Here's my summary of the key events overnight that affect New Zealand, with news commodity prices are in a bear market.
Oil, gold, iron ore, copper are all lower. And that includes dairy products.
Today's GlobalDairyTrade auction saw prices fall another -7.9% in US dollar terms, -4.8% in New Zealand dollar terms.
The crucial whole milk powder price is down -11%.
That's the third fall in a row on the lowest volumes since June.
We will now see analysts cutting their farmgate payout forecasts for this season and the screws will turn harder on the dairy sector.
Prices are back to where they were in September, although they are still a third higher than the lowest point in August.
In other news, American consumer prices rose in October after two straight months of declines as the cost of healthcare and other services rose, crucial evidence of firming inflation for the Fed.
Other data out in the US showed that manufacturing output rose in October, although 'industrial production' declined on a sharp fall for 'mining' (oil output). The rise in factory output of consumer goods, and of construction, were healthy, and there was a growth in capacity utilisation, according to the Fed data. There is nothing in today's data releases to dissuade the Fed.
In fact, there are growing voices being raised that the Fed may have waited too long to start raising rates.
In China, data out today shows that electricity consumption dipped -0.2% in October. Despite that, the Chinese president is claiming that the country will post strong 7% growth in the current year.
In Australia, their Reserve Bank released the minutes of its last meeting, the press release of which was mildly upbeat. But the slowdown in China and the rest of Asia remains their biggest concern, while at home weak wages and continued falls in mining-related investment will prove the heaviest drags on growth, they say. Despite a moderately upbeat assessment of global conditions, the RBA said the "outlook for the Asian region, particularly China, remained one of the key uncertainties in forecasting global growth".
In New York, the UST 10yr yield benchmark has risen purposefully today, now at 2.30%. Equity markets are higher too on stronger earnings reports.
But the US benchmark oil price is lower today, now just under US$41/barrel, while the Brent benchmark is under US$44/barrel. The weight of output rising faster than demand is keeping a sinking lid on energy prices. And maybe the Paris attacks will accelerate the drive to wean ourselves off of oil faster.
And even gold can't win a trick; it is down sharply, now at US$1,068/oz.
The New Zealand dollar starts today lower at 64.6 US¢. Against the Aussie it is at 90.8 AU¢, and is at 60.8 euro cents. The TWI-5 is at 70.4.
If you want to catch up with all the local changes yesterday, 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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18 Comments
NZ interest rates will need to be cut to help save dairy farms.
Maintaining NZs high interest rate policy is not needed anymore - it has no effect on Auckland housing during high immigration, high numbers of international students, & uncontrolled international purchasing.
I thought high interest rates where just a geostrategic tool, to coerce nations to be indebted to the worlds financial powers in NY and London.
When I look at the OCR v mortgage rates, they generally move in a similar direction, but the OCR has been lower in the past, while mortgage rates, have not. Which proves that mortgage rates are not as tied to the OCR as most people believe.
Dairy farmers are learning the difference between cashflow and capital gains, a lesson the speculators in Orcs will likewise soon learn.
cashflow is always the key for any investment in any asset.
if positive and constant it can be used to improve ones position.
if lumpy it becomes a ride to the upside with fingers and toes crossed
if negative its only a matter of time until the pockets are empty and the asset must go ( how our government runs its books)
While I agree with your basis assessment of asset and liability it is not as simple as that.....that $200 pw cost might be tax deductible......and if the property is in an increasing capital gain location your friend will be on the winning side....$200 pw x 52 week = $10,400.....so your friend only has to watch the increase in value of the location the property is in to make sure inputs are under capital value increases......and the IRD will give him a tax deduction if he/she is set-up appropriately.
The money going out of one pocket should circulate around to the other pocket with a profit attached!
> so your friend only has to watch the increase in value of the location the property is in to make sure inputs are under capital value increases
If the madness continues.
"Bad Times" (already on the farms) -> Recession -> No Jobs -> Can't pay mortgages -> Property prices WILL have to fall as economy tanks.
Made a LOT worse by insane govt supporting a lack of investment in "real" NZ small businesses... that could have created the jobs in the first place.
I would suggest that all eyes should be on Europe.....whatever happens it will have a significant impact across the globe.
I agree there is insane government spending....but I don't agree that they should invest in small business that will just create another distortion....jobs are not the issue employment law, health and safety and a plethora of regulatory requirements is the problem.....who the hell wants to be bothered dealing with so many bureaucrats in so many govt depts......you'd just end up frazzled and unable to function.........the bureaucrats and public servants are the modern day saboteurs of the NZ economy!!! Clipboard clinging labour dept employees closing down building sites over a difference in scaffold height measurements of millimeters........or the NAIT system of tagging which is as useless as tits on a bull....but lets pretend its fulfilling a purpose.....or the IRD....lets lumber business with all the costs of collecting all the taxes at the same time becoming a bloated dept who's only role is that of audit and look how they have been caught with their undies round their knees with tax evasion within the property industry......oh and dear I mention the simpletons behind the desk who are mandated with chasing up late income taxes and they don't understand that the financial year has not ended yet.......and should I even start on place like our education or healthcare sectors....the biggest lot of free lunch eaters robbing the SME estates blind....one indoctrinates the kids so the other can practice.......medicine.......you know that pharmaceutical crap that your body lacks that they have to dish out in just he right quantity.......that is the trouble with insanity in an indoctrinated society no one knows what the hell is right anymore.
The madness will continue...it hasn't run its course..... the last thing the RBNZ want is property prices sagging!
and a FHB has this disadvantage to deal with when competing for their home.
its time we took a leaf from overseas countries and took away the tax advantage for investors over FHB
http://www.afr.com/news/policy/tax/negative-gearing-cut-in-uk-budget-ra…
Investors are in business - home owners are not......how are you going to house the more transient people in our populace or those who simple do not want to own their own home for various reasons?
I'd much rather have an APT Tax....that might mean giving up some of the tax deductible benefits in business but that would be a price I'd be willing to pay and the advantages from such a system are many....I get to cross off a large number of regulatory costs involved in the collection of taxes....no one or no business or no transaction could be exempt......it's on every transaction.......irons out all the inefficiencies.....accountants and IRD won't like it !! Neither will sharetrader or the banks!!
"in an indoctrinated society no one knows what the hell is right anymore" The fact that you believe investors are in business shows just how indoctrinated you are.
Most investors don't give a shit about providing accommodation - it's a necessary evil to get the tax advantage and capital gain.
Well you can keep buying assets, but you can only afford to take on a so many liabilities before the lack of cashflow sends you broke. Cashflow is king, capital gains are a nice bonus IF YOU EVER SELL. I don't have to sell, whereas if all you have is capital gains, you are committed to selling. Obviously you could do a reverse equity loan if you were desperate, which would have the amusing affect of making the cashflow situation even worse ;)
There is nothing wrong with a conservative approach.....but the markets have been solidly running on capital gains for over 15 years......most people naively assume that a CGT will stop the play.....but that is not the root cause!!
When the value of the goods are going up faster than the cashflow it often makes sense to borrow...especially when there is a shortfall of goods.....you just have to be careful when the supply catches up with demand.
and both may be technically correct, given a large element of upward GDP may be generated by administrative measures - read a stroke of the pen/quill.
The idea, the vice minister explained, is to minimize the development of high-quality cultivated land as cities expand. He said the land designated as "permanent farmland" should be concentrated in large contiguous fields, rivers, lakes, mountains, and forests.
Putting rural land off-limits for development removes one of the major drivers of China's GDP growth. Farmland is valued based on the amount of wheat or rice it can produce. Urban authorities reclassified big swathes of rural land as industrial parks, housing estates, golf courses, and college campuses, thus raising its book-value by a hundred-fold or more. Presto! Huge investment in "fixed assets" appears on the books. Fixed asset investment accounted for roughly half of GDP growth during the years of breakneck growth. Now China needs to figure out how to grow by producing goods and services that people want instead of producing "growth" by administrative measures.
Of course, placing land off-limits for growth also produces tension and conflict as local officials are denied the income and tax revenue from developing land. This is likely a chief reason for the slow progress on "permanent farmland" work.
http://dimsums.blogspot.com.au/2015/11/permanent-farmland-program-moves…
and
http://www.timeatlas.com/excel-goal-seek/
'there was a growth un (sic) capacity utilization'...
Not according to this there wasn't:
''Capacity utilization, which measures the amount of a plant that is in use, eased to 77.5 percent last month from 77.7 percent.''
http://www.bloomberg.com/news/articles/2015-11-17/manufacturing-in-u-s-…
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