Here's my summary of the key events from overnight that affect New Zealand, with news about the dairy industry.
First, the overnight dairy auction saw prices change little on average. They were up +0.6% in USD terms, the sixth consecutive rise, and that takes the gains in the past three months an impressive +14.7%. However in NZD the story is different. With the resurgent Kiwi dollar, overnight prices actually fell -3.6%, wiping out the gains over the past month. Let's hope the dairy companies have currency cover in place, and based on the exchange rates in early May.
The big gainers in today's auction were cheese, up +14.5% and SMP which was up +7.9%. WMP was actually lower by -2.9% from the previous auction.
In the US, data out todays shows job openings at a record high. Employers appear to have trouble finding suitable workers. A tightening American labour market may well encourage the Federal Reserve to raise interest rates next week.
In Australia, the RBA looked past a likely slowdown in their economy in Q1-2017 when it left its benchmark interest rate on hold for the 10th straight month. They said growth was still expected to push up over 3% in the next couple of years, counting on a broad-based pick-up in the global economy alongside a local improvement in jobs and non-mining investment. But there was a warning that underemployment was keeping a lid on wage gains which in turn is restraining household spending.
And staying in Australia, the market leading dairy company Murray Goulburn who traditionally set the farmgate milk price, have indicated it will be just AU$4.70/kgMS for next season (NZ$4.92). That is down from AU$4.95/kgMS in the season just ending. That is below cost for most dairy farmers who are waiting to see what the other companies, including Fonterra, offer. It could presage some pretty big moves in that market. Fonterra's opening 2017/18 New Zealand indication is NZ$6.15/kgMS.
You probably know that Harvard University owns some large forests and dairy farms in New Zealand. But the Wall Street Journal is now reporting they are quitting these investments, and want to sell them to the giant private equity fund KKR. Regulatory approvals are required first.
In New York, the UST 10yr yield is lower at 2.14%. In fact, this is now a six month low, the lowest this year.
The price of oil is marginally higher today with the US crude benchmark is now just over US$48 a barrel, while the Brent benchmark is now over US$50.
The price of gold is higher as well, up US$11 and now at US$1,291/oz. That's a seven month high.
And the Kiwi dollar is up too, now at 71.9 USc. On the cross rates the Kiwi is at 95.8 AU¢, and 63.8 euro cents. The TWI-5 index is now at 76 and that is its highest since early March.
If you want to catch up with all the 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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In the US, data out todays shows job openings at a record high. Employers appear to have trouble finding suitable workers. A tightening American labour market may well encourage the Federal Reserve to raise interest rates next week.
Hmmmm....
The idea of a labor shortage has been introduced as a means to reconcile this growing disparity in way favorable to mainstream economics. Employers want to hire as much labor as they can, this line of thinking goes, but they can’t find enough qualified or sober Americans to do so. The level of Job Openings skyrockets in seeming desperation to fill so many open positions, while the actual filling of those positions lags far behind, leaving with it an economy that does so, too.
This disagreement over the state of the US labor market traces back to early 2014 when all the “overheating” rhetoric got started under the unemployment rate. Though not at so much of an extreme then, the interpretation is the same throughout the whole period. It really is a matter of basic economics (small “e”). If US employers are so desperate for labor that they are posting ads in such extremes over actually hiring, then by every single reason or relationship they would be willing to pay for that labor at whatever market-clearing price could be offered.
Wages haven’t budged one bit in all those three years of this assumed shortage. The latest figures from the BLS in its Employment Cost data, including estimates for total hourly compensation, suggest in the last revisions the opposite case of a shortage. Nominal hourly compensation in the last two quarters (Q4 2016 & Q1 2017) was revised lower by a fair amount, from merely stuck to less than stuck. There isn’t the slightest hint of wage acceleration anywhere. That has included income and compensation revisions that are all of late in the “wrong” direction. Read more
Furthermore, a June rate hike is all but guaranteed. Thereafter, is causing the bond yields to collapse. View evidence
Exporting jobs and dollars to finance them in exchange for debt is proving to be a poor trade off.
Americans faced with lackluster income growth have been financing more of their spending with debt instead. There are early signs that loan burdens are growing unsustainably large for borrowers with lower incomes. Household borrowings have surged to a record $12.73 trillion, and the percentage of debt that is overdue has risen for two consecutive quarters. And with economic optimism having lifted borrowing rates since the election and the Federal Reserve expected to hike further, it’s getting more expensive for borrowers to refinance. Read more
From the FT. "It is thought that some 79,000 businesses would be unable to repay their debts if rates were to rise, four times as many as in September when the Association of Business Recovery Professionals, or R3 as it is known, conducted a similar survey.
The research also revealed that 96,000 companies are only paying interest on their borrowings and failing to clear their debts.
The findings are likely to revive concerns from economists that ultra-low rates of 0.25 per cent are keeping unviable, over-indebted “zombie” firms on life support and tying up capital that could otherwise be directed at more productive businesses that would drive stronger economic growth."
Like Huishan Dairy, New Zealand has Shanghai Pengxin its subsidiaries Hunan Dakang (she) suspended,since March Pengxin Internationa lMining (see) still suspended since February, undergoing restructuring, Zhejiang Longsheng autoparts (she) which gave away 1Billion shares, suspended. Wang Bing who appeared on OIO documents in relation to the Crafer farms , has resigned as Chairman of Pengxin mining in May , due to change in ' job title', having replaced the previous Chairman one year earlier, who was being being investigated by Chinese securities commission. Pengxin International Mining is required by law to report every 5 days on its restructuring, the SSE is not happy. The restructuring involves a modest stake in CAPM which acquired the Aurora gold mine in 2012 , which itself has an unpleasant history in South Africa. When the OIO was granting Shanghai Pengxin the Crafer farms, the Congolese government was blocking Shanghai Pengxin from exporting copper due to environmental concerns.( Whats a few hippos between friends) Shanghai Pengxin not only gave false production data for its copper mine in the Congo to the OIO, it failed to provide information in regards to the management of the copper mine. There is a reason why all these companies are suspended, whether the Chinese government props them up or props up the share price following suspension ,only time will tell, because they are not worth a tenth of their current valuations.
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