Here's our summary of key events overnight that affect New Zealand, with news of an unexpectedly large fall in dairy prices.
Today's dairy auction has brought prices in US dollars down a bit over -5%. In New Zealand dollars however prices are down about -3% as the lower exchange rate has cushioned the drop. Volumes on offer and sold were the highest in 2018 but were lower than the equivalent auction a year ago. The big mover was WMP which fell -7.3% in US dollars, -6.9% in New Zealand currency, and a large fall whichever way you look at it. Worse, today's fall is the third consecutive drop, and the eighth in the past ten auctions. The declines are starting to mount up now with overall prices now down -7% since February and of course most of that came today. A drop like this, if it is sustained, could well trigger a revision in farm gate payout price forecasts.
In other news, we should note that trading on Wall Street was limited in a short, perfunctory session ahead of tomorrow's US national holiday. The S&P500 is down -0.5% today.
In the US, factory activity rose for the second straight month but part of that was because manufacturers were scrambling to move goods ahead of threatened tariffs. Excluding aircraft however, the rise was less than for May. Separately, official data confirmed the earlier flash result that May durable goods orders actually declined.
American car sales in June came in unexpectedly strong, and rising demand for SUVs is behind the trend. There may also be some advance buying ahead of tariffs and the expected higher costs that they will bring.
And new data out shows that America's appetite for personal loans surged to a record this year and are their fastest-growing consumer-lending category. Outstanding balances rose +18% in the first quarter to US$120 bln. Fintech companies originated 36% of total personal loans in 2017.
Yesterday, the Shanghai stock exchange closed up marginally, halting the sharp selloff we have seen there recently. Tokyo also managed to avoid another serious drop.
In Australia, regulator ASIC has been investigating their AU$45 bln credit card market. They have problems with bank's responsible lending assessments for credit cards can be improved and found many customers have cards that don't suit their behaviours. "We are concerned about the amount of problematic debt we found," they said. Their review did not address the level of interest rates being charged.
The UST 10yr yield has fallen sharply today and now at 2.83%, down -5 bps in New York. The Chinese 10yr is at 3.51% (up +2 bps) while the New Zealand equivalent is now at 2.81%, also down -5 bps.
Gold has turned back up today, up +US$11 in New York to US$1,253/oz in New York.
US oil prices remain high and firm, and now just over US$74/bbl. The Brent benchmark however is also firmer, now at US$77.70/bbl. And, a working carbon capture plant with zero emissions is being touted in Texas.
The Kiwi dollar starts today ½c higher at 67.5 USc. On the cross rates we are little changed however at 91.5 AUc and at 57.9 euro cents. That puts the TWI-5 at 70.9. We should also note that the Chinese central bank is moving to support their currency, after a recent sharp depreciation.
Bitcoin is now at US$6,577 and little changed from this time yesterday. The Indian Supreme Court has backed their central bank, virtually outlawing cryptocurrency trading.
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26 Comments
overproduction due to cheap credit will haunt the World.
https://www.washingtonpost.com/news/wonk/wp/2018/06/28/americas-cheese-…
You forgot over-consumption that one can achieve with the magic of borrowing.
How does one rack up a credit card bill in the tens of thousands of dollars if one doesn't have the means to repay it?!
Maybe these gullible idiots need to stop thinking that getting a credit card is like winning the lottery!
http://www.abc.net.au/news/2018-07-04/1-in-6-credit-card-users-struggle…
Actually that is incorrect - the case was recently decided in favour of the beneficiary
https://www.radionz.co.nz/news/national/360960/solo-mum-s-loans-were-no…
also forgot... that the magic of borrowing has been driven by the secular trend of lowering of interest rates , enabled by Low CPI inflation which, ironically, has been subdued by the over production/over capacity , itself..
Globalization has turned the economic CPI inflation model on its head.. ie.. theory was that if too much new money entered an economy, consumers would spend more and more and prices would rise as production reached capacity limits.. ( which would force wages higher as firms compete for workers )
NOW... as new money enters , and interest rates have moved inexorably towards 0% ... Capacity is created in emerging and developing economies, ..seemingly without limits..!!
Pretty clear to me , that the CPI inflation targeting policy framework , in a Global world , is not so good in guiding Monetary Policy..
One of the most serious unintended consequences of all this is the extreme asset price inflation and the slow destruction of savers... (essentially the biggest wealth transfer mechanism ever... )
For me , it is the essential reason for the concentration of wealth in fewer and fewer hands..
You should watch this on China housing
https://www.youtube.com/watch?time_continue=288&v=XopSDJq6w8E
I have this uncomfortable feeling , that if commodity prices fall on a sustained basis ( such as milk ) , the NZ weakens , and interest rates go up because the FED has tightened , we could have a minor recession.
Our economy is humming along on the construction boom , road building and other civil works , as well as tourism and commodity exports , but other sectors are under stress such as retail and anyone in a business producing something that can be outsourced to Asia or imported from Asia.
We , for example have from 1 June outsourced some work to the Philippines at US$5.50 per hour , that was costing us a full time staff member on $56k per annum plus holiday pay , KS , ACC , etc etc .
Its a no brainer for us to do this , we only pay the Filipinos for the work done ( measured on our cloud -based system so they cant cheat ) , and we have sent one of our staff over there to do the training , so there are some sunk costs in this experiment .
The quality of work produced has been of a comparable standard to what a qualified Kiwi junior staffer would produce
So far so good.
Can't blame you for capitalizing on wage differentials.
The general expectation from the workforce in smaller developed countries is to produce high quality, speacialised output to justify the high labour input costs for a business. In other words, the local workforce is expected to deliver higher productivity while unproductive, repetitive tasks can be outsourced to low wage nations. For example, high-skilled engineers, based in East Tamaki, design and develop high quality goods for F&P Healthcare, while the somewhat low-to-mid skilled task of mass producing the designed prototype is outsourced to Mexico and Thailand.
We face an unprecedented challenge from Asian companies who can internalize high as well as low skilled outputs within their countries, both at much lesser costs.
We in NZ have fallen well behind the R&D curve and our economy increasingly relies on bulk commodity exports and specialized product imports.
On the good news front the ETS and fuel tax has kicked in and Greenland is refusing to melt. Good work bureaucrats!
ttps://www.dmi.dk/uploads/tx_dmidatastore/webservice/b/m/s/d/e/accumulatedsmb…
It's a $1.5 trillion/annum gravy train - you are not going to bring that baby to a halt any time soon. That is a lot of mortgages and kids through college to think of.
"Interest in climate change is becoming an increasingly powerful economic driver, so much so that some see it as an industry in itself whose growth is driven in large part by policymaking.
The $1.5 trillion global “climate change industry” grew at between 17 and 24 percent annually from 2005-2008, slowing to between 4 and 6 percent following the recession with the exception of 2011’s inexplicable 15 percent growth, according to Climate Change Business Journal."
https://www.insurancejournal.com/news/national/2015/07/30/377086.htm
lol - leighton smithers - conspiracy nut - why ZB continues with you I can only imagine.
https://climate.nasa.gov/vital-signs/global-temperature/
https://climate.nasa.gov/vital-signs/sea-level/
Yeah, even crackpots like Stephen Hawking were sucked in by the 'climate change industry' http://www.climateactionprogramme.org/news/stephen-hawking-next-time-yo…
What the hell do these 'scientists' know anyway? Let's all put our hands together and pray. Then we can go back to thinking about global growth and making money.
Freeman Dyson, to name one, hasn't been sucked in. "Increasing CO2 in the atmosphere does more good than harm, he argues, and humanity doesn't face an existential crisis. Climate change, he tells us, "is not a scientific mystery but a human mystery. How does it happen that a whole generation of scientific experts is blind to obvious facts?"
https://www.theregister.co.uk/2015/10/11/freeman_dyson_interview/
"When will the world realize that Global Warming (now repackaged as Climate Change) has been overdone?"
There is little point in arguing with badly educated climate change doubters. For the young among you, time will answer these arguments. Sadly far far more will lose than will win.
Is the 1981-2010 base average for Greenland not enough?
https://www.dmi.dk/uploads/tx_dmidatastore/webservice/b/m/s/d/e/accumul…
Or the 30 year satellite record?
"Southern Hemisphere.: +0.04 C (+0.07 °F) above seasonal average". CO2 has increased quite a bit since 1979 when sat. records began. 0.04 degrees - wow -now that is runaway.
https://www.nsstc.uah.edu/climate/2018/june2018/GTR_June2018_2.pdf
@didge , the statistics simply don't support what the climate change "experts " and other fearmongers are saying .
I concede we are consuming the planet irreversibly , and there is a lot of environmental damage from pollution , plastics and other waste .
But climate change on the scale suggested is not supported by sufficient statistical evidence .
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