Global food prices rise; commodity prices up on China demand; Beijing promises targeted stimulus; US consumer sentiment up; Canada raises carbon tax; UST 10yr at 0.90%; oil stable and gold soft; NZ$1 = 70.9 USc; TWI-5 = 72.8

Here's our summary of key economic events overnight that affect New Zealand, with news that China's expansion, currently the engine driving global recovery, still needs Beijing's fiscal stimulus support apparently.

But first, food prices are rising globally. The November increase did not only mark the biggest month-on-month rise since July 2012, but it also resulted in the FAO index reaching its highest level since December 2014. China seems to be crowding out others with aggressive buying, driven by a slowly deteriorating food security issues there. This is particularly true for dairy and meat, the FAO notes.

Chinese futures pricing for corn, palm oil, and rice are all at historically high levels. And Chinese prices for iron ore and coal round out the rising evidence that Chinese demand is stoking all commodity prices. Copper is at a seven year high, and aluminium prices are rising sharply too. All this is happening while the US and Europe are in the demand doldrums. But it is a boom lifting the AUD (and to some extent the NZD as well).

China’s car sales increased more than +12% in November from the same period a year earlier to log the highest monthly sales this year as the world's largest car market continues to bounce back. Almost 2.8 mln vehicles were sold in the month, and NEVs ("new energy vehicle") sales are on the rise for the first time in four years. China's steel production is at a record high.

However, more Beijing fiscal support in on the way to ensure their economic rebound doesn't stutter. It is interesting that Beijing thinks such support is still necessary and indicates that their recovery is not yet self-sustaining.

In the US, consumer sentiment posted a surprising increase in early December due to a partisan shift in economic prospects. Following Biden's election, Democrats became much more optimistic, and Republicans much more pessimistic. And as there are more Democrats than Republicans in the country that has raised this index. However, this index is still -18% lower than where it was a year ago.

The December versions of the USDA WASDE report says Australia, Canada, and Russia all will have their second largest wheat production on record, filling a rising global demand. They also see US milk production rising and prices falling as they forecast out to 2021 (pg 33).

The US federal budget deficit widened by a quarter in October and November from the same period last year to a record -US$429 bln. For the full year, it is a deficit of more than -US$3.2 tln and up from -US$1 tln in the equivalent period in 2019/20. That raised it from a high 4.9% of GDP to 15% of GDP and a suddenly and increasingly dangerous level. The incoming Administration has been handed a toxic situation from an incompetent four years of mismanagement. The Trump Administration ignored the advice to "fix the roof when the sun shines", instead flogging it off to its mates. Tax cuts for the rich have seen revenues stagnate at just above 2016 levels while spending has grown by +60%. It is mismanagement on an epic scale and leaves them very disadvantaged to handle the pandemic consequences.

But it does seem more hopeful that benefit relief for those at the bottom is coming soon. A NZ$1+ tln package seems likely. There is a bipartisan version which will extend support for 16 weeks, and there is an Administration version that would give a one-off boost of US$600, but would halve current benefits and not extend current support. Theirs is more a boost for business.

Meanwhile, Federal Government funding is expiring but has been given a one week extension so when the pandemic support issue is resolved, the bickering over funding their Government will restart.

In Canada, they have set a track for sharply rising taxes on carbon. The price on carbon will be increased by +C$10/tonne until it reaches C$50 per tonne in 2022, and then it will rise annually until it hits C$170/tonne in 2030.

And new data shows that Canadian household net worth climbed +6.9% from the same period in 2019. And their debt-to-disposable-income fell to 171% from 179% a year earlier. (The equivalent New Zealand level is 163%.)

Brexit deal prospects dim and the hardest of separations seems the most likely outcome for December 31, according to both sides in these ongoing talks.

The latest global compilation of COVID-19 data is here. The global tally is 71,921,000 and a rise of +2,041,000 over the weekend. At this rate, we will top 100 mln by mid January. It is still very grim in Russia, the UK, Eastern Europe, Brazil, Turkey and Indonesia. It does seem to be easing further in Europe generally although not in the UK, Sweden, or Germany. Global deaths reported now exceed 1,609,000 and up +21,000 in two days as death rates spike everywhere.

But the largest number of reported cases globally are still in the US, which rose +467,000 in two days to 16,584,000. The US remains the global epicenter of the virus. The number of active cases is surging and now at 6,632,000 and that level is up 172,000 over the weekend, so many more new cases more than recoveries. Their death total now exceeds 305,000. The US now has a COVID death rate of 920/mln, and now well above that in Argentina and approaching the disastrous UK level (943).

In Australia, they are not getting any resurgence. There have now been 28,031 COVID-19 cases reported, and that is just +19 more cases over the weekend. Now 56 of their cases are 'active' (+7). Reported deaths are also unchanged at 908.

The UST 10yr yield will start today at just under 0.90%. Their 2-10 rate curve is holding at +78 bps, their 1-5 curve is marginally firmer at +28 bps, and their 3m-10 year curve is unchanged at +82 bps. The Australian Govt 10 year yield will start today down -1 bp at 0.96%. The China Govt 10 year yield is unchanged at just on 3.32%, while the New Zealand Govt 10 year yield is at 0.885%.

The price of gold is marginally softer today, down -US$2 to US$1840/oz.

Oil prices are unchanged today from Saturday, still at just on US$46.50/bbl in the US, while the international price is still at US$50/bbl. But at these levels, the number of US and global oil rigs being brought back into production is rising again now.

And the Kiwi dollar is little-changed and still at 70.9 USc. But against the Australian dollar we have had a minor firming to 94.1 AUc. Against the euro we are lower at 58.1 euro cents. That means our TWI-5 is unchanged and starts the week at 72.8.

The bitcoin price has recovered all its weekend downshift, up +7.3% from where we left it on Saturday and now at US$19,302. 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 ».