Dairy prices rise again; equity markets await Fed signals; US housing starts weak; China retreats into its shell; German sentiment falls; UST 10yr at 2.83%; oil slumps but gold up; NZ$1 = 68.5 USc; TWI-5 = 73.2

Here's our summary of key events overnight that affect New Zealand, with news the oil price is down very sharply today.

First up however, there may be some disappointed dairy derivatives trades today. The NZX Futures market has priced good rises in advance of today's dairy auction, but in the end the gains were very modest. Overall prices were up +1.7% in US dollars and +2.8% in New Zealand dollars. The good gains in WMP just didn't materialise and the great gains for SMP didn't either although SMP did rise +3.4%. This auction ends the year with a second consecutive rise, but over all of 2018 prices are down -6% in US dollars, down -4% in NZ dollars. Volumes sold by auction for the year were up +5% to 658,000 tonnes and that represents only 3% of NZ's milk production. Most is sold directly rather than through auction.

Elsewhere in major markets, sentiment is in a holding pattern ahead of the US Fed rate decision and the pressure building to not follow through with their expected and previously signaled +25 bps rise. We will know at this time tomorrow. The US bond market is rallying (yields are falling) and the USD is slipping. Wall Street is holding (S&P500 up +0.9% in mid-day trade).

Meanwhile, US housing start data came in a bit better than expected although the level is -3.6% lower year-on-year. Expectations weren't very high. Building permit levels are flat.

In China, President Xi made an 'important' speech today promising more openness, but without specifics - yet again - and signaling even tighter party controls and an inward-looking siege-view of the world. His promises are now of no consequence; how he acts is the key.

And in China, debt pressures are rising. Major corporate bond defaults are surging as regulators move to clean up some of the debt mess. Investors will take the pain. Yesterday in Shanghai, equities ended the day down -0.8%. That takes the 2018 drop to -23% and a real bear market.

And China’s holdings of US Treasuries shrank for a fifth consecutive month in October, falling to the lowest point since May 2017 as the country beefs up measures to support the yuan amid the trade war. Actually, most countries are letting their holdings of US Treasuries fall, an indications that the cost of financing the ballooning US Federal debt is likely to rise in 2019. Foreign holdings are down -2% on a year when total US debt rose +6.3%.

In Europe, Germany’s IFO business sentiment index slipped by slightly more than expected to a 2-year low. Germany has produced another big government surplus, and their foreign wealth now amounts to a staggering €1.8 tln, or more than half of Germany’s annual GDP.

The UST 10yr yield is now at 2.83% and sinking another -3 bps. Their 2-10 curve is up to just under +17 bps. The Aussie Govt 10yr is at 2.42%, down -2 bps, the China Govt 10yr is at 3.41% and up +1 bp, while the NZ Govt 10 yr is at 2.48% and down -1 bp.

Gold has regained more ground and is now at US$1,249, a +US$4 rise today.

US oil prices have slumped again today by almost -US$2.50 to just over US$47.50/bbl. The Brent benchmark is now just under US$57.50/bbl. Severe oversupply, especially from US fracked crude, is behind this sharp drop. We haven't seen crude oil prices this low in more than a year. When they were last this low, UL91 discounted pump prices were NZ$1.74/L.

The Kiwi dollar is +½c higher today at 68.5 USc. On the cross rates we are up more at 95.5 AUc, and at 60.3 euro cents. That puts the TWI-5 at 73.2.

Bitcoin is now at US$3,513 and a +1.8% gain overnight. 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 ».