90 seconds at 9 am: Commodities see gains

US layoffs drop, factories stirring; Korea rebounds; iron ore jumps +25%; downgrades for Singapore banks, China, Hong Kong; UST 10yr yield 1.81%; oil stable, gold up; NZ$1 = 69.1 US¢, TWI-5 = 72.2

1st Apr 16, 7:29am by David Chaston

Here's my summary of the key events overnight that affect New Zealand, with news of some surprising gains by some key commodities.

But first, the number of Americans filing for unemployment benefits unexpectedly rose last week, but a sharp drop in layoffs in March suggested their labour market momentum remained intact. PMI data from the big Illinois manufacturing hub was also positive.

And its not just the New York and Chicago areas that are stirring. South Korea's industrial activity rebounded in February, supported by the chemicals and chip making businesses. Official numbers showed industrial production increased by +3.3% from a month earlier, marking that the biggest monthly increase since late 2014.

And these improvements are being reflected in rising commodity prices. Iron ore led other commodities in the first three months of 2016, finishing a volatile quarter up almost +25%. Not everyone thinks it will last however.

In Singapore, a number of their large banks have had their credit rating outlooks lowered to negative by Moody’s, which said it expected a further weakening of conditions for the three largest Singaporean lenders as their economic growth slows. Moody's has also been downbeat on China (which they don't appreciate). And now Standard & Poor's has done the same thing.

And speaking of Asia, the Bank for International Settlements has appointed Graeme Wheeler as the chairman of their Asian Consultative Council, a post he will hold for the next two years.

In New York the benchmark UST 10yr yield has slipped further in the opening session today and is now at 1.81%. We start today at record lows across the board for New Zealand interest rate swaps. And analysts say they could fall much further yet. The risks for fixed income investors appears to have risen substantially.

The oil price is going nowhere and is now just under US$39/barrel in the US, while Brent is just under US$40/barrel.

The gold price is up $6, now at US$1,233/oz. Actually, believe it or not, gold has risen more than US$170 (NZ$228) or +15% in the quarter in what appears to be the largest quarterly rise in 30 years.

The NZ dollar will start today essentially unchanged from where we left it yesterday at 69.1 US¢, at 90.1 AU¢, and at 60.7 euro cents. The TWI-5 index is now up to 72.2.

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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10 Comments

by Andrewj | 1st Apr 16, 8:00am 1459450842

On top of the stockpiling by the EU itself under its intervention scheme, the more important and "larger accumulation of stock occurs in the inventories of companies manufacturing and purchasing dairy ingredients", Synlait said.
http://www.agrimoney.com/news/synlait-flags-pressure-on-milk-prices-fro…?

by head_down_bum_up | 1st Apr 16, 8:03am 1459450984

We could see that was going to be an issue when volumes at GDT were lower and lower to inflate prices. At some point that perishable product has to hit the market along with everything else.

by Stephen Hulme | 1st Apr 16, 9:25am 1459455940

The risks for fixed income investors appears to have risen substantially.

"a 30 year Treasury at 2.5% can wipe out your annual income in one day with a 10 basis point increase." Read more

The global central bank orchestrated drive to ZIRP/NIRP, which forced pension planners out along the curve to seek what yield is left for annuity dependent retirees has met with failed and as yet unresolved means to deal with the situation.

As those of you who follow the CalPERS soap opera may recall, California Governor Jerry Brown pushed for the giant pension fund CalPERS to lower its assumed investment return from 7.5% to 6.5%. Given that the world is headed towards deflation and that CalPERS earned only 2.4% for the fiscal year ended June 30, 2015, Brown’s request seemed entirely reasonable. Instead, the board approved a staff proposal to move to the 6.5% target over 10 years. Read more

I guess this outcome is of little consequence to the privileged recipients of the GSFA pension scheme where $8,592 million unfunded liabilities are underwritten by the NZ Government.

by murray86 | 1st Apr 16, 9:42am 1459456931

The question to be made would be how they (CalPERS) intended to get their returns back up to their 6.5% target? Are we going to see them buying up drug patents and escalating the prices by several thousand %? That has at least two benefits, increased returns, plus as the lower end of society can no longer afford them, more will die early, reducing fund liabilities (and reducing point 1, but you can't have everything). Right wing capitalist economics again collapsing on itself.

by murray86 | 1st Apr 16, 9:43am 1459457037

Also the $8.5 Billion in the GSFA, no sweat that's the pollies on pension scheme as they look after themselves at the expense of the taxpayer.

by Andrewj | 1st Apr 16, 9:32am 1459456379

New Zealand Foreign Trusts and the Unaoil Scandal: More Chickens Coming Home to Roost, and They’re Big
http://www.nakedcapitalism.com/2016/03/new-zealand-foreign-trusts-and-t…

by Afewknowthetruth | 1st Apr 16, 9:44am 1459457047

The oil price is going nowhere and is now just under US$39/barrel in the US, while Brent is just under US$40/barrel.'

Low oil prices have removed the incentive for a lot of drilling and US unconventional extraction peaked in 2015. The drop in domestic extraction will result in further deterioration of the energetic and financial position of the US.

'The so-called US shale oil revolution got stuck in 2015. The longer oil prices remain low, the more the 2015 peak will establish itself. There are no free-bees here. Pay less for oil and you will get less oil.'

http://crudeoilpeak.info/us-shale-oil-peak-in-2015

Unrelated but of great concern is the extraordinarily low level of Lake Mead, one of the most important water supply lakes in the US. Heading into the summer with the lowest water in storage in recent times suggests severe difficulty a few months from now.

http://mead.uslakes.info/level.asp

by Cowpat | 1st Apr 16, 10:33am 1459460004

John Key has been hospitalised in Washington after being hit in head by President Obama in leaders golf match.suffered concussion.

by Andrewj | 1st Apr 16, 10:39am 1459460372

I hear he lost an eye, it's all fun and games until someone loses an eye.

by Cowpat | 1st Apr 16, 11:37am 1459463865

Need cerebral matter to be concussed. Poor diagnosis