Dairy prices fall again; Ardern sees TPP benefits; China stems currency outflow; many more London banks look to leave; Waymo trials Level 4 autonomy; UST 10yr yield at 2.31%; oil and gold unchanged; NZ$1 = 69 US¢, TWI-5 = 72.4

Dairy prices fall again; Ardern sees TPP benefits; China stems currency outflow; many more London banks look to leave; Waymo trials Level 4 autonomy; UST 10yr yield at 2.31%; oil and gold unchanged; NZ$1 = 69 US¢, TWI-5 = 72.4

Here's my summary of the key events overnight that affect New Zealand with news of some big shifts in both technology, and banking.

But first, the overnight dairy auction brought some bad news with prices falling -3.5% overall and down -5.5% for the key wholemilk powder product. That makes it three declines in a row and that adds up to a total -6.8% drop in overall prices. Analysts will be reworking their payout forecasts, but one thing they won't be doing is raising them. We are now back to overall prices we had at in April 2017. The one bright spot is that the NZD has fallen as well, meaning the change in NZD from the last auction is a tiny +0.3% gain in local currency. But that still leaves prices back to the same as in April 2017 on that basis. All-in-all, not a great auction result.

In an interview with Bloomberg, Prime Minister Ardern basically acknowledged that with a small concession on her housing position, New Zealand will sign up to the TPP, saying there are significant net benefits for New Zealand.

China has announced that it is holding its foreign currency reserves above US$3 tln with data for October published today. That revealed a tiny rise to US$3.1 tln, the ninth straight month of tiny rises. The clamp on currency outflow is holding.

Retail sales in the eurozone rose +3.7% in the year to September, extending a strong run of growth.

And the ECB has revealed that relocation by London banks to within the eurozone is becoming a bit of a rush-for-the-exits. 50 London banks are working on plans, 20 have already applied for eurozone banking licenses.

In Pheonix, Arizona, self-driving car company Waymo - a unit of Google - has a full live test of its cars operating at Level 4 autonomy, sharing public roads with human-driven cars and pedestrians, with no one at the wheel able to take over in case things don’t go as planned. It is a major milestone, presaging a real revolution for car travel. Expect it to spread quickly. Early adopters will be Uber, taxi companies, and rental car companies. It may even be an answer to New Zealand's problem with tourists unfamiliar with our right-hand drive system.

In New York, the UST 10yr yield is down -1 bp today, now at 2.31%.

The price of crude oil has slipped slightly today and is now just under US$57 / barrel, while the Brent benchmark is just under US$63.5.

The price of gold is marginally higher after a sharp drop after we reported yesterday's level, now at US$1,272 oz. The bitcoin price is now at US$7,008, down -1.2% on the day.

The Kiwi dollar is little changed again today. We are now at just under 69 US¢. And on the cross rates we are at 90.3 AU¢, and against the euro at 59.6 euro cents. That puts the TWI-5 index still at 72.4.

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 ».

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23 Comments

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The powers that be have done a fantastic job holding dairy prices up in the face of growing inventories. However 600,000 tonnes of powder sitting in storage between the USA and EU has to go somewhere. The USA is now exporting %15 of it's dairy production.

The USA is becoming an export power house ,beef cow kill up %20 beef exports up %30, huge increase in beef kill.

My friend in Fresno is helping cut the pine trees killed by the Pine Beetle, all 40 million in the region. They are being exported to a Ship offshore, where the logs are processed and then sent back to California, guess who owns the ship? He believes they even have the ability to make ply.

"With declining powder exports, U.S. inventories of NDM increased in Q3 for the first time since 2008. At the end of September, stocks were a record-high 146,000 tons, nearly 50% more than last year. Lagging U.S. exports reflect strong competition from European suppliers, as well as a slowdown in global buying activity. Oversupply in the world market has led SMP prices to fall to their lowest level since spring 2016."
‘Locomotive’ goes into reverse

“Butter prices, the locomotive of the dairy rally this year, plunged 9% or more in the past week,” said Mr Gorey.

“Butter prices have now fallen by about 20% in October.”
https://www.agrimoney.com/commodities/commodities/butter-price-tumble-sp...

I'm really not sure if New Zealand could withstand either another earthquake or another substantial fall in the dairy price. The only way of surviving the latter might be an exchange rate of ~0.3500 instead of today's' ~0.7000 and that will send imported inflation through the rooves of an already debt-soaked, property reliant nation.

we could really do with some RE agents who have filofaxes stuffed with overseas contacts ...
there must be some somewhere

Keep going with this thought, you are on the right path.

Much lower wages? Because imported inflation is going to devastate the real incomes of New Zealanders, and as they lose their jobs, they'll cut each others' wages throats to keep an income coming in to service their debts. Interest rates through the proverbial roof? Most likely! So it's going to be horrendous if either of my concerns holds true....

Real rates will adjust to wash the debt / property values away. Have a look at 1960's property market, nominal vs real. Nominal prices didn't fall, but real prices were devastated. Exchange rate devaluation washed away the property market size.

B/E for most dairy farmers is around the $4-4.50/KgMS mark, so we are far away from the point where fall starts to hurt. $6 + current price (depends on contract) has a lot of headroom for most.

Is that B/E on a cash basis ? i.e. No depreciation ?

Before or after drawings ? Just interested

AndrewJ have you got a link regarding the California offshore log processing?

No, i searched and found people talking about it but no pics of the ship. I will ask what the ship is called, looks to be under the radar stuff, in California this is sensitive stuff.

Hmm, if you get a ship name, you might be able to confirm it here: https://www.marinetraffic.com/en/ais/home/centerx:-122.1/centery:35.1/zo....

Cheers, appreciate it.

Saw this article yesterday:
http://www.thescottishfarmer.co.uk/news/15637097.Dark_days_ahead_for_the...

"According to AHDB Dairy, EU milk production is up an average 3.3% across 28 member states compared to 12 months ago, equivalent to an extra 102 million litres.

When the EU milk production giants Germany and France ramp up milk production closely followed by the UK, the end result almost appears inevitable. Time to buckle up".

Multinational companies including Apple Inc., Pfizer Inc. and Ford Motor Co. would face a new tax on payments they make to offshore affiliates under the House Republicans’ tax bill -- a surprise provision that has stunned tax experts.

The new 20 percent tax is “the atomic bomb in the draft” legislation, said Ray Beeman, co-leader of Ernst & Young’s Washington Council advisory services group. “We’re trying to get our arms around the implications.”

So far, many big U.S. companies have kept quiet on the proposal. But already, House Ways and Means Chairman Kevin Brady has tweaked the provision to lessen its impact, part of a package of changes the tax-writing panel adopted Monday night. The committee will continue debating the bill Tuesday.

House tax writers say the proposed excise tax is aimed at preventing U.S. companies from shifting their earnings offshore to subsidiaries in tax shelters -- and it moved into the spotlight this week amid a series of global investigative reports on corporate tax avoidance. But tax practitioners say the provision has far larger implications for consumer prices on a range of goods. Read more

Three of the European Central Bank’s top policy makers pushed last month to alter a commitment to keep buying bonds until inflation improves, signaling challenges ahead for President Mario Draghi as the bank seeks to slow quantitative easing.

Board member Benoit Coeure, Bundesbank President Jens Weidmann and Bank of France Governor Francois Villeroy de Galhau were the heavyweights who recommended tying the overall level of monetary stimulus -- rather than just asset purchases -- to the outlook for prices, according to euro-area central-bank officials familiar with the matter.

The policy-setting Governing Council chaired by Draghi eventually decided on Oct. 26 to stick to its pledge to buy debt until it sees a sustained adjustment in the path of inflation toward its 2 percent goal. The broadening of the language that Weidmann and others sought would have potentially meant that bond purchases could be terminated even if consumer prices fail to pick up. Read more

About time someone stepped in to put a stop to this madness.

Given how the economy is described today in pretty glowing terms, it would seem as if there would have been far less of a requirement for monetary intervention the closer we have moved toward recovery. And that’s how things are being described, here and everywhere else. Policymakers themselves don’t much use that word, but the others that they do use (“transitory”) all point in that direction.

But that’s not what happened. Central banks actually started small and have only escalated from there. In three separate doses, each of the majors (I’m focusing on the US and Europe here, but you could also include China and Japan, the latter grouping together its plethora of QE’s into specific intervals) have significantly increased the size of their “stimulus” programs over time. Read more

Brilliant little piece in the local this morning by Peter Lyons about housing.

https://www.odt.co.nz/opinion/reality-bites-housings-heady-days-are-over

Hard to argue with much of that really.

7. The final sign is the welcome end of ''renovation and resell'' programmes being screened on television.

Well, no one could argue with that one, surely!

And this...well, yes, this has been true all along:

10. A moribund or stagnating housing market is likely to weigh heavily on the wider economy in terms of output and employment. It exposes the reality that no country in history has become wealthy off housing inflation. As this reality sinks in this Government is likely to cop the blame. But we have been living in fantasy land for a long time and many of us knew it. We just choose to ignore it.

This is the biggest reason why I as a National voter in Key's first two elections was most disappointed in National's ignoring of the crisis they campaigned on. Propping up housing via increasing WFF, the Accommodation Supplement and the First Home Buyers grant was the final ridiculous socialist straw.

Nice rational article. Good to see some reality as compared to the "price always goes up" articles.

that's great. Peter always talk sense. Never underestimate the value and wisdom of an excellent high school teacher.

- 'A decline in house price inflation is likely to cause investors to seek better returns elsewhere. Our sharemarket is already well-priced after years of ultra-low interest rates as a result of the last credit splurge'

Is it really well priced? I thought it was at an all time record high?

Not sure about the NZX, but the S&P certainly is.. https://nz.finance.yahoo.com/news/robert-shiller-interprets-what-the-cap... Not sure what to do with my money at the moment, a biscuit tin buried in the back yard is actually starting to make sense at the moment.

I totally agree.

I was gonna sell my "Well Priced" House for a "Well Priced" rental in Awkland, then I decided to buy a "Well Priced" bargain in asset sales, but for some reason,Solid Energy, did not seem that solid.

Then I though of a Farm, but someone else was sold on that.

So I think I will follow my nose and buy a "White Elephant" that has just come on the Market in China town.

Freehold I think someone said...only had 15 owners last year.

I think I will have a lot of choice, but first I will make a "Trunk Call"...to UK to see if I am Penny Wise or pound foolish.

Dollar cost averaging, may be just up my street, if we do it jointly. I think I will be on a high soon as Columbian Gold is in the pink, ripe for the pickings. Smokin.

If not an Elephant I hear that Ostriches are in short supply.

I could Feather my nest, retire at 93, that is if Trump will continue QE21...for Americas Sake. ...and the worlds indulgence.

(or was QE21..The ship, that Queen Elizabeth uses to transfer her wealth to the Caymans..I forget)....

NOT QUANTATIVE EASING..21....surely. ...oh, what is best....for my birthwrite...

(Sake eh....A Japanese drink for todays times, a dry wit for others....a best seller..cheap as a Japanese House..pronounced.."Sarkey").