Dairy prices fall again

Kia ora,

Welcome to Wednesday'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 Wall Street thinks yesterday's drop was overdone, but there has been little positive data released overnight to support that view.

First up today however is the overnight dairy auction which saw prices fall again, this time down -2.9% in US dollar terms led by SMP which fell -5.2% from the prior even two weeks ago, and WMP which fell -3.8%. The only saving grace has been the devaluation of the NZ dollar, and in local currency todays declines are 'only' -1.5%. Since the big +15% jump in early March, overall prices have fallen -9.3% although they are still +20% above year-ago levels. Analysts will be re-running their payout forecast assessments as today's results represent the seventh consecutive auction where prices have fallen.

US housing starts and building permits issued are remaining quite elevated, but oddly, completions haven't caught up yet and are just +1.5% higher in June than May, and only marginally above the June 2019 levels. The March jump hasn't been extended and it is unclear why given the continuing surge in starts. The low completion rate is adding to the perceptions of a 'housing shortage' in the US.

In Canada, house prices are rising at their fastest pace on record. They were up +16% year on year in June, faster than the +14.2% rise which was the previous record in June 2017 - and after which the Bank of Canada brought in new cooling measures. None seem imminent this time however.

In China, the weather is playing havoc with parts of its economy. Many cities have been warned they may face power outages ahead as the system strains under surging electricity consumption amid rising temperatures. China's power consumption hit an all-time high last week – up more than +10% from last summer’s record. And very heavy rainfall in the Yellow River basin in Henan province has millions scrambling for safety. Heavy rain at this time of year isn't that unusual, but at this level (200mm in an hour) it is.

Taiwanese export orders are still rising very strongly. They are up +31% from a year ago, and up +39% from June 2019. Strong order levels are coming from all corners of the globe.

German producer prices were up +8.5% in June from a year ago and that beat estimates, and were well above the +7.2% rise in May.

In Australia, there were 78 new community cases in NSW yesterday, and another 13 community in Victoria where their lockdown has been extended for another 7 days. Queensland and South Australia are now also reporting cases in the community, prompting a new SA lockdown. All this is knocking consumer confidence in Australia. None of this gives hope the Trans-Tasman travel bubble will re-open anytime soon. 

Wall Street has decided that its Monday slump was overdone, and is up +1.7% in early afternoon trade today. 

The UST 10yr yield starts today at just on 1.22% and a +4 bps partial recovery. 

The price of gold is now just on US$1810/oz which is up +US$2/oz from this time yesterday.

Oil prices have stopped falling, and stabilised by +US$1 so in the US they are now just over US$67/bbl, while the international Brent price is now just over US$69/bbl.

The Kiwi dollar opens today just under 69.2 USc as the greenback continues its rise. Against the Australian dollar we are softish at 94.4 AUc. Against the euro we are little-changed at 58.7 euro cents. That means our TWI-5 starts today down marginally at 72.3.

The bitcoin price is now at US$29,649 and down another -3.2% from this time on yesterday. Volatility in the past 24 hours has been moderate at just under +/- 3.0%.

If you are one of the many new listeners who have joined us recently, welcome – we appreciate your company.

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 tomorrow.