90 seconds at 9 am: Dairy prices up again

Dairy prices rise +9.9% at GDT auction; IMF sees growth in West, stall in EMs; US trade deficit widens on strong China imports; UST 10yr yield 2.05%; NZ$1 = 65.4 US¢, TWI-5 = 69.9

7th Oct 15, 7:18am by David Chaston

Here's my summary of the key events overnight that affect New Zealand, with news the IMF sees the West growing but emerging markets not.

But first, following yesterday's market assessments that New Zealand has done well out of the Trans Pacific Partnership deal - and this despite few immediate gains for our dairy exports - the New Zealand dollar strengthened.

Today it is dairy's turn to shine, with another +9.9% rise in the GlobalDairyTrade auction, and the New Zealand dollar got a further push higher.

This is the fourth consecutive rise and the important WMP component rose +12.9%.

Overall prices are back to where they were in March and +63% higher than they were at their lowest point in August. However, they are now at their highest in more than 15 months in New Zealand dollars. The overall-lower currency is doing its job well.

In other news, the IMF’s latest World Economic Outlook foresees lower global growth compared to last year, with modest pickup in advanced economies and a slowing in emerging markets, primarily reflecting weakness in some large emerging economies and oil-exporting countries. That is a tough prognosis for Australia.

But there may have been a signal that factories in China have been more active recently. The American trade deficit has come in larger than forecast, primarily on surging imports from China. These are August data, but that reinforces the surprise.

In New York, the UST 10yr yield benchmark inched higher today and is currently at 2.05%.

The US benchmark oil price continues higher, now just over US$48/barrel, Brent and just on US$51/barrel.

The gold price is following the same trend higher, now at US$1,147/oz.

The New Zealand dollar has gained overnight. It is currently at 65.4 US¢, at 91.5 AU¢, and 58.1 euro cents. The TWI-5 is at 69.9 and nearly a two month high.

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

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

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13 Comments

by Stephen Hulme | 7th Oct 15, 9:09am 1444162188

In other news, the IMF’s latest World Economic Outlook foresees lower global growth compared to last year, with modest pickup in advanced economies and a slowing in emerging markets, primarily reflecting weakness in some large emerging economies and oil-exporting countries.

Goldman Sachs Group Inc. says there’s a chance the Federal Reserve will delay its planned interest-rate increase well into 2016, or even later.

Treasuries fluctuated after a selloff Monday lifted 10-year yields by the most in two weeks. While a December liftoff is still Goldman Sachs’s central forecast, a slowdown in output and employment may justify the Fed keeping the near-zero rate policy for “much longer, well into 2016 or potentially even beyond,” Jan Hatzius, the bank’s New York-based chief economist, wrote in a note to clients. Read more

by Neven911 | 7th Oct 15, 9:28am 1444163291

Watch as a slow and steady increase in the oil price strangles any economic recovery and the Economists scratch their heads.

by rastus1 | 7th Oct 15, 10:16am 1444166172

..Slow and steady?....maybe fast and furious....I'm watching Syria.

by Kate | 7th Oct 15, 10:48am 1444168137

Indeed Wall Street will be looking forward to that next shock to set off Round II of the accumulation by dispossession show;

http://www.wsj.com/articles/big-landlords-in-talks-to-merge-betting-on-…

http://www.wsj.com/articles/rising-rents-outpace-wages-in-wide-swaths-o…

by two otherguys | 7th Oct 15, 12:02pm 1444172554

America's version of free-market predatory capitalism at work :-
The two own a combined total of more than 30,000 homes valued at nearly $8 billion. Messrs. Sternlicht and Barrack were part of the rush by "big investors" to buy foreclosed homes in bulk, often sight unseen and at steep discounts, after the U.S. housing market collapsed.

by Stephen Hulme | 7th Oct 15, 10:21am 1444166501

You could of course just add the rising cost of oil to the already miserable situation in the US.

The new numbers are poor on pretty much every level. American employers added a mere 142,000 jobs last month, far below the analyst forecast of 201,000 or the average over the last year of 229,000. Revisions pushed July and August numbers down substantially. The unemployment rate was unchanged at 5.1 percent.

This is usually the point in one of these stories where we would list the silver linings — the countervailing details that suggest it isn’t as bad as all that. This report doesn’t really offer any. Average weekly hours fell. Average hourly pay was unchanged. The number of people in the labor force fell by 350,000, and the number of people who reported having a job fell by 236,000. Read more

by muntijaqi | 7th Oct 15, 10:30am 1444167024

based on global MPI, the slowdown in international freight/cargo and low Baltic Dry Index (among others) I wouldn't bet on any increase in oil prices any time soon.

In fact production of oil could increase lowering more the prices if Iraq, which as light-quality oil, keeps increasing its production.

by Andrewj | 7th Oct 15, 10:35am 1444167315

Tony Sagami.

Repeat After Me!

I have said this many, many times before, but repeat after me:

ZIRP (zero interest rate policy) and QE are DEFLATIONARY!

The reason is that cheap (almost free) money encourages over-investment as well as keeping zombie companies alive that should have gone out of business.

Both of those forces are highly deflationary, and unless you think that Mrs. Magoo (Janet Yellen) is going to aggressively start jacking up interest rates, you better adjust your portfolio for years and years and years of deflation.

by Andrewj | 7th Oct 15, 10:37am 1444167479

Federal Express Crashes and Burns

Federal Express, which is the single largest weighting of the Dow Jones Transportation Average at 11.6%, delivered a trifecta of misery:

Missed on revenues

Missed on earnings

Lowered 2016 guidance
Speaking of Falling Commodity Prices

Oil, which dropped by 23% in the third quarter, isn’t the only commodity that’s falling like a rock.

Copper prices plunged to a six-year low.

Aluminum prices have also dropped to a six-year low.
Coal prices have fallen 40% since the start of 2014.

Minerals aren’t the only commodities that are dropping. Sugar hit a 7-year low in August.
Commodities across the board are lower; the Thomson Reuters CoreCommodity CRB Index of 19 commodities was down 15% for the quarter and 31% over the last 12 months.

Since peaking in 2008, the CRB Index is down 60%.

That’s why anybody and anything associated with the commodity food chain has been a terrible place to invest your money. Just last week:

Connecting the Dots #1: Caterpillar announced that it was going to lay off 4,000 to 5,000 people this year. That number could reach 10,000 by the end of 2016, and the company may close more than 20 plants. Layoffs are nothing new at Caterpillar—the company has reduced its total workforce by 31,000 workers since 2012.
The problem is lousy sales. Caterpillar just told Wall Street to lower its revenues forecast for 2016 by $1 billion.

$1 billion!

How bad does the future have to look for a company to suddenly decide that it is going to lose $1 billion in sales?

“We are facing a convergence of challenging marketplace conditions in key regions and industry sectors, namely in mining and energy,” said Doug Oberhelman, Caterpillar chairman and CEO.

Like the layoffs, vanishing sales are nothing new. 2015 is the third year in a row of shrinking sales, and 2016 will be the fourth.

Caterpillar, by the way, isn’t the only heavy-equipment company in deep trouble.

Connecting the Dots #2: Last week, UK construction machinery firm and Caterpillar competitor JCB announced that it will cut 400 jobs, or 6% of its workforce, because of a massive slowdown in business in Russia, China, and Brazil.
“In the first six months of the year, the market in Russia has dropped by 70%, Brazil by 36%, and China by 47%,”said JCB CEO Graeme Macdonald.

Caterpillar, the world’s biggest maker of earthmoving equipment, cut its full-year 2015 forecast in part because of the slowdown in China and Brazil.

Connecting the Dots #3: BHP Billiton announced that it is chopping its capital expenditure budget again to $8.5 billion, a stunning $10 billion below its 2013 peak.

Moreover, BHP Billiton currently only has four projects in the works, two of which are almost complete, compared to 18 developments it had going just two years ago.
Overall, the mining industry—according to SNL Metals and Mining—is going to spend $70 billion less in 2015 less than it did in 2012.

And in case you think metals prices are going to rebound, consider that the previous bear market for mining lasted from 1997 to 2002, which suggests at least another two years of shrinking budgets and pain.

by steven | 7th Oct 15, 11:55am 1444172102

As I said below, "So the thing is is he mixing up absolute and relative ie if other impacts on inflation are bigger and are over-welming ZIRP and QE? causing little inflation and even deflation? I suggest yes, and it seems to me such a basic thing."

The above layoffs etc overwelm.

by steven | 7th Oct 15, 12:07pm 1444172858

and this,

"This means that nobody will change course aside from the ECB, which is in the process of finding out just how limited monetary policy really is when interest rates are already very low and fiscal policy is pulling in the wrong direction."

http://krugman.blogs.nytimes.com/2015/10/06/learning-nothing-in-europe/…

It just strikes me that those calling for raising rates just seem unaware of these aspects or discount them so much that are considered inconsequential.

by steven | 7th Oct 15, 11:50am 1444171822

The interesting thing is do some of these ppl like Tony Sagami have a clue. So conventional economics says ZIRP and QE/printing is inflationary. So the thing is is he mixing up absolute and relative ie if other impacts on inflation are bigger and are over-welming ZIRP and QE? causing little inflation and even deflation? I suggest yes, and it seems to me such a basic thing.

however it strikes me that no matter what evidence, models or logic there are some ppl who seem 100% sure of their opposite opinions/politics on the matter are right and we must raise rates. Kind of a worry if they get their way, which with the possibility of a Republican President, Congress and Senate is real. Of course they could be correct but trying to prove that or not means doing what they want and if wrong a self-inflicted Greater Depression.

by waymad | 7th Oct 15, 10:01am 1444165314

"there may have been a signal that factories in China have been more active recently"

Chinese "data", yet again, DC.

They may well, of course, be selling down inventory, so the 'activity' is warehouse-based in that event, not factory floor.