globally and locally, and nothing. BAU, AU. Blither blither, growth growth blither growth. The two who are looking ahead, are an observant writer https://kunstler.com/clusterfuck-nation/crisis-o-rama/ and the best journalist in the UK https://www.resilience.org/stories/2020-02-04/george-monbiot-on-the-unho...

Interesting times

New report out of the EU;

https://www.vice.com/en_us/article/8848g5/government-agency-warns-global...

Gotta laugh in that the 'bold' UK plan might just be the pollies have caught on to reality. Yet subsidies to the oil industry continue....

And some more stupidity:

U.S. Military Could Collapse Within 20 Years Due to Climate Change, Report Commissioned By Pentagon Says

https://www.vice.com/en_us/article/mbmkz8/us-military-could-collapse-wit...

According to a new U.S. Army report, Americans could face a horrifically grim future from climate change involving blackouts, disease, thirst, starvation and war. The study found that the US military itself might also collapse. This could all happen over the next two decades, the report notes.

The senior US government officials who wrote the report are from several key agencies including the Army, Defense Intelligence Agency, and NASA.
Do they need more money perhaps? financial phlebotomist?

The US armed forces. the DIA, NASA etc... just the type of institutions one can trust ;)

The dairy auction result has again shown the disconnect between the "traders" expectations and the actual end users' intentions.
The fears of a significant fall in WMP were overcooked.

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You really should cite that second bracketed claim David. Your daily 90 seconds of anti-Americanism is getting more emotional.

It doesn't sound anti-anything to me, but there again, I see the US for what it is: a hegemonic Empire that takes out foreigners - from Allende to Suleimani - to further its own ends. It is responsible for more wars, post WW2, than any other nation. It has to maintain energy supplies (because it isn't money you need, you can just print that, it's energy without which nothing gets done) so it is in those places where energy is found. No coincidence.

And the planet is too small, resource-wise, for two hegemonic powers of such size. We have fought over resources by slanging the 'other' for a long time; Russia and Communist were both derogatory terms in my youth. If you asked me what the biggest threat on the planet was today, nation-wise, I'd say the USA. It is heading backwards (as dying ideologies tend to do) while others are looking forward, particularly the young who know they're being screwed.

Even though China has increased green house gas pollution by 50% since 2008 and India by 100%, I will be anti America until they elect a president from an intersectional minority.

China is the slave-wage factory for the world, India is right behind - much of that pollution is ours, every time we buy a Chinese-made item from a big-box store.

Of course, we do the buying using numbers from jacked-up house 'prices' - note that another thread here even calls them 'values'- so that will all work out well.

It's anti-Trump not anti-Americanism, Trump is a total failure and you can see the results everywhere.

Trump was "the messenger". We now await the true leader, Bernie Sanders.

The world can not stand a politician that actually delivers what he says.

We'll know when we see one, I guess.

16
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"And in an ugly turn, the Americans seem to be rejecting requests to help, preferring to press economic leverage while the Chinese are down."
I have not heard of this? Or do you mean that they have kept the tariffs on, which by your rhetoric does not hurt the Chinese at all?
I am sure that the Chinese have not told their people in the US to halt their industrial espionage at the moment!

The US doesn't let up bombing countries in wars that they created themself to destabilise for the purpose of selling arms and gaining control of their oil. when people are dieing in mass.

is tesla the new bitcoin
up , small dip on open then up and away over $900 this morning
price has trebled in a month

It’s certainly way overvalued. This will end badly, which is a shame. It might be fine in the long run, but the current price is irrational and jumping a lot daily.

How can it even be valued? It doesn’t make money, has a tiny market share and potentially going to come up against the big companies who are starting to make EVs. Is it a result of low interest rates and QE? Also govt subsidies, so tax payer money....

Logic is out the back door.
Remernisant of 1927.

There is a lot of ideological investing going on, which is never a good idea.

Yes that could be playing a part. I was just listening to a podcast interview of Robert Shiller talking about narrative economics. I think his ideas would apply.

They made money last two quarters, margins rising, volumes rising.

TSLA has brutal short-squeeze occurring - which might explain a lot of the surge in price

Irrational speculation has taken over. Just check out the comments on some retail investor finance sites on the stock. Reminds me of the bitcoin bubble, dot com bubble. It's like no price is too high. Danger zone.

Their central bank pumped almost NZ$90 bln into their banking system with reverse repurchase agreements, the largest single-day addition in more than a year.

You mean repurchase agreements (RP). Reverse repurchase agreements (RRP) are draining operations in this counterparty context.

The daily net add today after expirations was $6.5 billion.

Notably, EFFR remains elevated and above the IOER 1.55% target, before and after month end.

hey , Audaxes , where do you get the net repo "add" from , (e.g. repo - reverse repo - maturities on the day )? and it was USD113500 bln of repos alone on 04.02.2020

Net RP and RRP agreements outstanding on 03.02.20 were $178.59 billion add. After today's operation and expiry of previous temporary operations the total changed to net +$185.09 billion add..

thanks, but where do you get those numbers from
? is it newyork fed website? how do you know the value of "expiry of previous temporary operations" for the day? do you keep it somewhere in your spreadsheet?

Here is an old .xls snip.

But I must extend an apology to DC - I confused China with the US - please feel free to delete the commentary.

Tesla is going crazy. Up another $180 a share today. That is almost as much as it was worth six months ago. New price is $960 for a market cap of $173B. If it holds over $150B Musk gets two massive payouts of shares.

Remember when he was going to take it private for $420 and people thought that price was high.

For the record I think $960 is massively over valued and it will crash but still crazy to watch.

Is it the Fed that is buying?

It would be strange if they were only buying Tesla stock. Honestly I don’t know what is going on. It can’t just be a change in sentiment. Either someone big is making a move - an Apple takeover? - or there is a big piece of information only some people know, or irrational exuberance. But I can’t even see the Tesla fanboys offering that much for a share. I wouldn’t lay over $400.

Big money for a pie in the sky dream.

It’s not pie in the sky. Electric cars are the future, Tesla is the leader, and Tesla is now profitable. But that doesn’t mean Tesla is worth $170B.

How far away is that future? Oil prices will remain low for some time to come.

If the massive subsidies for electric vehicles and the massive taxes on petrol vehicles were removed, I don't think you'd see a single one on the roads.

Several countries are going to ban ICE cars.

There have been articles about the stringent emissions requirements coming in for Europe and how companies will have to sell electric cars to meet them. Fiat has a deal where they buy credits for billions off Tesla.

If you talk to the CE of Volkswagen they will say the future is electric and Tesla is in the lead. Pretending otherwise is just head in the sand. Now that doesn’t mean Tesla will always be ahead.

None of that means Tesla is worth 900 a share, they aren’t worth 500 a share in my opinion. However, the world is changing.

You sound like a vested interest.

But take it back to first-principles. There is no activity without energy being used to do work. So the 'price of oil' doesn't reflect the problem anymore. Society can afford energy up to some threshold price, beyond which it (money-tabulation-wise) goes into debt. We know that price is below what it peaked at in 2008 dollars. And we are traversing the ever-lower EROEI sources, because we cherry-picked the best, first. Thus fracking has yet to turn a buck - and we traversing a range of sources which is steadily marching down past fracking.

You can just put more in the debt column, but at some stage the supply of mugs has to dry up - leaving governments but they have a debt problem too. What is really happening is that we didn't value energy properly, and thus we don't understand why real growth (GDP is conveniently forgetful of debt) has stalled.

As for electric vehicles, they are the right answer to the wrong problem. Too many people consuming too much of the planet and impacting it too much, are the problem. EV's are just a First-World virtue-signal. But if you're involved in a fossil-fuel-backed business , I'd be worried. Not from the threat from EV'S, but from the fact that if the FF industry becomes unmaintainable the way fracking is and if it falls over, so does the global economy. With the right kind of eyes, you can see it unravelling already.

You get more energy from a litre of oil burning it in a power plant and charging a battery than you do from burning it in a ICE. Therefore if your concern is finite energy, electric cars increase efficiency.

If it not a running finicially viable company that has a product on the shelf, it is Pie in the sky.
All they are doing is selling a dream of what could be. Risk v reward...

They make a profit so not pie in the sky.

Irrational exuberance. Up, up, up on any whiff of rumour and good news. It's all familiar.

Dropped $80 in the last minutes. Clearly someone took their profits.

The pip fruit industry has been under fire for a couple of decades now, a large influence on that is Turners and Growers that was run by Tony Gibbs, who set out on a mission. It is now owned by a German company. The German apples coming into production enter at the price that NZ apples leave on, which was a major concern for the German producers and suppliers and to curb that issue they look to have taken over control with 75% of shares. There seams to be a concerted power play by a couple of players to gain total domance over the market supply by forcing the locals out.
The winner gets to set the prices overseas and boost their prices at the same time. Isn't that a monopoly?
Legal disclaimer. Views expressed are my just that and is only my view of the situation...

Kezza, you probably know more than me but i'm thinking along the same lines. When I went to school in Hasting there were over 640 family orchards in the area now 18 players dominate the industry and 2 of them account for %50 of the industry. This company has struggled by the sound of it, I was told the new packhouse was sold to a German company and leased back, it's an impressive bit of technology that is almost fully automated. Where is that line in the sand? Because around here the farms are all being purchased by large corporates or large farming concerns, they appear to have better access to bank debt than family farms. Eventually they will destroy the world we have known, the middle class will no long be a land owning/house owning one, we really need a line in the sand and it needs to happen soon.

I'm a 5th generation HB orchadist and the last of the line. My grandfather was awarded a MBE for his services to fruit production. I live in elsewhere now but I've still got a part share of the family orchard.
I'm out of the loop but still hear what is going on now and again.
My grandfather warned of overseas operators taking over and was involved with the Apple and Pear Board. It was a monopoly in those days and you could only sell to the A&P board. The black market was rife and I still remember the curtainsider truck trailers rolling in and filling up and leaving. My father was doing it, my grandfather was in no way involved. Years later I found out that he knew and tried to stop it but my father lied to him and kept the money from my grandfather, his business partner that funded him into the property and advised him on how to grow. The old man's a shocker at best... He is still going dodgey deals exposing me to tax fraud, then threatens that if o spill the beans I will be held liable.. not a nice bloke at all.
I digress, anyway. NZ produced the best apples and needed to maintain that. At the end of the day with all the other countries catching up in their ability to produce a highly sell able product. The standard needs to improve but an apple is an apple and can only get so good. Innovation is needed and that requires investment and a collective approach to maintain a certain standard, hense good quality control and better viraties coming on.
A& P Board was rebranded ENZA. It was useless at marketing and the industry floundered. I.e. small apples for school lunches were deemed to be unsellable and turned to juice.
I don't know at what stage Tony Gibbs got involved but he is a shocker, a hatchet man, beark or up and sell. I suspect he set out to destabilise and lift the monopoly on export rights. Turners and Grower was involved and now the German company is running that.
I was involved with the German delegation at that time to show them arround as I speak German. Looking back now I should have got a finger in the door and been one of the players but my morals would have gotten in the way. There is no way I would have crapped on my fellow orchardists like a few have done....
The German company that owns T&G is massive globally and can manipulate markets which can leave Kiwi growers with their pants down and ready for take overs / going broke.
Legal disclaimer. I am wrong 100% of the time and this is only my view of what I have heard and should be in no way taken as the truth....

Thanks for your input.
there are going to be some big losers, unfortunately I think the Maori corporations could be amongst them them. To many NZ businesses fly close to the wind.

Yeah that's some shaky ground for overseas companies with the Overseas Investment Office but there is always another way to skin a cat.
I don't think that T&G (as presently owned), should be allowed to be involved in the NZ pipefruit market due to being able to control factors overseas that effect NZ growers.

They run a slick operation and our government has no idea what it is doing, there be monsters out there.

http://tandg.global/about/news/

is this the same company?
https://www.nasdaq.com/articles/baywa-reaches-settlement-with-federal-ca...

Yep thats them.

Wu Flu cure found in India...
Great to know it is being taken seriously and under control and will not get out of hand India.
https://www.globalvillagespace.com/coronavirus-can-be-treated-with-cow-d...

Potential toxic gas fears causes evacuations in Southland - "........flood water threatens an old paper mill storing chemicals which could turn toxic when mixed with water.

Thousands of tonnes of a potentially dangerous chemical — known as ouvea premix — are still stored in the the former Carter Holt Harvey paper mill in Mataura.

The dross from the New Zealand Aluminium Smelters' (NZAS) Tiwai Point smelter is classified as a class 6 hazardous substance, which can generate poisonous ammonia gas if it comes into contact with water."

https://www.odt.co.nz/regions/southland/more-southland-towns-told-evacua...

Update to above: A volunteer who was sandbagging inside the Mataura papermill on Wednesday morning says they were driven out by ammonia gas after floodwaters entered the building.
An Emergency Management Southland spokesperson said it believed that there could be water inside the Mataura building but it was not safe to send anyone in to confirm that.
The volunteers were all safe, and some had sore eyes, but they were told to leave by the Fire Service, Stuff has been told.
https://www.stuff.co.nz/national/119279961/southland-chaos-as-towns-evac...