Dairy prices rise sharply; Pakistan falls out with China over B&R projects; airline Travel Pass launched; Aussie new house sales leap; UST 10yr at 1.10%; oil and gold up; NZ$1 = 71.1 USc; TWI-5 = 72.6

Dairy prices rise sharply; Pakistan falls out with China over B&R projects; airline Travel Pass launched; Aussie new house sales leap; UST 10yr at 1.10%; oil and gold up; NZ$1 = 71.1 USc; TWI-5 = 72.6

Here's our summary of key economic events overnight that affect New Zealand, with news of some 'green shoots' - remember them from the GFC?

First, there has been a better-than-expected dairy auction overnight. WMP powder prices rose at the expected rate, but other products took the limelight this time. Overall prices rose +4.8% in USD terms and +6.7% in NZD terms. This takes them to levels last seen in May 2014 after a positive run of nine rises in the past ten auction events. In that time, prices have risen +21%. This is probably enough to have analysts raising their farm gate milk price forecasts for this season, something some of them have done recently based on the earlier rises.

SMP rose an impressive +7.0%, butter was up +4.6%, and AMF was up a remarkable +17% in today's auction event from the prior event. All this comes despite rising world supplies from competing nations, and is part of a general rise in commodity prices for food. And in turn that is based on rising demand out of China. The 'cream' for farmers is the recent weakening of the NZ currency.

In China, there are claims that icecream made from an imported WMP base is the source of a COVID-19 outbreak in Tianjin, a city neighbouring Beijing. This WMP was sourced from the Ukraine. We do need to be careful about such claims however as Chian is fighting a propaganda war over its handling of the pandemic and its origins. Facts are hotly disputed.

China is also fighting rising food prices, and the potential for social instability is rising.

Further, China seems to have a fight on its hands over how it is developing its Belt & Road projects in Pakistan. These two have been very cosy for the past few years, but recent disputes about costs and sovereignty have flared in the past few weeks. Aggressive Chinese policies and debt positions have been a concern for developing nations for a while now. There are many Western agencies saying "I told you so". Sri Lanka is in China's grip on these issues too.

International travel is in grim shape, no news there. But now the airline industry has launched a Travel Pass to enable passengers to create a ‘digital passport’ to verify that their pre-travel test or vaccination meets the requirements of the destination. Two Gulf State airlines have adopted it and it may become the model for travel during a pandemic while the vaccination programs are being ramped up.

In Germany, there has been a surprise rise in business sentiment there, possibly driven by expectations that the international vaccination rollouts will gain increasing momentum.

In Australia, there has been a remarkable rise in new-built home sales, zooming higher in December.

Wall Street has started their Inauguration Week positively, up +0.7% in early afternoon trade following their public holiday. In Europe, markets slipped about -0.2% overnight. Yesterday Shanghai fell -0.8%, but Hong Kong rose a remarkable +2.8% while the very large Tokyo markets was up an also-impressive +1.4%. The ASX200 closed +1.2% higher while the NZX50 Capital Index ended its session up a more modes +0.3% and ending a string of six straight 'down' sessions.

The latest global compilation of COVID-19 data is here. The global tally is rising faster, now at 95,726,000 and up +547,000 in one day. We are heading for 100 mln in about a week now mainly because the UK variant is taking off worldwide now. It is still very grim everywhere except in our region. Global deaths reported now exceed 2,045,000 and +11,000 since this time yesterday as death rates rise everywhere.

But the largest number of reported cases globally are still in the US, which rose +139,000 for their tally to reach 24,628,000. The US remains the global epicenter of the virus. The number of active cases rose overnight and is now at 9,675,000 and that level is up +23,000 in just one day, so many more new cases than recoveries. Their death total is up to 409,000 however (+2000). The US now has a COVID death rate of 1231/mln, awful but made to look 'good' by the disastrous UK level (1344) where deaths are surging.

In Australia, their community resurgence is back under control although officials are on high alert over the risks from the UK variant which is starting to show up in managed isolation intercepts. That takes their all-time cases reported to 28,730, and only +9 more cases yesterday with all in managed isolation. 195 of these cases are 'active' (-8). Reported deaths are unchanged at 909.

The UST 10yr yield will start today up +1 bp at 1.10%. Their 2-10 rate curve is unchanged at +95 bps, their 1-5 curve is still at +35 bps, and their 3m-10 year curve is also unchanged at +101 bps. The Australian Govt 10 year yield is up +2 bps at 1.05%. The China Govt 10 year yield is unchanged at 3.19%, while the New Zealand Govt 10 year yield is also unchanged at 1.02%.

The price of gold is up +US$2 today in New York and now at US$1840/oz. Silver is firmer.

Oil prices are firmer today by nearly +US$1 and now just under US$53/bbl in the US while the international price is now just under US$56/bbl.

And the Kiwi dollar is marginally weaker again today from this time yesterday at just under 71.1 USc, a softening trend that has been evident since the start of the year. Against the Australian dollar we are softer as well at 92.4 AUc. Against the euro we are down to 58.7 euro cents. That means our TWI-5 is now down at 72.6 and its lowest since before Christmas.

The bitcoin price is notably higher this morning compared to this time yesterday. It is now at US$37,433 a gain of +4.8%. Volatility has been +/- 3.4% in between but we are currently near the top of this range. 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 ».

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48 Comments

33
up

Rent up
Houses up
Food up
Petrol up
But no inflation...

yet ..... oh and add vehicles up stock dwindling exports and imports severely delayed and costs hugely increased ...

yep and we will be able to throw in rates, insurance very shortly. Then wait for Min wage flow on effects to hit the above after march as well....

The price of power up 10% before winter strikes, all thanks to Meridian's deal with NZAS.

Finally, tax bracket creeps now mean a median earner in NZ working 40 hours a week pays 63% more in PAYE than what they would have to back when these brackets were first introduced less than a decade ago.

20
up

Funny that. The thing that triggers some wage increases to cover increasing costs isn't there, but the costs are increasing none the less.

Given our poor track record of wages keeping up with living costs, I am extremely pessimistic about how lower/middle income households are going to make ends meet in the medium term.

yes inflation is there even if not visible

The govt will be looking to have real inflation outpace interest rates for a long period of time to inflate away the debt.

Difficult to sustain with no wage inflation and a high NZD, and who wants to by govt bonds that are effectively negative yeilding

"who wants to by govt bonds that are effectively negative yeilding"

Mr Orr tentatively raises his hand.

A high NZD is no guarantee - and with supply chain issues - inflation can come slowly, then all at once. I'm still betting we'll all be Venezuelan millionaires before long.

And WMP rises..good news but in my mind just another sign of inflation?

Houses, rent and rates are definitely outpacing the CPI. But then imported things like electronics, clothing, furniture are going down. Overall I think the CPI is fairly accurate measure of cost of living increases assuming you rent your house. If you want to buy a house then that is a different story.

21
up

Yea absolutely. I can't wait to move into my Panasonic 60"4k smart TV

I'd be really surprised if electronics really are going down after this year. From what I'm seeing especially in discretionary spend items like TVs, the mid-range stuff is now priced where the upper end stuff was, and premium products are now thousands, in some cases tens of thousands of dollars more expensive than the same item in the same chain in Australia. We also don't get access to the same brands in NZ that other countries get (think Vizio/Hisense) which offer good value for money in lower tiers - but we still get the lower end big-name stuff priced at what used to be mid-market prices.

11
up

I wonder if David Parker is becoming wary about the belt and road obligations and insidious reasons for it, or is he still singing from the belt and road songbook?

I have always been highly cynical of the B and R.
Parker is a knob.

"Aggressive Chinese policies and debt positions have been a concern for developing nations for a while now".
There are never any free lunches . . . and that includes any aid.

NZ has been getting a free lunch on defense for decades.

China is buying up big time, they had a huge 90 million tonne grain stockpile which got left too long deteriorated and got shipped to Africa. Online it's about high grain prices leading to higher costs for dairy farmers .

They say Chinese pork numbers have recovered.

https://dimsums.blogspot.com/2021/01/china-pork-output-lags-inventory-re...

Last night it blew the beejeepers out of us, no trees down that I can see. Strange weather with all those big lows spinning off Antartica. Hay is going in the barn today but no rain in forecast.

General comment, if you are close to me, I can run down in the tractor and top a paddock for you?

Very generous offer thanks Andrew, but the flail mower should be arriving on the truck this afternoon so we're good to go. Big winds overnight for us too, it's pushed a nest down the (old, unused) chimney so we now have a handful of very angry birds letting us know just what they think. The squash is somehow booming despite the total lack of rain.

12
up

These Democrats are crazier than the last lot, 4x the troops in the capital as in Iraq, Afghanistan and Syria, who are they scarred of ? Trump didn't rally bother about security too much this lot look terrified, great way to start your government.
Wonder what monsters this lot will turn into. Seems to be the reoccurring theme of US governments these days. Why do we have US leaders born in the early 1940's? What are they going to do about all the jobless, the 10 million new unemployed since covid, the homeless, the student debt, the housing bubble, the deficits, the debt, the monopolies, the corrupt MSM, God is the sky going to fall?

US President-elect Joe Biden did two spectacular things last week that may rewrite the assumption that his presidency would return America back to the Barack Obama era.

One was the US$1.9 trillion Covid-19 relief plan Biden rolled out on Thursday and the other his choice of William Burns, a veteran diplomat, to lead the Central Intelligence Agency (CIA).

Seemingly unrelated, these two things convey a powerful signal that Biden understands that the real pandemic danger in America is social collapse and what is needed is a national policy that prevents societal disintegration – and a foreign policy that reflects that top priority. Link

Admittedly, its not hard to find inflammatory, contradictory comment.

But I am always hopeful the outlook will improve.

They're in a classic case of projection

13
up

dispite Trumps shortcomings I have no doubt that this administration will be more corrupt

The Dems claim to be holier than thou but you only need to look at the FISA warrant obtained to spy on the Trump campain that was organised by the Clinton campaign and the almost certainty that Bidem had been syphoning millions from China and the Ukraine through Hunter. There is every reason to suspect there will be a lot of shenanigans going on..

https://www.wsj.com/articles/a-trail-of-fbi-abuse-11575938300

My grandfather many years ago referred to American politicians as "theyre all crooks and murderers" , nothing has changed

Seems like a tough goal - cut Trump and he will bleed corruption, it's a fundamental part of his being. The new guys will have to work very hard to match him.

If Republicans support impeaching Trump on Trumped up charges, the word is they will lose %30 of their voters. It's sort of cognitive dissonance, hate big red man, but he got more votes than the republicans ever had, so love him.

Some positive international legacies from the Trump era: from the outgoing US Ambassador

E.g. the Abraham Accords etc

Friedman said the Trump Administration made history because it approached the relationship with Israel from a different perspective than past administrations. “What I think I’m most proud of is that our administration really extended to Israel not just the courtesy but the right to really self-determination to really decide for themselves how to govern and I hope that courtesy continues to be extended because that’s where I think we really made a difference. Now, of course, that was manifested in all kinds of things like recognizing Jerusalem as Israel’s capital, recognizing sovereignty over the Golan Heights.”

Friedman also warned the incoming Biden administration that re-entering the Iranian nuclear deal would increase the danger to Israel and the region.

10
up

The life blood of any economy is small business. Small business in the US is being decimated yet hardly reported, the media have become purveyors of propaganda of the socialists. Challenge them or their narratives at your peril - you become marginalised on all fronts. As I’ve said before, fascism comes after socialism.

From September - "New data released by Yelp has suggested that a staggering 60 percent of businesses that were forced to shut down temporarily in the coronavirus pandemic have now closed their doors permanently."
All this for a Infection Fatality Rate of 0.007% for under 50's and a median age of death higher than average life expectancy.
https://www.health.gov.au/resources/publications/coronavirus-covid-19-at...
https://www.cnbc.com/2020/09/16/yelp-data-shows-60percent-of-business-cl...
https://www.cdc.gov/coronavirus/2019-ncov/hcp/planning-scenarios.html

Thank you for bringing this up. Majority of people seem to still be blind.

Nothing like having antiscientific ignorance confirmed.

How many US presidents have been assassinated?
Is it more likely to be a liberal or conservative president?

Trumps crazy supporters have already shown that they are prepared to enter government buildings by force, police unprepared to resist (or chose not to). It literally took a DPS officer to shoot an invader in the house to turn them away. Trumps started a civil war, are we honestly surprised that the government agencies are protecting their new president? And The Don trying to get a military parade as a farewell - Classic Dictator!!!

We do need to be careful about such claims however as Chian is fighting a propaganda war over its handling of the pandemic and its origins. Facts are hotly disputed.

Hmmmmm... - Foreigners poured money into China as the world struggled with the coronavirus pandemic

Further, China seems to have a fight on its hands over how it is developing its Belt & Road projects in Pakistan.

How Pakistan lost $6 billion on a gold mine

World Bank tribunal decision in favor of foreign miners could see seizure of Pakistan state property assets in US and France

I was optimistically telling my colleague yesterday that the UK seemed to be turning the tide with Covid. But then they go and smash the daily death record (1610). Total of 108K dead with Covid on their death certificates (91k within 28 days of contraction), which is over half the population of Wellington.

My friend's parents back there have caught it and say they've never felt worse and are now in hospital. They're about 60 years old.

I check the NZ news apprehensively. Sometimes it feels we're just waiting for that strand to get in.

However, still hope that the Tran-Tasman bubble will soon happen
https://www.stuff.co.nz/national/politics/opinion/123993562/why-a-transt...
The net economic effect of this?

I hope so too. However, I'll believe it when I see it.

https://www.abc.net.au/news/2021-01-18/international-travel-unlikely-202...

Trans-Tasman Bubble Dreamers

If you are an Australian citizen or a permanent resident you cannot leave Australia due to COVID-19 restrictions unless you have an exemption. Temporary visa holders in Australia can depart Australia at any time, however, they will not be permitted to return to Australia.
https://covid19.homeaffairs.gov.au/leaving-australia

So where are these coming from
Not from Australia
400 inbound daily
https://www.customs.govt.nz/covid-19/more-information/passenger-statistics/
The new requirement for a negative test hasn't slowed them down

Interestingly, those custom stats show a net departure of 14 passengers since Jan 1.
Those numbers are about to turn into net gains with 1k students and 2k Pacific RSE workers coming in starting this month.

Covid here we come.

NZers with their automatic SCV (new workers or returning workers) can travel to Australia on the quarantine-free flights.
So NZ may experience a surge of exiting kiwis for Aus intending to stay long term.

"I check the NZ news apprehensively": yeah I can't see us avoiding lockdown too much longer. Was surprised we got through Christmas. I guess being summer here helps to an extent (although a lot of people are coming from winter).
Amazing that we have gone so long since a lockdown. I was quick to criticise in the early days but have to give credit now, it is almost impossible to stop such a contagious virus at the border, to do so for so long is remarkable.

Indeed. We've began stocking up on supplies while it's quiet out there and before stupidity begins. Just to avoid going out when people go crazy (for toilet roll) again.

Same here.

I trust you are using the Covid app daily Jimbo and doing your bit? Or just winging it like most of NZ's sitting in their smug world.

I am the first to draw attention to things I think they stuffed or could have done better, but they did bloody well to keep it out pre-summer and the great Kiwi diaspora over Xmas/New Year's. The comms around 'stopping summer' has been really good, really effective. Sure, perhaps a bit of luck given we're only now implementing the testing changes some were calling for months ago, and we'll almost certainly have a regional lockdown at best in the near-future again - but to not be under one now is a real testament to how much things have improved at the border.

Dairy and commodity prices rising eh
Inflationgood now is it?
Notice infection numbers in USA falling too

It was a public holiday in the US yesterday. I'd expect their numbers to pick up again.

Why we can’t plant our way out of climate change
https://www.newsroom.co.nz/pro/why-we-cant-plant-our-way-out-of-climate-...