Dairy prices hold; US inflation rises; Aussie deficits grow; markets awaiting Fed hike; oil steadies, gold slips; UST 10yr yield 2.27%; NZ$1 = 67.5 US¢, TWI-5 = 72.8

Dairy prices hold; US inflation rises; Aussie deficits grow; markets awaiting Fed hike; oil steadies, gold slips; UST 10yr yield 2.27%; NZ$1 = 67.5 US¢, TWI-5 = 72.8

Here's my summary of the key events overnight that affect New Zealand, with news the latest dairy auction eked out another small gain today.

Prices were up +1.9%, with the jump in the butter price the standout at +9%, and wholemilk powder up +1.8%. The quantity offered and sold was less than 25,000 at this event.

If the rise was skinny in US dollars, it is minuscule in NZ dollars, up only +0.9% and reflecting the rising local currency. Today's rise comes after a +3.6% rise two weeks ago which snapped a series of three prior losses.

In the US, underlying inflation pressures rose in November to +2.0% pa, which will give the Federal Reserve more confidence to raise interest rates tomorrow, even as renewed weakness in petrol prices kept overall consumer prices in check.

Yesterday, Australia had its own mid year economic forecast update and that gave a glimpse of the future deficit issues the Australian Federal government faces. They are on track to spend more than NZ$22 bln a year on interest as they put off a budget surplus until early in the next decade. The grim review shows government spending growing faster than planned while tax revenues are falling short of even the forecasts made just 7 months ago. Now they face a budget deficit of NZ$40 bln this year alone, one that will grow in later years. At some point, tough choices loom, although can-kicking is still a high art in Canberra.

Despite this, the Reserve Bank of Australia is upbeat about their economy and believes signs of rising jobs growth are genuine.

All this news is interesting, but hanging over markets is tomorrow's Fed rate hike, something that seems all but certain now. It is an event that is essentially 'new', and credit markets are unsure about what the real consequences will be. Not long to wait now, however.

And we should note that a Chinese company has started building a giant solar power complex capable of generating 1.3 bln kilowatt-hours of electricity per year. That is the size of our Roxbough hydro dam. And it will reduce the production 1.2 mln metric tons of carbon dioxide emissions annually once completed. The ramping up of projects like this will have a cumulative impact.

In New York, the UST 10yr yield benchmark took another significant jump today and is now at 2.27%. Swap rates in New Zealand rose in response to yesterday's rise and will undoubtedly do so again today.

The US benchmark oil price has recorded a small rise today, now just under US$38/barrel, while the Brent benchmark is now at US$39/barrel.

But the gold price has slipped further, now at US$1,062/oz.

The New Zealand dollar is holding its higher levels, now at 67.5 US¢, at 94 AU¢ and at 61.9 euro cents. The TWI-5 is now at 72.8.

If you want to catch up with all the local changes on 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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17 Comments

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if you had asked me last week I would have said no FED hike, now 99% it will happen, will be interesting to see the follow on will the BOE follow, will the EUR bank suspend QE, and what will happen to countries with RE bubbles when money becomes more expensive

...what will happen to counties with RE bubbles when money becomes more expensive

A rearrangement of the recipients of debt funding in this quote from Bloomberg.

Debt, payable in more debt, to fund dividends....

Isn't this fundamentally what Bill English and his Australian counterpart proposed yesterday when they both rubber stamped the resumption of deficit spending regimes?

Predictably, socialising the losses.

10
up

They have no choice but to continue the banker feeding debt growth as the only real cure is debt destruction. The debt destruction process implies losses for mortgagees and pension funds and is politically rather challenging.

Basically, they do not have a sensible model of how modern money really works and therefore they listen to the banking industry's self serving codswallop as recited by their trained monkeys, the academically captured economists.

The ritual incantation that increasing debt is always good, euphemised as increasing credit is always good, is just utter nonsense as nearly all debt is used to inflate asset prices and transfer wealth. The fact that 5% or 10% is used for productive purposes is used as a smokescreen to legitimise the overall wealth transfer effect.

If the wealth transfer was between residents and the recipients were able to reinvest the proceeds into increased production of useful stuff (like healthy efficient houses) it would not be a problem. In fact the proceeds go overseas and the proceeds are compounded into pure wealth transfer activity, not increasing production at all, but rather increasing the global debt overhead.

BoE will never raise. There is always some excuse.

I appreciate that the owner of this website wants to sunder all colonial ties with perfidious Albion and re-direct our obeisance towards the Chinese behemoth but is he seriously expecting us all to have acquired a working knowledge of Cantonese overnight in the links he provides? Is his next target the very language that we inherited from the Brits? We should be told!

Indeed, the bad seems to be everywhere,

http://www.bloomberg.com/news/articles/2015-12-14/never-mind-35-the-worl...

"A blend of Mexican crude has plunged 73 percent in 18 months to $27.74 on Dec. 11, its lowest level since 2004, according to data compiled by Bloomberg. Venezuela is experiencing similar lows. Western Canada Select, which is heavy and sulfurous, has slumped 75 percent to $21.37, the least in almost eight years. Other varieties including Ecuador’s Oriente, Saudi Arabia’s Arab Heavy and Iraq’s Basrah Heavy were selling below $30, the data show."

http://www.bloomberg.com/news/articles/2015-12-15/roach-sees-commodity-h...

"“Commodities are, after a super-cycle, obviously going the other way, big time,” Roach said."

http://www.marketwatch.com/story/natural-gas-prices-sink-back-to-2012-le...

"Natural-gas prices have plunged to their lowest level in more than 14 years just as the winter heating season has begun."

http://www.bloomberg.com/news/articles/2015-12-15/rio-ceo-says-iron-ore-...

"Iron ore fell below $39 a metric ton last week, a record low in daily prices dating back to 2009. That’s down from above $190 in 2011, when Chinese demand was booming.

“I suspect that right now, even at a price of $39 a ton, there are people that are suffering pretty loudly,” Walsh said. “Sooner or later the adjustment will take place.”"

Maybe oil prices will rebound as "peak oil " approaches in a few decades ?

Mandarin is the official Chinese language btw.

Severing ties with the "homeland" has already been done when the UK joined the EU and shafted us some decades ago. Personally as I wander down streets I see we are a Pacific nation not a colonial one.

Personally as I wander down streets I see we are a Pacific nation not a colonial one.

Surely, and yet incessantly, and deeply reliant on the goodwill of our Northern Hemisphere ancestors for funding. Who's your daddy?

Not good will at all but profit.

Rounding error size issuance is hardly worth the cost of booking the profit for most prop traders - they are doing us a favour.

I use Google Translate. Suggest you do to. Spent a year trying to learn Mandarin - but it beat me. Back to speaking 'American' ;)

How about a referendum on our national language?

Perfidious? Albion? A falsehood put about by the French aristocracy (and their treacherous lick-spittals and supplanters, the French Bureaucracy).

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