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Dairy prices fall; US service sector strong, factory orders at record; China service sector stagnates; Wall Street equities fall; UST 10yr 2.51%; NZ$1 = US$0.847, TWI = 79.4

Dairy prices fall; US service sector strong, factory orders at record; China service sector stagnates; Wall Street equities fall; UST 10yr 2.51%; NZ$1 = US$0.847, TWI = 79.4

Here's my summary of the key news overnight in 90 seconds at 9 am, including news of another large drop in dairy prices early this morning.

The latest globaldairytrade auction recorded an overall fall of -8.4% in US dollar terms with the WMP price falling -11.5% and cheddar -10.2%. Butter fell -9.6%, while SMP took the least hit, down -6.5%. These are falls from just three weeks ago. Compared with the start of 2014, they represent a fall of almost -40%.

The NZD fell at the same time, although not quite as sharply. That has limited the drop in local currency. We are down -5.2% in NZD. But that is still a major fall and will immediately throw the recent Fonterra dairy payout into question. A figure below $6/kgMS is now entirely possible, challenging many dairy farm budgets.

In the rest of the world the news is not so grim. In the US, the closely watched ISM non-factory index came in higher than expected with service industries such as builders and retailers growing in July at the fastest pace since December 2005. Factory orders grew in June to their highest level since 1992 when the data was first collected.

On the other hand, China’s service industries stagnated in July as the HSBC index fell to a record low, suggesting the government’s stimulus measures are failing to gain traction outside of manufacturing.

In Australia, the RBA kept its cash rate target unchanged at 2.5% as expected late yesterday and surprised no-one with its commentary.

Equity markets are down sharply in New York today in late afternoon trade as some recent earnings reports disappointed; UST 10yr yields rose to 2.51%.

The oil price fell again today on the US benchmark and is now under US$98/barrel. On the Brent benchmark it is now under US$105/barrel. Gold however rose marginally and is now at US$1,291/oz.

We start today with the NZ dollar down following the dairy auction. We are now at just under 84.7 USc, just over 91.0 AUc. The TWI is at 79.4. And don't forget more important local news today. The unemployment data for June will be out at 10:45am this morning.

If you want to catch up with all the changes on Friday we have an update here.

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

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15 Comments

Hard to set a milk price when the market is in 'free fall'. We need to wait for a bottom.

 Auctions are a great way to find the bottom in an oversupplied market, so it shouldn't be too far away.

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thats a good link AndrewJ

tightening in the US perhaps

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Antal Fekete: As money flows from the commodity market to the bond  market, commodity prices fall along with interest rates (because bond  prices rise). Under a gold standard this process would be stopped sooner  or later as commodity prices cannot fall to zero. Under our global fiat  money experiment, however, the central bank is compulsively halving  interest rates again and again, unwittingly causing further price declines  in the commodity market. There is a vicious downward spiral in  operation: falling commodity prices chase interest rates lower, and  falling interest rates chase commodity prices lower. It is crazy. It is  unbelievably stupid, but there it is. The central bank in blind faith in the  Quantity Theory of Money is destroying the economy. Everybody is  expecting hyperinflation, but what we are getting is hyperdeflation.      http://www.professorfekete.com/articles/AEFThirdDailyBellInterviewRev11…
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Looks like all the commodities are getting smacked, could be more to this than an oversupplied market.

 

http://finviz.com/futures.ashx

 

Disaster Recovery Plan

 

https://www.youtube.com/watch?v=K-qY_b8lo-k

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Will the RBNZ keep on it's hiking track as commodities keep falling?

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yes until the auckland property market starts declining.

This shows just why the LVR is very important.

Im a farmer and im furious with this govt and how its let people speculating on houses make my interest rates rise and the dollar.

Furious doesnt come close to my feelings to be honest

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But National is the farmers party we thought - standing for the kiwi farmers and SMEs! 

Or do they now facilitate for the corporate masters of globalisation and banks? 

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Thats what i thought but things have changed. Theres a new farmers party thats started due to the discontent thats building. Sorry i cant recall their name at present

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The greens?

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Nice try!

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The only new Political parties I could find are these.

 

http://www.focusnz.org.nz/

 

And the NZ Independent Coalition

 

For a full list

http://www.elections.org.nz/parties-candidates/registered-political-par…

 

 

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Friedman seems to be at his best when talking about China. From Stratfor.com

 

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Scarfie... this is worth a read..  

http://www.debt-economics.org/how_to_predict_the_next_financial_crisis…

http://www.debt-economics.org/read.php

China is definitley where the next "Minsky moment" might happen...     

Chinas debt levels are extreme....

Maybe Chinas' Leadership see it too..???

BUT... being China...who knows how it might play out...???

 

Cheers  Roelof

 

 

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Roelof I always find it helps to look at GDP, or growth, as the consumption of resources. Credit is simply represents consumption that has already happened and on that basis the debt is virtual. Yes you could write the debt off no problem at all, although I don't see that further consumption automatically follows. The most direct way is for central government to start consuming resources directly through infrustrusture construction. That of course presumes the resources are available. GDP as a measure can hide the real situation by substituting price for production.

 

My guess that while a resource issues is pending it isn't imminent (except for places like Egypt, Syria and Mexico). The economic issues are more that finance, being extractive, is taking too large a slice of the pie and what to keep increasing the size of that slice as resouces plateau. A divergence if you like. We are seeing financial issues as a leading indicator of much worse things to come. But certainly wiping out debt would make things look rosey again for a while by starting the divergence anew.

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So here is Con Williams making the point that current volumes of Fonterra Aug-Sep 2014 product is competeing with amongst other things Fonterra Nov-Dec 2013 product being on sold/re-sold by Middle Kingdom traders.

http://www.radionz.co.nz/national/programmes/ninetonoon/audio/20144502/economic-impact-of-plunge-in-global-dairy-price

 

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