Dairy prices rise again, but payout likely to fall; China property market gains, growth better than expected; IMF downbeat; UST 10yr yields fall; NZ$1 = 76.9 USc, TWI = 79.2

Dairy prices rise again, but payout likely to fall; China property market gains, growth better than expected; IMF downbeat; UST 10yr yields fall; NZ$1 = 76.9 USc, TWI = 79.2

Here's my summary of the key issues that affect New Zealand overnight with news of another small rise in dairy prices.

The overnight Fonterra auction saw prices rise +1% although the important wholemilk powder price was up +3.8%.

At the same time the NZ dollar fell a bit more than half a cent so that means that in New Zealand dollars, prices are up locally by +2.3%.

These small rises are the third straight increase, all up taking prices +7% since early December and +9% in New Zealand dollars.

But they are small rises, not the larger moves Fonterra had been hoping for, and that means the 2014-15 payout will need to be revised lower yet again. Yesterday ANZ reduced their forecast by -50c to just $4.35/kg. Although there is likely to be little volume consequences due to the growing dry conditions, the continuing low prices will have a big impact.

In China, their property market may be improving again. New-home sales jumped +40% last month after the first interest rate cut since 2012 boosted demand and developers made more apartments available to tap improving sentiment in the nation’s property market.

China's economic growth held steady at 7.3% in the fourth quarter from a year earlier, and that was slightly better than expected. A lot is being made that it is at a 24 year low in growth terms, but it still beat estimates and is in transition from an investment led economy to one that can be consumption led. It is actually a remarkable performance and that transformation will help New Zealand.

In New York, benchmark UST 10 year bond yields fell about -5 bps to 1.78%. Yesterday, New Zealand swap rates also slipped a couple of basis points but retained their remarkably flat curve.

Kauri bond sales are off to the strongest start in a year offshore issuers tap into demand for the yield offered by New Zealand dollar notes.

The oil price is unchanged overnight remaining about US$47/barrel range while Brent crude is in the mid US$48/barrel range. The IMF cut its 2015 global growth forecast.

On the other hand, gold made some strong gains. The price is now up to US$1,295/oz.

We start today with the New Zealand dollar lower by at least ½c following the dairy auction at 76.9 USc, at 94.1 AUc and the TWI is at 79.2. However it seems to be recovering some of those losses at this time.

Later this morning we will get the December CPI data.

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

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

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Baker Hughes in the US just announced 7,000 job losses:
http://www.businessinsider.com.au/r-baker-hughes-to-lay-off-7000-staff-as-oil-prices-slump-2015-1
”Oilfield services provider Baker Hughes Inc said it expects to lay off about 7,000 employees, days after industry leader Schlumberger Ltd said it would cut jobs as drilling activity slows due to a steep fall in oil prices.” [Schulumberger laid off 9,000 on Friday].
”Schlumberger warned on Friday that the oil price drop was likely to have a “significantly more dramatic” impact on North America than on the rest of the world.”
Really? You don’t say……..
Looks like US shale oil is getting blown out of the water - shame it costs so much to produce, eh?
Now lets see what effect the shale bust has on the broader US economy......

 

This is industry players getting rid of over-supply........watch where the revenues and profits are at.
 
Reduce the number of rigs you address what the industry sees as over-supply and you can get back in the driving seat of having a market with more demand than supply and increase the price.
 
As I have said before Oil is the thing to watch in 2015!! 
 
 

Kauri bond sales are off to the strongest start in a year offshore issuers tap into demand for the yield offered by New Zealand dollar notes.
 
It might be fair to note the redemption statistics to round out the story. NZD 1.025 billion Kauri matured in Dec 2014. In the same 2013 period, nothing.
 
Hence, early last year could be viewed as the stronger net issuance slot.
                        issues  maturities
31-Jan-14    1039       -225
28-Feb-14    825        -150
31-Mar-14    925            0
 
It might also be of interest to note that the cross currency basis swap quote is the main determinant causing foreign borrowers to issue NZD or not - is the floating USD cost cheap enough?
   

We are in period of utter central banking madness the end game can only be bad. Everything in the world is now seriously miss-priced the central banks are trapped unable to reverse their positions watch the US Fed try and normalise without massive economic dislocation.
 QE warfare pushing world financial system out of control
http://www.telegraph.co.uk/finance/economics/11358316/Central-bank-proph...

No worries ,under the new normal of economic fantasy I'm sure they will soon be able to print 
trade and jobs as well as money!

UK view: 'Big volumes'            
Mr Lancaster said that it was too early to forecast a continued revival in GlobalDairyTrade prices, also citing production which remains relatively strong.
"People are still forecasting very big milk production volumes in Europe this year," he said.
"The tap has not got turned off."
http://www.agrimoney.com/news/dairy-prices-rise-again-amid-new-zealand-dryness-fears--7883.html