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Dairy prices hold; US durable goods orders fall; OECD inflation slips; China now 20% of world economy; China shadow banking 15% of global total; UST 10yr at 2.89%; oil unchanged, gold up; NZ$1 = 73 USc; TWI-5 = 73.9

Dairy prices hold; US durable goods orders fall; OECD inflation slips; China now 20% of world economy; China shadow banking 15% of global total; UST 10yr at 2.89%; oil unchanged, gold up; NZ$1 = 73 USc; TWI-5 = 73.9
7th Mar 18, 7:44am by David Chaston

Here's our summary of key events overnight that affect New Zealand, with news we are getting updates of China's place in the world economy.

But first, today's dairy auction was a bit of a non-event with overall prices marginally lower at a -0.6% slip in USD terms, and a +0.2% rise in NZD terms. But there will be some relief because the derivatives markets had suggested a -3.6% fall and that did not happen. In the end WMP prices were down just -0.4%. The only surprise was on the upside with SMP prices rising more strongly than expected, up a remarkable +12% in USD terms and a bit more in NZD terms. Volumes offered were a low 19,292 tonnes, the lowest since early 2013. It seems unlikely today's even will change any payout forecasts.

New orders for American durable goods recorded their biggest decline in six months in January and business spending on equipment appeared to be slowing after strong growth in 2017.

Eyes are now turning to the next US non-farm payrolls report this weekend, and before that the ADP precursor report.

Globally, inflation was broadly unchanged in January according to data from the OECD. The January rate was 2.2% overall, a slip from 2.3% in December because prices in a couple of majors slipped. Annual inflation decreased in Canada and Germany; was stable in the US, the UK and Italy, picked up markedly in Japan, and more moderately in France.

And staying with the global theme, the size of the Chinese economy is poised to overtake that of the EU's Eurozone economy, probably this month. China's growth is running at triple that of the Eurozone so the shift will grow fast. China will have a US$13.2 tln economy in 2018 while the Eurozone's will add up to US$12.8 tln. The US's economy is expected to record GDP of US$19.6 tln in 2018. That makes China 20% of the world economy and the US 30%.

And from some new data, we now know that Chinese shadow lenders account for about 15% of the world’s riskier non-bank lending. Chinese companies accounted for US$7 tln of US$45.2 tln in global shadow-banking assets tied to the supply of credit that could pose systemic risks, according to this new report which for the first time includes data from China - and Luxembourg.

And not faring so well is the Danish Swedish Lego Company whose sales fell -7% in 2017.

In New York, the UST 10 yr yield is unchanged at 2.89%.

The gold price has jumped today, up +US$16 and now at US$1,335/oz. But the World Gold Council is reporting that ETF's are selling down their holdings of the yellow metal.

Oil prices are unchanged today with the US benchmark still just over US$62.50/bbl and the Brent benchmark over US$65.50/bbl. There are other big changes in the oil market however.

The Kiwi dollar will start today quite a lot higher at 73 USc. On the cross rates we are a little higher here too at 93.4 AUc and 58.8 euro cents. That puts the TWI-5 at 73.9 and well back in its 2018 range.

Bitcoin is now at US$10,808, down -5.9% from this time on yesterday.

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14 Comments

by  BadRobot  |  7th Mar 18, 8:07am 1520363231

I think Lego is Danish .....

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by  David Chaston  |  7th Mar 18, 9:23am 1520367827

Correct. Thanks

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by  Andrewj  |  7th Mar 18, 8:27am 1520364477

Great read from Andy Xie

Anglo-Saxon economies like the US, Britain and Australia practise the opposite of financial repression. Their financial markets tend to exaggerate paper wealth and encourage borrowing. Hence, they have an unusually low savings rate and high cost of capital. This is a key reason that Germany and Japan have stronger industries. If the US wants to reindustrialise, it must first stop excessive monetary stimulus that encourages debt.

http://www.scmp.com/comment/insight-opinion/article/2135024/why-us-does…

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by  Roger Witherspoon  |  7th Mar 18, 11:18am 1520374684

Very interesting stuff. Thanks for the link. I suspect the tendency for family ownership in Japan and Germany is part of the pussle. Once things get run purely for the benefit of managers and their share options then you seem to get Head Office Knows Best Syndrome, as in Fonterra, Dick Smith, Feltex and so on, in stark contrast to the Taits, Todds and Gallaghers.

I remember a fascinating article written about the Yalumba ceo some time ago. He said that the family firms, like the one whose steward he was, tended to expand counter cyclically, so they only planted or bought new vineyards when they were cheap. The corporate ones tended to expand with the cycle, paying progressively higher prices as the cycle went along.

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by  Advisor  |  7th Mar 18, 11:43am 1520376211

I absolutely agree. The 'Mittlestand' approach in Germany trumps every corporate management system implemented in the Anglo-sphere. Small enterprises tend to seek long-term value in their investments while large corporations are generally short-sighted owing to their instant return-seeking hedge fund promoters.

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by  Andrewj  |  7th Mar 18, 8:38am 1520365107

Why are prices stying down when China is buying such large volumes?

"Chinese milk powder imports are always large in January as non- and low tariff quota volumes reset. Merchants and end users rush to lock up their share of duty-free milk powders from New Zealand early in the year. But this year imports were large even by turn-of-the-year standards. China imported a record-breaking 304.5 million pounds of whole milk powder (WMP), 28% more than in January 2017. SMP imports were also record large; at 102.5 million pounds they were 42% greater than year-ago volumes. Chinese buyers may have been especially aggressive amidst warnings that the New Zealand drought could limit production
China brought in a record-large 31.5 million pounds of cheese in January, 48% more than the prior
year. U.S. cheese exports to China climbed 60.4% from a year ago. China also imported 36.5 million pounds of
butter, the highest volume on record and nearly 50% more than in January 2017. Chinese whey imports reached 109.6 million pounds in January, up 45% from a year ago. Of that volume, the United States accounted for more than half."

Here is the answer, the EU and USA are increasing production.

"Despite poor margins and large slaughter volumes, dairy producers continued to add
cows in January. The dairy herd climbed to a multi-decade high at 9.405 million head, up 5,000 head from December and 46,000 head larger than in January 2017. Continued growth in the milk cow herd will delay the recovery in milk prices."

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by  frazz  |  7th Mar 18, 9:01am 1520366511

"Continued growth in the milk cow herd will delay the recovery in milk prices."
And destroy the environment

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by  Doris  |  7th Mar 18, 11:24am 1520375056

Support, in its various forms, equalled 73 percent of U.S. dairy farmers’ market returns in 2015, according to a report published by a Canadian trade consulting firm.

“The support is completely ignored,” he said. “When it comes to farm support, the U.S. has the deepest pockets; deeper even than the European Union. Our study provides detail nationally, and on a state basis, the losses to U.S. dairy farmers. USDA data reveals that for more than a decade, U.S. farm gate prices for milk fail to cover costs of production.”

https://www.realagriculture.com/2018/02/u-s-dairy-subsidies-equal-73-pe…

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by  Andrewj  |  7th Mar 18, 11:30am 1520375431
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by  Andrewj  |  7th Mar 18, 8:58am 1520366296

Of note, the Clinton Foundation received some $88 million from Australian taxpayers between 2006 and 2014, reaching its peak in 2012-2013 - which was coincidentally (we're sure) Australian Prime Minister Julia Gillard's last year in office. Smith names several key figures in his complaints of malfeasance, including Bill and Hillary Clinton and Alexander Downer.
https://www.zerohedge.com/news/2018-03-06/australian-diplomat-whose-tip…

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by  Boatman  |  7th Mar 18, 9:13am 1520367202

Re China bigger than Eurozone ............... this statistic needs to be put into context , the Eurozone's 29 counties have a population of around 350 million and China has over 1,5 Billion .

The measure of per capita GDP as a comparison may show a different picture .

Also ,we need to recognize that China is building infrastructure that the Eurozone developed over the past 70 years , so the growth rate in China will naturally be greater as it consumes vast amounts of steel cement , copper and labour while building roads , dams , bridges , high rise buildings , ports , whole islands , ships , etc etc.

Europe does not need all this infrastructure development, its built and done

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by  stp  |  7th Mar 18, 12:12pm 1520377954

And if you put in the time context what we will have....? Few hundred years vs. 30 years.....

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by  Clementé  |  7th Mar 18, 12:32pm 1520379132

Ahhhh yes but which is prettier

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by  Retired-Poppy  |  7th Mar 18, 3:21pm 1520389313

Today's media release from Trump admin. Trade friction is quickly escalating; https://www.bloomberg.com/news/articles/2018-03-06/u-s-said-to-consider…

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