Iron ore price slumps as China re-prioritises

Kia ora, 

Welcome to Friday's Economy Watch where we follow the economic events and trends that affect New Zealand.

I'm David Chaston and this is the International edition from Interest.co.nz.

Today we lead with news markets are quite while the norther hemisphere in on vacation. But China is taking the opportunity to adjust.

However, first in the US, jobless claims came in as expected at 320,000 new applicants, taking the total on these benefits to 2.8 mln. This latest data is neither an improvement nor a deterioration but there is still a long way to go until you can say their labour market has recovered.

American producer price inflation in July rose and by more than expected. It was running at +7.3% in June and a similar level was expected in July. But what was reported was +7.8%. Core PPI jumped from 5.6% in June to 6.2% in July and even faster increase.

The USDA is forecasting tighter grain supply in the year ahead as northern hemisphere heat stunts output, higher beef prices, higher imports by the US, but also lower US dairy prices.

There was a US$39 bln US Treasury 30yr bond auction overnight where the Fed took US$12 bln. The balance was reasonably popular, attracting US$59 bln in bids. But at 1.96% median yield, it wasn't much advance on the 1.90% of the prior equivalent auction a month ago.

Also overnight, the Mexican central bank raised its policy rate by +25 bps to 4.5% to counter rising inflation.

In China, there was another notable drop in iron ore prices yesterday. It is now down -28% in four weeks. China is taking tough decisions about steelmaking output, targeting a -23% drop in the July-December 2021 period so it can meet environment goals and this is having a magnified impact on Australia's key mineral export. The slowdown in China's economy is also a background effect.

State-owned Beijing Capital, which owns New Zealand's Waste Management business, is looking to quit its ownership and looking for someone to buy its stake. It has owned the business since 2014.

The EU reported that industrial production fell in June, and although this was less than for May and less than expected, it is unfortunate as it takes the top off their industrial recovery.

There has been no respite in the rises in the cost of shipping container freight rates, although the pace of increase seems to be slowing. Rates out of China to both Europe and Los Angeles rose this week, although trans-Atlantic rates dipped rather sharply.

In Australia, there are reports that the country is scouring the world in a 'mad scramble' to find vaccine supplies, especially the Pfizer one. Bad decision making at the Federal level seem to have made Australia into a vaccine predator. They are certainly not 'all in this together'.

The UST 10yr yield starts today at 1.36% and up +2 bps since yesterday. 

The price of gold has changed little from this time yesterday at US$1753/oz.

Oil prices are marginally softer from this time yesterday, so in the US they are just under US$69/bbl, while the international Brent price is just over US$71/bbl.

The Kiwi dollar opens today at just under 70.1 USc and down -½c since this time yesterday. Against the Australian dollar we are marginally softer at 95.4 AUc. Against the euro we are also soft at 59.7 euro cents. That means our TWI-5 starts today at 73.3 and giving up yesterday's gain but still in the narrow range of between 72 and 74 we have been in for ten months now.

The bitcoin price has weakened today and is now at US$45,197 and is down -2.8% from this time yesterday. Volatility in the past 24 hours has been moderate at just over +/- 3.3%.

You can find links to the articles mentioned today in our show notes.

And get more news affecting the economy in New Zealand from interest.co.nz.

Kia ora. I'm David Chaston and we’ll do this again on Monday.