Here's our summary of key events overnight that affect New Zealand, with news Wall Street is down sharply today.
But first, tomorrow Fonterra will update their farm gate milk price forecast and today we got the results of the latest dairy auction. On the face of it, it was a good event with prices up +2.2% from the prior auction two weeks ago. This was the first rise in 14 auctions dating back to May. In that time prices have fallen -22%. The downer on all this is the rising New Zealand dollar exchange rate. Today's +2.2% result is actually only +0.6% up in local currency. So it means very little in the overall scheme. Still a rise is better than a fall, but it won't change Fonterra's calculus tomorrow, when a number of analysts expect them to cut their payout forecast.
Elsewhere, on Wall Street they have had a sudden change of heart about what the China-US trade talks all mean. They are now following the bond market view and today the S&P500 is down a massive -2.4% in early afternoon trade. That means it's 2018 gain is a mere +1.2%. Today's about-face is a major event in terms of market sentiment.
Part of the change of heart is that there appears to be confusion about what Xi and Trump agreed. It looks like Trump just made up some parts of the "agreement" especially around car tariffs and the Chinese didn't really concede that point. The Chinese aren't publicly calling him out on the point however. And the 90 day time-out remains.
Even though it is growing, the WTO says global trade is in a crisis and the benefits cannot continue "when large countries take unilateral action which deviates from common rules and principles". They say the traditional goods trade is the most vulnerable, but the future is bright for digital trade.
The OECD is reporting that inflation rose to +3.1% in the group in October, up from +2.9% the month prior and boosted by rising energy costs then. Of course, they have fallen back sharply since.
Along the same lines, the EU is reporting that their producer price inflation rose sharply in October by +4.9% pa.
Back in the US, the powerful head of the New York Fed says that more rate hikes are coming in 2019, showing recent dovish assumptions about where the Fed is may not be quite right.
In the UK, ratification of the Brexit deal is not going well in their parliament. And the top EU court has given 'remain' proponents a new channel to undermine the government's deal.
In Australia, the RBA held its policy rate at 1.5% as expected, noting that inflation remains low and stable, employment is growing, and economic growth is on track. They are upbeat on higher wages. Only house prices, and their falls in some large cities, are on their watch list, and they see that as a necessary rebalancing. They aren't buying the 'biggest-threat-to-the-economy' line.
But what might be a threat are food prices. The severe drop in their wheat crop output due to drought risks grain-based foods rising sharply in price. Australia has lowered its wheat production forecast by -11% to the smallest in a decade amid a crippling drought across the country's east coast that may cut exports from the world's fourth biggest supplier and raise prices region-wide. Their winter crop production is forecast to be -20% below their 20 year average.
The UST 10yr yield is still on a downward path at 2.89%, a significant -10 bps drop. More importantly however, their 2-10 curve has slipped another sharp -8 bps to now be just under +10 bps and a clear 'fear' signal. The Aussie Govt 10yr is at 2.53% (down -7 bps), the China Govt 10yr is at 3.35% and down -5 bps, while the NZ Govt 10 yr is at 2.54% and also down -7 bps. Our 2-10 swap curve is now under +80 bps for the first time in more than two years.
Gold is up +US$4 to US$1,237/oz.
US oil prices are a little higher today at US$53/bbl. The Brent benchmark is now just on US$62/bbl. An agreement within OPEC for output cuts seems close.
The Kiwi dollar is starting today at 69.3 USc. On the cross rates we are unchanged at 94.2 AUc, and up at 61.1 euro cents. That puts the TWI-5 at up to 73.8 and its highest since April.
Bitcoin is firmer, now at US$3,916 which is a +2.7% rise 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 ».