What happened Tuesday

A review of things you need to know before you go home on Tuesday; soft commodity prices softer, Kiwis flock to Australia - but only to visit, cheap burgers, higher swap rates, stable NZD

12th Jan 16, 4:00pm by David Chaston

Here are the key things you need to know before you leave work today.

TODAY'S MORTGAGE RATE CHANGES
There are no home loan rates to report today.

TODAY'S DEPOSIT RATE CHANGES
There are no home loan rates to report today.

'A YEAR TO FORGET' ...
This is how ANZ summed up the December commodity index. "The ANZ Commodity Price Index fell 1.8% in December, bringing to a close a year to forget for most New Zealand commodity producers. Over the course of 2015 international prices fell 12.9% y/y and are 29% below their early-2014 peak. NZD prices fell 3.9% in December as the higher NZD compounded the fall in international commodity prices. The currency has played a buffering role for most commodity export sectors over 2015. On an annual basis NZD prices are only back 1.1% largely due to the 7% fall in the NZD TWI and 13% fall in the NZD/USD.

... BUT BE THANKFUL ALL THE SAME
Just how weak underlying commodity markets are is shown in our detailed tracking of the IMF series. Iron ore and aluminium are in real trouble. Soft commodities like wheat, maize and soybean are much less affected. Similarly, lamb and pork are a little softer but not to the extend of the 'hards'. However both beef and chicken show strong price gains. Coffee, tea and chocolate are all making price gains. All energy commodities of course all all in the doldrums, while wools and logs seem to have held on to much of their gains. It is clear that exposure to 'soft' commodities (food) is a much better place to be than 'hard' commodities (minerals).

TOP CUSTOMERS
Kiwis love Australia. We are the largest single source of their short-term visitors. Clearly many of go back multiple times because the recorded more than 1.3 mln 'movements' in the year to November. That is a +5% rise over the equivalent 2014 year.

A PPP ADVANTAGE
We are buying our hamburgers too cheap. Local prices are undervalued by the most since 2002, according to The Economist's Big Mac Index. According to them, this undervaluation is 20% compared to the benchmark US prices.

WHOLESALE RATES RISE
Swap rates recovered some of yesterday's falls, mirroring the rises on Wall Street overnight. We have also seen a slight steepening bias with 2 year rates up +2 bps and 10 year rates up +4 bps. The 90 day bank bill rate is unchanged however at 2.74%.

NZ DOLLAR HOLDING
The New Zealand dollar has had some timid gains against the greenback and is now at 65.6 USc. The story is the same against the Aussie at 93.9 AUc but there are bogger gains against the euro, up to 60.5 euro cents. These are similar levels to where we started the day. The TWI-5 is slightly higher at 71.2. Check our real-time charts here.

You can now see an animation of this chart. Click on it, or click here.

Daily exchange rates

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Source: RBNZ

Source: CoinDesk

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14 Comments

by Stephen Hulme | 12th Jan 16, 5:09pm 1452571747

We are buying our hamburgers too cheap. Local prices are undervalued by the most since 2002, according to The Economist's Big Mac Index. According to them, this undervaluation is 20% compared to the benchmark US prices.

I wish the discount applied to items of more interest than junk food for the masses.

A high tech toy for instance, is priced in NZ at ~US$590 versus US$450 in the US - a NZ retail price premium of ~31%.

I know carriage costs are an issue, but some vendors out of HK have offered freepost in the not too distant past for this item.

by Stephen L | 12th Jan 16, 6:26pm 1452576417

The Big Mac Index seems most notable for the USD being overvalued against nearly every other country. Only Switzerland, Norway and Sweden have more expensive Big Macs than those in the US. NZ's are marginally more expensive than Australia, but very slightly cheaper than the Euro area and the UK.
The US Dollar being overvalued may just bite the Americans in the burger this year, such that Janet Yellen will have a few reasons to consider her next move.

by Stephen L | 12th Jan 16, 6:28pm 1452576525

As someone else noted before Christmas, we seem to be having a fairly wet drought. Maybe the farming season won't be too bad?

by Don m | 12th Jan 16, 6:41pm 1452577293

most farmers I talk to are saying that " if this is climate change/el ninio" then lets have it every year ..!

by steven | 12th Jan 16, 9:25pm 1452587131

The year and el nino has not really begun yet however.

by njm | 13th Jan 16, 7:35am 1452623731

According to this report , it has already peaked http://www.bloomberg.com/news/articles/2016-01-05/el-nino-peak-has-weat…

by steven | 13th Jan 16, 9:28am 1452630482

Yes, its quite expected that the El Nino will go away and even move to a La Nina. If you look at that report v my comment the 1/4 to watch is this first one we are just entering, v the report saying second 1/2 of 2016/ end of 2016 for a la nina. "Both La Nina and El Nino tend to peak during the Northern Hemisphere winter." which is our summer....this quarter. So we should expect the big impacts of el nino in this 1/4, moving to "normal for 2/4s and maybe finishing 2016 with a La Nina. Of course its statistical probability so we might have a jaw dropping 2~3months or not a thing.

by steven | 13th Jan 16, 11:22am 1452637342

So early in january,

"Wintertime floods among costliest ever"

http://www.usatoday.com/story/weather/2016/01/08/mississippi-river-floo…

and from the predictions Southern California has not been hit yet, so the bill is set to get bigger.

by Caleb | 12th Jan 16, 7:49pm 1452581382

No kidding, I thought this was going to be a hot, dry summer aka global warming, amplified by el nino. Yet here we are, no dryer than normal and the coldest spring and start to summer for over ten years, growing degree days are way behind the ten year average. Most crops are looking OK though and I think this is from a lack of water stress. In my expert opinion ;) The trend has been towards cooler winters and springs, later summers and dryer autumns.

by profile | 12th Jan 16, 8:31pm 1452583903

That was some El Nino alright - " International food prices dipped by 19 per cent in the last year, the fourth consecutive annual fall, due to substantial decline in dairy, sugar and veg oil prices according to the United Nations food agency.

The maximum fall was witnessed in dairy prices, which fell by 28.5 per cent compared to 2014, marking its lowest since 2009. It was followed by sugar prices, which were down by 21 from 2014 levels, as per the FAO price index.

Similarly vegetable oil prices also came down last year by 19 per cent in comparison to 2014 prices, while cereal prices fell by 15.4 per cent in 2015. The meat prices also came down by 15.1 per cent in the last year.

Abundant supplies in the face of a timid world demand and an appreciating US dollar are the main reasons for the general weakness that has dominated food prices in 2015, the Food and Agriculture Organisation said in its monthly food price index."

http://www.newindianexpress.com/world/Global-Food-Prices-Down-by-19-Per…

by steven | 12th Jan 16, 9:18pm 1452586697

Considering the El nino only started late 2015 its not surprising its not effected commoditoies before that now is it.

In fact Jan and Feb would be the reasonable expectation of hvy rains in say Southern California.

On top of that that doesnt mean ppl are not hungry, just some cannot afford to buy even with 15% "discounts"

by Donald Ellis | 13th Jan 16, 8:39am 1452627575

I am at the southern end of the chunk of Nth Canterbury that stayed dry through winter last year. You see on these maps that soil moisture conditions are better this summer than last. This is great but largely superficial. We had very little rain during the year and started summer with very dry soil. The apparent lift is due almost entirely to a single event around New Year.

Talking to a cereal farmer from Scargill the other day he told me that that rain was welcome but mostly for psychological reasons.

We are still really looking for substantial rain going into autumn and before the soil gets too cold.

by J.C. | 12th Jan 16, 8:54pm 1452585296

I would think that these daily summaries of currency movement should include JPY. Isn't that where all the action is and an important indicator of carry trade?

by Belle | 12th Jan 16, 9:13pm 1452586381

Early days yet for el nino. We always get rain up until mid january. Then things go pear shaped. This year tho the sept to dec rainfall is half normal. Water table is well down.