Dairy prices slip -2%; markets sanguine on US elections; Canada building permits edge up; China facing growing economic challenges; RBA optimistic; UST 10yr at 3.21%; oil and gold lower; NZ$1 = 66.7 USc; TWI-5 = 71

Here's our summary of key events overnight that affect New Zealand, with news China is at a bit of a crossroads economically.

But first today, the overnight dairy auction is piling on some pressure on the industry. It came in with a -2% overall result, but in New Zealand dollars overall prices were down -3.2%. That means overall prices are now -12.5% lower in US dollars than this time last year and down -9.5% in New Zealand dollars. The key WMP price is down almost -3% today and this is important because more than half the product being auctioned is WMP. WMP prices in New Zealand dollars sank below $4,000/tonne for the first time in 2018 and only the second time since October 2016. The quantity sold of 42,412 tonnes was the highest since August 2015. But don't forget that auction sales only account for about 30% of Fonterra's sales volume. And other dairy companies offer product in these auctions. Today's auction result won't be helping farmgate milk prices.

In the US they are voting in mid-term elections. Results won't become clear until much later today. The S&P500 however is up +0.6% and the UST 10yr yield is up. Investors don't seem nervous about how it will turn out.

In Canada building permits edged higher in September reversing a downward track the month earlier, and came in above analysts expectations. Non-residential gains were stronger, but residential permits rose more than expected as well. Despite this, September 2018 levels are still -0.5% lower than September 2017.

In China, and it a bit of a backtrack from yesterday, a senior official has said that they will talk to the Americans about trade and respond to American criticisms.

And closer to home, their central bank has said it is worried about the sharp spike in short term consumer loans. They grew by +20% in 2017 and authorities worry about the stress this is imposing on people buying things with money they don't have.

Further, the head of an influential state-backed think tank has forecast that China’s economic expansion may be entering a long-term “downward spiral” as all three engines of growth - investment, exports and consumption - slow down. And international investors are growing tired of empty Chinese 'reform' declarations.

Growth strengthened in the world's services sector in October in a giant survey released overnight. In fact, it was revealed that activity is rising at a faster rate, new business growth is stable, and input prices are rising faster. This October result was the first improvement in four months. Now Italy is the only country contracting.

Yesterday, the RBA left its official rates unchanged yet again but its outlook was decidedly upbeat. It forecasts faster economic growth for Australia and that by 2020 their unemployment rate will fall to its lowest level since the GFC. The RBNZ will give it's assessment on Thursday and if it is also as upbeat, the chances that the next rate change here will be a rise will go up.

The UST 10yr yield is up +1 bps at 3.21%. Their 2-10 curve is at +29 bps. The Aussie Govt 10yr is at 2.73% (unchanged), the China Govt 10yr is at 3.54% and down -2 bps, while the NZ Govt 10 yr is at 2.67% and unchanged today.

Gold is down another -US$3 overnight to US$1,226/oz.

US oil prices are sharply lower today to just over US$61.70/bbl, a fall of about -US$1.50/bbl. The Brent benchmark is now over US$71.70/bbl also sinking.

The Kiwi dollar is starting today a little firmer at 66.7 USc. On the cross rates we are unchanged at 92.4 AUc, and the same at 58.4 euro cents. That leaves the TWI-5 at 71 and near its three month high.

Bitcoin is now at US$6,442 which is virtually unchanged from this time yesterday. This rate is charted in the exchange rate set below.

This chart is animated here.

The easiest place to stay up with event risk today is by following our Economic Calendar here ».

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22 Comments

No mention of what an incredibly important day this could be for the future of the entire human race and the galaxy?

Today we stand, yet again, at an important crossroads. Will we take the path of a glorious conquest of the Milky Way starting with the Space Force or travel towards an empty future of a barren rock of a planet tumbling through space to meet an inevitable demise engulfed within a supernova?

Godspeed President Trump.

You forgot your meds?

up
12

Yay, they're firing him into outer space on a one way ticket!!

He probably put it on his credit card, yet again....so could rebound on the entire World.

It might be well worth the risk though.....so hopefully a PocketAces, beats a Trump card.....for once.

What This Election Is About by Paul Craig Roberts

https://www.paulcraigroberts.org/2018/11/05/what-this-election-is-about/

----
It is about whether “the deplorables” have been brainwashed by the Establishment’s media whores and fail to support Trump in the House and Senate elections. If the Democrats, whose politics is Identity Politics, get the House and/or Senate, Trump will be completely impotent. The Establishment hopes to drive the lesson home to every future presidential candidate to never again appeal to the people over the vested interests of the Establishment.

In America democracy is a scam.
The oligarchy rules, and the people, no matter how they suffer under the oligarch’s rule, must submit and accept.
No more presidential candidates, please, who represent the people.
This is the lesson that the Establishment hopes to teach the rabble in the midterm elections.

It wasn't long ago that dairy news used to be like this

http://www.stuff.co.nz/business/farming/4026239/India-to-stockpile-Fonte...

But things change, we live in the information age

https://www.reuters.com/article/us-india-milk-exports-exclusive/exclusiv...

India could have as much powder stockpiled as the EU, 300,000 tonnes. This India, the one that has cash flow issues
https://www.bloomberg.com/news/articles/2018-11-02/india-is-said-to-expe...

Things are changing in China

https://www.chinaag.org/markets/devaluation-and-chinas-losses-in-the-foo...

https://www.chinaag.org/markets/chinas-dairy-industry/

Gives new meaning to the words "dry powder"

"When oil prices rise abruptly we should be concerned, because they can cause a domino effect on the real economy. When the reason for the price increase is not fundamental, we have a major problem."
https://www.dlacalle.com/en/is-the-oil-burden-a-rising-concern/

"..the chances that the next rate change here will be a rise ..."
Seriously?
The wheels are coming off the only two drivers of economic growth we have - dairy and property, and rates are going to go up? "But we have tourism, foreign students and movies!" is the usual rebuttal. All of those are as fickle as the global economy. See the World head into any sort of turbulence, and count the number of tourists and students we get, and films we make on one proverbial hand...

I WISH interest rates would keep going down. However I live in the real world and the only downward moves left are what the banks will give up in their margins to maintain housing market share. The banks funding costs are not going down, the swap rates have stabilized to lifting. Not big moves but enough to halt further interest rate drops. The banks will be using this time to tidy their lending portfolios and send some money home. Try borrowing outside residential.

Looks like the Housing market has been given an enema overnight. There's all manner of crap coming on!

'National unsold housing stock (realestate.co.nz) had risen from 36,775 at 4pm yesterday to 37112 this morning. This really is gathering pace.
Auckland Unsold housing stock (realestate.co.nz) has risen from 13,858 at 4pm yesterday to 13,967 this morning.

These are clearly signs of trouble but not necessarily pointing towards a crash since a glut of listings will hardly sell homeowners into panic mode forcing them to drop prices. The usual crash comes when droves of people are neck deep in debt and lose their ability to service any of it. At that point, desperate sellers try to exit the market for whatever they can get their hands on.
The trigger comes from elsewhere in the economy, ideally where borrowers generate their primary income from.

The bulls were denying 13000 would be broken last week

Trade me Auckland now over 13100 after cracking 13K yesterday

From two weeks ago.
"However, New Zealand continues to report anemic exports. In January through September, New Zealand sent 12% less skim milk powder (SMP) overseas than in the first nine months of 2017 and 25% less than in 2016. Shipments of Kiwi SMP toChina are down 19% from a year ago hinting at poor
demand from one of the world’s most important milk powder buyers. New Zealand will likely have plenty of milk powder to move. September milk collections reached 2.68 million metric tons, or 5.9 billion pounds, up 6% from a year ago. On a milk solids basis, September collections were up 5.8% from a year ago. Milk solids collections are up 5.6% for the season to date"

I have no sympathy for China , which has been lying and cheating in world trade for years now .

Its notable they have not taken Donald Trump to the WTO over the so-called Trade War .

One needs to ask why

also interesting to note that the trade tariffs imposed by the US are backed by both Dems and Reps

Bit of a shame too many of our politicians seem quite open to money and influence from China's Communist Party, eh?

Australia re-appoint Byers for another 5 years as the head of APRA (a failing regulator) so he can continue the Ostrich type regulation of the banking sector.

https://www.youtube.com/watch?v=YmM4uipky2o&t=370s

Got to look after the debt farmers. The four pillars of Australia, well five really, but Macquarie is a bit off the radar.