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WMP jumps +21% leading dairy prices higher; US retail sales slip; NYC PMI sinks; RBA declares 'whatever it takes'; NSW abandons GM-free; UST 10yr at 1.42%; oil down and gold unchanged; NZ$1 = 72.8 USc; TWI-5 = 74.3

WMP jumps +21% leading dairy prices higher; US retail sales slip; NYC PMI sinks; RBA declares 'whatever it takes'; NSW abandons GM-free; UST 10yr at 1.42%; oil down and gold unchanged; NZ$1 = 72.8 USc; TWI-5 = 74.3

Here's our summary of key economic events overnight that affect New Zealand, with news financial markets have been quiet overnight but the dairy market has signalled a boom.

Dairy prices leapt a spectacular +15% in the overnight auction, their biggest jump in 6½ years to their highest level in 7 years. The sharp shift higher was led by a spectacular rise for WMP which was up +21%, and butter which was up +13.7%. Other products only had modest lifts in comparison. This auction was an unusually long one, taking 2:53 hh:mm to complete and although a regular number of bidders competed (180), only 86 won any product (the fewest in eight years). That is an unusually large set of bidders who left with no product at this auction.

This is the type of change that will have an impact on farm gate payout prices if it is sustained over the next few auctions. But you won't see dairy companies or analysts changing their tune just yet.

Meanwhile, US retail sales slipped last week compared to the week before. Now that it is March, we are going to find year-on-year comparisons less meaningful as in 2020 activity was starting to be severely distorted by unusual pandemic and lockdown activity. But understanding that, last week's sales were +4.6% higher than the same week in 2020.

In New York City, there has been a very sharp contraction in sentiment among businesses, moving from a good expansion to a sharp pullback. One special feature of this survey is the reporting of sharp rises in prices businesses are paying there for their inputs.

Canada reported its Q4-2020 economic growth overnight and that came in with a much better rebound than analysts were expecting, up +9.6% on top of the +40% rebound in Q3-2020. But that means their economic output was down a net -4.5% in 2020 compared to 2019 and that is its largest contraction since the 1930s.

Yesterday the RBA left its interest rate settings unchanged but it did extend its bond-buying commitments by another AU$100 bln and said it is prepared to do more "if necessary". It is trying to keep its three year Government bond yield at a target rate even in the face of the international reflation trade. It might need an even larger commitment and is pledging "whatever it takes".

And staying in Australia, NSW is to lift its ban on genetically modified crops grown in the state. It was announced that the 18-year moratorium on GM crops would be lifted in July and was expected to deliver a multi-billion-dollar boost to its primary industry.

On Wall Street, they are marking time today with the S&P500 down a minor -0.2% in mid-day trade. That follows European markets which gained +0.2% overnight. Yesterday the very large Tokyo market fell -0.9%, while both Hong Kong and Shanghai each fell -1.2%. The ASX200 shed -0.4% yesterday but the NZX50 Capital Index was up +0.4%.

The latest global compilation of COVID-19 data is here. The global tally is still rising and at a faster pace, now at 114,619,000 and up +378,000 in one day, so no letup globally. Global deaths reported now exceed 2,543,000 and +10,000 since yesterday.

More countries (122) have started their vaccination programs. About 244.3 mln doses have been given so far.

The largest number of reported cases globally are still in the US, which rose +62,000 over the past day for their tally to reach 29,321,000. The number of active cases fell overnight and is now just on 8,975,000 and -64,000 fewer in a day, so many more recoveries that new infections again. Their death total is rising slower, now at 528,000 (+2000).

The UST 10yr yield is back down -3 bps at 1.42% and continuing the yo-yoing pattern of the past few days. The US 2-10 rate curve is flatter at 129 bps. Their 1-5 curve is flatter still at +60 bps, while their 3m-10 year curve is also flatter at +137 bps. The Australian Govt 10 year yield is up +4 bps at 1.70% following the RBA statement. The China Govt 10 year yield is down -1 bp at 3.27%. It has been an island of stability during this recent international bond price instability. The New Zealand Govt 10 year yield is unusually unchanged at 1.76%.

The price of gold starts today little-changed from yesterday at US$1735/oz but making back some of the fall that happened over the past 24 hours. Still, it is languishing at a nine month low.

Oil prices are weaker and are now at just under US$61/bbl in the US, while the international price is just under US$64/bbl.

And the Kiwi dollar opens at 72.8 USc and little-changed from this time yesterday. Against the Australian dollar we are lower at 93.3 AUc. Against the euro we are unchanged at 60.3 euro cents. That means our TWI-5 is still at 74.3.

The bitcoin price is now at US$47,889 and -1.9% lower than at this time yesterday. Volatility in the past 24 hours is high at +/- 3.1%. 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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52 Comments

10
up

Milk and its products. NZ’s lifeblood almost. Certainly an extremely critical component to any economic recovery that lies ahead for our nation. Perhaps best summed up many many years ago by the Right Honourable Robert Muldoon, in opposition in parliament, when he sang out “ oh what a friend we have in cheeses”

No. It's reliant on finite-resource draw-down, including sink capacity. So 'extremely critical' is pre-biased and 'economic recovery' is myopically-scoped.

On a more thought-provoking note, this fellow used to be the best in the world, wordsmith-wise, but has gone off the boil during the last few years. This is a better offering - not too far off the truth, either:
https://kunstler.com/clusterfuck-nation/party-like-its-1984/

Interesting fellow. In reading this article I couldn't help but think does he put the knives on the stove once, twice or three times per day?

We are going to need more cows not fewer. Use tech, vaccines and grass types to solve the methane issue

It's not just about methane, what about water? Where will they get it from, and what about the quality that is left for the rest of us?

Think Microgreens but for cows

Not an answer - please explain?

If you are able to accept tech could solve cows emitting methane then tech processing water is trivial. As an ex-Londoner (East End) my high quality tap water had been pre-processed by an average of three Londoners living upsteam. No technical reason that water ex-Cow cannot be treated - it is merely a matter of cost.
The more technology is involved in producing ever cheaper milk the less reason for it to be produced on a far away island.

NZ is lucky enough to have an almost infinite amount of fresh water. We JUST DONT STORE IT.
Why are we not looking forward to the future? Water will be the most in demand commodity in the world. Why dont we dam a shit load of river in our mountain ranges? Would future proof nz, allow for another export commodity, keep river levels at sustainable levels during drought periods, allow for massive industry expansion in farming, orchards and any other water intensive operations and water supply security for any urban areas along the waterway.
Also it would provide electricity, security and jobs.
Also every new build should have to install a water tank, even if it is only a few thousand litres, this would help reduce overloading the urban infrastructure.

We need forward thinking and hard decision making.

shipping water ... sounds expensive ... unless we dehydrate it

well in Christchurch they give away for nothing pure artesian water to a private company who bottle it and sell it for good profit in China. At the same time the good people of Christchurch are drinking heavily chlorinated tap water and soon they are to be made to pay for that privilege. Go figure, it sucks!

This! How about we stop being bled dry for nix by foreign-owned water bottlers. I'd have thought Labour & the Greens would have been all over the issue.

Exactly! The authorities say the process is legal. Well change the law then. 99% of the people would see that as their will. Parliament is where our laws are formulated. It is the responsibility of our MPs. Yes this if nothing else should be a burning issue for the Greens at least. Sure would help change my mind about them if they got off their backsides and did something meaningful about it.

There's no excuse for inaction, the government were quick enough to ban oil & gas exploration so it can be done. Maybe it doesn't virtue-signal loudly enough?

Do nothing governments, will literally keep doing nothing. Even when there are home run policies to be hit, sitting directly in front of their faces. That's why you should all stop voting for do nothing, caretaker, populist idiots who wouldn't know how to lead if it slapped them in the face. For reference, see this gubbmint and the one before it.

Agreed

NZ economy Houses + Milk ...punching above our (larger) weight!

Like a soggy house of cards...

This is ugly - very very ugly for the RBNZ.

Mr Orr has been waiting for inflation and here it comes - Dairy is used in a massive amount of food products - so this is sure to push up food prices

The demand for Dairy- will push up the NZD (and Orr will probably be okay with this as he will no longer need a low dollar to protect exports ) and its likely that will also result in more labour needed to support the dairy industry and associated industries - but at a 4.9% unemployment rate there is not a lot of spare labour capacity. A hard choice may then need to be made to let wages inflate or bring in more labour.

Either way I'm seeing an interest rate lift this year and not 2022 and that's likely to hurt all those whom have borrowed to the hilt in order to buy a house.

No new labour for the Dairy and associated industries, CCC says reduce by 15%.

Keen to put up a box of p*ss on that wager? I see no rate hike. But I'd happily pay a box to be wrong

With increased prices dairy farmers can pay increased wages for the labour they need.

Hahahaha. Yea rite.

As evidence of reason for my reaction I submit that there's a ad on Farmsource today for a herd manager. It is offering less than the minimum wage for the coming season. :(

Ah No! The banks will rock up and call in loans or convince them that they are able to borrow more, and increase their debt levels. Corporate owned farms will rake of the profit to pay off shareholders. In the meantime the workers, you know, those people who actually CREATE that value will go wanting, without answer.

yes banks will use any increase to recover debt from farmers. Banks know sudden spikes in prices only last for a short while and almost always result in a correction to the downside (laters this year, early 2022). After lending $62bil to ag sector the banks will continue to close down funding distribution. this is happening and being redirected to houses.

One meteoric gdt rise, a season does not make. Nor does it automatically mean price rises in supermarkets - unless the supermarket owners decide to profit take. Under current Freshwater regulations until 2024 you cannot intensify. Any significant production increases will come from management practices and genetics etc.

GM crops, are they good or bad?

I don't know much about them but read that link about NSW and think 'Roundup Ready'. Surely it just can't be good to have crops doused in Roundup so that it dies and can be harvested all at once.

They are a panic answer from a flawed ideology, to a problem entirely self-created (and which may well be our undoing as a species).

The theory went that 'growth' was permanent. Thus human population growth was laudable. The theory went that technological progress was unlimited (could circumvent Thermodynamics, in other words). Draw-down was ignored (an externality, apparently), draw-down of fossil energy, of soil volume, of soil quality, of biodiversity, of phosphate reserves, of sink capacities, of, of, of....... Then, all of a sudden, population numbers irrupted (tautology intended); 1 billion in 1800, 2 by 2030, 3 by 1950, 4 by 1980, 8 by now. No 'green revolution' (which was really the application of fossil energy/feedstock to food, a once-possible-only alteration) could keep pace. Thus the demand for milk powder. Thus the push for GE. Thus the unmaintainable shambles that is the Canterbury Plains, et al.

The problem with GE,hybrids and indeed with specialist breeding, is what we will be left with when the system passes into history. We will need live soil. We will need soil, period. We will need nutrient-circularity. We will need local. And we will need variations across a species, for adaptive/resistance reasons. Essentially, we are several verses into 'The Old Woman who Swallowed a Fly' - GE is the 'swallowed a cow' verse and from memory there's only one more to go.....

GE isn't really about dousing crops so they die and can be harvested at once. Herbicide spray out is already done on many non transgenic crops in NZ anyway. It's more about dousing crops with Glyphosate during their growing cycle and controlling competing weeds. Problem of course, is how the frequent overuse of this chemical has increasingly made Glyphosate useless, due to weed selection for resistance. Of course the answer for the gene jockeys, is to stack traits and now we have Transgenic crops resistant Glyphosate and other less desirable herbicides like Dicamba, which is highly volatile and can poison susceptible plants kilometres away from application. "Farmers’ responses to USDA’s Soybean Production Practices and Costs Report for 2018 suggest that approximately 4 percent of soybean fields were damaged by off-target dicamba movement in 2018. The largest share of fields was damaged in Nebraska and Illinois, where damage from dicamba was reported on approximately 1 in every 13 fields." Just got to love the thought processes of extreme industrialists. https://www.ers.usda.gov/amber-waves/2019/october/the-use-of-genetically...

Listen to the chatter

In the past week, news of dramatic reductions in Covid-19 infections due to vaccines in UK and US signalled to the global smart-money the corner has been turned, resulting in large rises in bond yields, and now GDT prices are signalling a recovery in the hospitality restaurant industry. No guarantee, but the bets are in. Just my view

Only roughly a third of Fonterra's volume is put through the GDT, the speed at which this changes will speak volumes about its leadership.

regarding the dairy price soar, NZ is trapped in the coming setup.

I think you are possibly correct Xing. Our leadership is trapped by their own ideology and will see these gains as pulling their coat tails out of the fire. And, as the article and commentary, shows, they are far from unique, this being a common error being made around the world as we go back to 'normal'. As PDK is so fond of reminding us, we will be hoist by our own hubris (to mix metaphors) into a slow motion suicide as we destroy the environment we live in.

While there is an argument that as individuals we can make a difference, the real gains are to be made at Government level, in every country. But where this will fail is that those Governments are too scared to move to make the rich and powerful be responsible for the consequences of their actions. They continue to believe that somehow their wealth and status will make them immune to the coming cataclysm. in the mean time Governments will pay lip service and put in place measures that will make the ordinary people pay, and pay, and pay, but will ultimately make not much difference.

Note for example for all the discussion that is occurring in NZ at leadership level, there is still no mention of viable population size. This must be discussed if they are to get serious about our futures.

Big jump in vaccination doses administered in the last day or two. Now at 8000-9000

That is assuming Hopkins has it right which is a fair question given the wide range he provides. Can they hold this trajectory?

trajectory?

First two syllables have the makings of a good pun......

or limerick

https://www.ft.com/content/51cf718d-e701-4292-a9dd-dd36c1b1c5ea
Google the article title: Brazil virus variant found to evade natural immunity

We have yet to see if the vaccine is more than a short term pharmaceutical invention to reduce hospitalizations and deaths.
The vaccine makers have had time to study the P.1 variant so if the have no data they either have low confidence their vaccine will be effective or already have bad preliminary results.

Roger....CNN still has us at 1000 as at yesterday. Other countries such as Australia have been updated on the site in the last 24 hours. Hopefully the 9K number is a little more accurate than the front of the queue comment.

When everyone is printing money, it's unsurprising that we will get more (printed) money for our exports. Hell, why not go up 200%? It's all just vapour money anyway.

Of course the result is a stronger NZD, which will be bad for our exporters.

Hey Mr Orr, time to start printing NZD to keep up with the game internationally and not let our $$ get over valued in comparison! But when you do it, hand it out to the BOTTOM first, not the top, which is what you are currently doing, you idiot.

13
up

Exactly - we just gifted about $150,000 in welfare to every house a property investor owns in the last year - paid by the taxpayer, while the landlord pays little or no tax at all. What a ^#}][^*} system.

Investors are converting first home buyers into tenants who pay their mortgages. The future disconnect amongst communities in NZ will be of pandemic proportions as young people leave (once the world opens up) slow down birth rates due to insecurity, remain at home even longer. RBNZ and gvt have set NZ on a course that cannot be sustainable without considerable collateral damage. the problem is the effects while some are evident will take a few years to be visible, by then too late to turn around!

Meanwhile you have investors converting homes into motels (Air BnB) and at the same time motels are being converted into homes (emergency housing).

good point. Little doubt NZ will be attractive to tourists even beyond the pre COVID demand once world opens up. No matter what govt says, we know NZ will totally exploit itself to tourism (and any other material generating activity) and will flood the country with tourists. this will create the next wave of income for house investors as they turn the houses into air BNB's. Even less rental stock then. The stupid RBNZ and the gvt have moved houses across to the business sector, without accomodating their populations properly. Now investors can turn their assets to whatever earns them the most return.

Has the penny not yet dropped? We are not returning to normal. Covid is the excuse, all it did was speed up things a tad.

Yesterday the RBA left its interest rate settings unchanged but it did extend its bond-buying commitments by another AU$100 bln and said it is prepared to do more "if necessary".
Proper Skepticism Even As Aussies Experience A Proper Rout

In the media, rising nominal rates were spliced together with Bond King pronouncements to make what seemed a compelling case – that didn’t really exist.

This is also true right now; while much of the mainstream has been hysterical surrounding the past few months in bonds, even in Australia “the market” has kept its head.

“The markets are wrong” about inflation expectations, said Sicilia, chief investment officer of the A$56 billion ($43 billion) Host-Plus Pty pension fund in Melbourne. “Deflationary forces are bigger. Interest rates are going to stay at effectively zero.”

I think that’s a bit too harsh, too conclusive, and therefore too much like convention which likes to make this bond business into an exclusive binary: when yields rise, we’re told that can only mean the market is getting onboard with inflation; when yields don’t rise, they’re just waiting for the day until they do.

In other words, apologies to Sicilia, they are not “wrong” now even if you believe that inflation has little to no chance. The selloff in Australia’s long end is a good example; out of any national system’s, Down Under would benefit most from what commodity prices are managing right now. That’s why the AGS 10s are underperforming pretty much everywhere else.

"One special feature of this survey is the reporting of sharp rises in prices businesses are paying there for their inputs."

INFLATION

Yes I mentioned the other day that I had received a price increase letter for product used in the Civil and Vertical Infrastructure markets, increases of 10 - 15%. These are effective April. Distributors are starting to see the inflation but it's not yet filtering through to the end user.

Unsure how this effects the CPI as it's not "basket of goods" product.

I think NZ is or has convinced itself its in a boom time! Houses seem to be able to increase value with out any limits, really god know's how as we are selling these to each other with some migrant money thrown in (of course no forgetting the massive new debt from banks that furling this along with low interest!). However Milk commodities go up and then in every case over the past 30 plus years, come down. If the buyers are China, then once they fill capacity they will slow down buying, its happened in every other up cycle for this commodity category. Its great prices have increased but anomalies like 15% jump need further explanation.