Here's my summary of the key events overnight that affect New Zealand with news of a surprise fall in dairy auction prices.
This was a disappointing auction. Overall prices fell -2.4% in USD terms. The drop was unexpected and is the largest fall in over six months. Dragging prices down were WMP prices which represent about half the volume. These were expected (via the derivatives market) to rise to US$3,300/tonne and an expected +5.7% rise. In fact they fell to US$3.037/tonne, a -2.7% drop. That is a completely unexpected turnaround and there will be some investors nursing steep losses on the derivatives market.
In NZD terms, the fall was not as steep. Overall prices fell just -0.1% as the NZD has weakened nearly -2¢ over the past two weeks. There was 37,990 tonnes of product sold in this auction, which is the largest volume since August 2015. Today's result will have analysts revisiting their payout predictions for the upcoming season. There is clearly push-back from buyers at these price levels.
The IMF has released research that shows encouraging rising debt, especially household debt, used to soften the effects of a recession works for three to five years. But after that, things turn sour. This is based on a study of more than 80 advanced and emerging economies. And the implications are clear. Remember, we are now ten years into a cycle like this and the IMF doesn't see a neat way out of the problem.
The OECD said overnight that inflation is now up to +2.2%, driven by food and energy prices.
In the US, carmakers like GM, Ford and Toyota posted solid sales gains in September., some of them sharply higher. But that was amid heavy consumer discounts, and surging demand to replace hurricane-damaged vehicles. However, it has given the US industry relief from months of declining results.
In Japan, consumer confidence edged up, a boost for Prime Minister Abe who has had an unexpected election thrust on him. He is behind in the polls, but overnight his main rival, the Tokyo governor and the power broker who engineered the snap election, said she would not run in the election.
Meanwhile, it has been revealed that the Japanese yen is now the third-largest component of global reserves, after the dollar and euro. China’s yuan slots in in seventh place, also being behind the pound and Australian and Canadian dollars. We regularly ignore the power of the Japanese economy, but it continues to impress in the background.
In Europe, the EU’s antitrust regulator is set to order Luxembourg to retrieve hundreds of millions of euros in allegedly unpaid taxes from Amazon.com who is based there. (But some of those taxes will presumably be for transactions originating in New Zealand, so that may set up a complicated discussion between Wellington and Brussels.)
In Australia, building approvals have avoided a second consecutive month of decline, although the overall trend shows residential construction is cooling. Permits for apartments rose +4.8% in August, but are down almost -30% over the year. All the key east cost markets have seen declining building approval activity in recent months. New home sales picked up in August however as first home-buyer incentives kicked in.
In New York, the UST 10yr yield is holding at 2.33%.
The price of crude oil is down slightly again and now under US$50.50 a barrel, while the Brent benchmark is under US$56.
The price of gold has lost another -US$2 overnight, now at US$1,271/oz.
And the Kiwi dollar is again softer after the dairy auction and will start today at 71.6 US¢ and that is a three month low. On the cross rates we are now at 91.4 AU¢, and 60.9 euro cents. Our TWI-5 index is now at 74.4.
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 ».