Here's my summary of the key events overnight that affect New Zealand, with news equities are dropping as commodity prices slide.
Today's dairy auction will have surprised and disappointed many. Another price fall was recorded with overall prices down -2.9% in US dollar terms and down -2.5% in New Zealand dollar terms. Prices are now at a seven month low.
The futures market turned out to be a poor predictor of this result. In the end WMP prices are basically unchanged from the prior auction, but SMP was down -2.5%, butter down -2.8% and cheese down -5.6%. There are few positives the dairy industry can take from this auction. Hopes of an upturn have been dashed.
In the US, their advance retail sales number for February showed a minor decline. It actually came in better than markets were expecting and better than for January, but it was a decline none-the-less and not inspiring. But there were revisions down for the prior month and that didn't help sentiment. Reasonably good factory sales and inventory levels - data for January - didn't help the market mood either. Nor did a big improvement in the New York Fed's huge factory sentiment survey, coming in way better than every observer's forecast.
In Britain, their serious fraud office has dropped its investigations into the giant London currency markets. They identified problems, but felt they didn't have enough proof to win any convictions.
Speaking of fraud, the official government auditor in Nigeria has told lawmakers there that US$16 bln is missing from their national oil company. And that comes after reports US$100 mln was stolen from the Bangladesh central bank
China is moving to control its currency outflows with a tax on currency transactions: a Tobin Tax. The plan is at an early stage and no action has been taken yet, but their law is being amended to allow it. It would become the first major country to go down that route; their objective is to retrain the activities of their own citizens and slow the leakage they have been seeing recently. When - or if - they implement it, it will be instructive about how it restrains normal commercial hedging practices and ordinary foreign trade.
The iron ore price, which just a week ago was surprising us with a bounce, is now in its sixth consecutive day of decline, unable to sustain the optimism.
In New York the benchmark UST 10yr yield is unchanged in mid-day trade at 1.96%.
The oil price is lower again today and now at US$36/barrel in the US, while Brent has slipped under US$39/barrel.
The gold price is falling as well and down US$10 on the day to trade now at US$1,234/oz.
The NZ dollar continues to follow these commodities down. The NZD starts today at 65.9 US¢, at 88.4 AU¢, and at 59.3 euro cents. The TWI-5 index is back down to 69.9 and almost at a six-month low.
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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16 Comments
If I remember some of the various news reports lately aren't the hackers that are breaking into banks all based in Russia. Is this becoming Putin's prime source of foreign earnings? There are some staggering amounts being reported on $16 bln isn't something that would go unnoticed.
Hard to believe what one can read in the press today.
Take a look at this character smearing claim.
Big businesses can take comfort in the expectation that Hillary Clinton will revise her current anti-trade deal stance once she's in office, according to the head of a prominent business association. Read more
Agreed, but looking at the detail of Clinton's position will identify some fairly sound rationality behind it. Talking publicly in sound bytes makes it very difficult to encapsulate the absolute detail of what you mean or intend, but trying to find the balance between job creation/preservation and having the country mortgaged to China is not easy. JK on the other hand appears to not care if the entire country is sold out to China. Thus the exporting of jobs is not even on his radar - typical banker, short term profit at long term cost. Little probably doesn't even understand, but some of his mutterings recently suggest that maybe one or two of his advisor might have a clue.
On the original comment though, last year or the year before the Chinese and Russian leadership met on defence issues. I would likely think that their plan of action was a mix of dividing up the world and sleight of hand as they take a two pronged assault on the west. China's and Russia's global aspirations both present reasons to be concerned, as individually they will be at least as damaging as America's have been and combined, much worse - and as effective dictatorships, their answerability to the law is non-existent. Doubt this? Consider how much concern Putin showed over co-lateral damage his air force caused in Syria - none, nil, nada, zip, nae.
On the original comment though, last year or the year before the Chinese and Russian leadership met on defence issues. I would likely think that their plan of action was a mix of dividing up the world and sleight of hand as they take a two pronged assault on the west. China's and Russia's global aspirations both present reasons to be concerned, as individually they will be at least as damaging as America's have been and combined, much worse - and as effective dictatorships, their answerability to the law is non-existent.
Hmmm..
New Zealand – China Defence Relationship
Our security relationship has built up significant positive momentum.
Despite the disparities between our security situations, and the respective size of our defence forces, we have developed a constructive defence relationship based on respect and openness.
Our interactions with the People’s Liberation Army allow for real issues to be discussed in a meaningful way.
We are grateful for these opportunities.
Our Five Year Engagement Plan with the People’s Liberation Army is the first agreed between China and a Western military, demonstrating the unique nature of our relationship. Read more
Bottom line, we are being sold out to the Chinese military - we have no military (effectively) they have a huge one. I have long had a theory that we will be under Chinese rule by 2025 - 2030, and have a friend engaged with our army intel. He see the same writing and agrees. JK is selling the country to the highest bidder, so I hope your mandarin lessons are going well - you'll need them.
The Aussies and Yanks won't like it, but unless they are prepared to play on the trade front, (and TPPA doesn't cut it) this pathway will not change.
I have long had a theory that we will be under Chinese rule by 2025 - 2030, and have a friend engaged with our army intel. He see the same writing and agrees. JK is selling the country to the highest bidder, so I hope your mandarin lessons are going well - you'll need them.
I have two passports.
I'll add to this that HC gutted our Airforce by taking away the strike capability, and since then much of our military has turned into nothing more than a token capability that is focussed on regional relief rather than defence. Aussie and Yank attitudes are that if we will not contribute to our own and regional defence they will not step in to bail us out. Problem is - we have become much more strategic in the last couple of decades with access to Antarctica and the major population centres along Australia's east coast. But with a banker at the helm we have essentially no defence posture while trying to assume a position of being a non-aligned nation, despite being a part of the British Commonwealth (for the moment) ASEAN, and ANZUS with nothing to back it up. JK and HC both clearly have and had personal ambitions that have influenced their rule to the detriment of the country as a whole. I can't see anyone else who understands this, will change this or has any different aspirations.
Yep me too phew, dual nationality is a wonderful thing!! Still lets hope that they bring in the Tobin tax in to China so our crazy housing market can slow down.
"China is moving to control its currency outflows with a tax on currency transactions: a Tobin Tax. The plan is at an early stage and no action has been taken yet, but their law is being amended to allow it. It would become the first major country to go down that route; their objective is to retrain the activities of their own citizens and slow the leakage they have been seeing recently".
WRT Dairy prices :-
When will humans realise that good things don't last forever and that everything goes through cycles, and when markets have run away with themselves , they always adjust back to normality in the long or short run ?
We have known that the NZ dairy industry was at risk since maybe 2013 but at least 2014 , when the EU signalled and advised it was scrapping the restrictive quota system, which if my memory is correct, took effect in April 2015 .
We either ignored the warning signs or had a serious dose of HUBRIS .
Now dairy famers in Europe can produce as much as they want , and they no longer receive a handout for holding back ...... so that's exactly what they have done, they are ramping up production (and its all marginal production in terms of costs so the costs of producing more is not adding much to the fixed cost of production ) and they are making the produce available to markets around the world , and exporting the surplus to China and elsewhere .
The truth is milk is milk , its a commodity like a can of beans or a litre of diesel , and there are numerous places on the planet able to produce milk as cost effectively as we do , and in significant quantities, and with lower labour costs in may cases.
What did NZ do , we carried on as if the good times would last ad-infinitum.
Our bellweather, Fonterra, went on a programme of massive Capital expenditure on plant , machinery, new trucks and the like , much of it on borrowed money.
We need to recognise that low milk prices are the new normal , and adjust accordingly .
The adjustment they need to make is the same as the adjustment Auckland property speculators are going to be faced with when the market turns ........ as it will.
Possible state funded price mitigating cures announced.
European Commission activates exceptional measures to further support European farmers in crisis
Fonterra went on a capital expenditure spending programme because DIRA requires it to take all milk from anyone. It physically didn't have the processing capacity for all the milk being produced - remember the 'butter milk lakes'?
Low milk prices are the expectation of many farmers I know and they have adjusted accordingly. But what part do the banks have in this. A young farmer told me that when he took his $4/kg budget for next season to his bank, he was told to increase it to $4.60 as that is what the bank was working on. He refused as he could show that at $4 he was making money and his costs were sustainable. When he asked on what basis the bank believed payout would be $4.60, the answer was along the lines of 'it has to get better'. Young farmers are becoming increasingly frustrated/despondent with their bankers who are saying to budget on payouts higher than currently being received.
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