Commodity price falls accelerate

Kia ora,

Welcome to Wednesday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.

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

Today we lead with news with another day focused on commodity prices, including this time, dairy prices.

The overnight dairy auction has brought lower prices again, down -4.1% in US dollar terms. Butter was the big loser, down -9.1% at this auction. SMP fell -5.2% and WMP fell -3.3%. But somewhat saving the day has been a sharpish retreat in our currency, so in NZD terms prices fell only -1.0%. This is the seventh retreat in dairy prices in the past eight auction events, taking prices back to levels last seen at the start of 2022.

But dairy prices weren't the only commodity to take it on the chin. The gold price has fallen below US$1800/oz for the first time since October 2021. And oil prices have crashed, down about -10% and below US$100/bbl for the first time since mid-May. Lower demand expectations and Russians selling at huge discounts has finally caught up with the main oil indexes. 

All this is despite US factory orders levels coming in surprisingly positive, up +1.7% from April when a good monthly +0.5% rise was expected. Overall these orders are up +15.5% from year-ago levels, far more than can be explained by inflation. And durable goods orders were up +12.2% so the gains are more than just temporary consumption. It is data that isn't getting much respect today.

The private Caixin China services PMI also revealed a big recovery, even stronger than the official June services PMI.

Not to be out-done, the Japanese services PMI also recorded a steep rise revealing an impressive recovery underway there. It has been their third-fastest rise in business activity there since 2008.

China needs jobs badly. In the south, it is peak hiring season, but young workers face slumping wages and fewer opportunities in the Pearl River manufacturing heartland, a region grappling with pandemic disruptions and slumping exports when supply chains shift their business out for strategic reasons.

China is taking aim at the international technology firms by rolling out new "standards". This effort is to try and get key tech "made in China" in return for access to their huge economy. They are building a large non-tariff "bamboo curtain" that circumvents the WTO.

And in Europe, their Parliament has overwhelmingly approved two sweeping new pieces of digital regulation, paving the way for clashes between regulators and some of the world’s largest tech companies over how the rules should be applied.

In the UK, senior ministers are now abandoning the Prime Minister, as their sleaze crisis just goes on and on. And their central bank says the British economic outlook is deteriorating "materially".

The Reserve Bank of Australia raised its offial cash target rate by +50 bps to 1.35% at its July meeting late yesterday. "The Board expects to take further steps in the process of normalising monetary conditions in Australia over the months ahead. The size and timing of future interest rate increases will be guided by the incoming data ... " they said. A third +50 bps rate rise is entirely possible in August.

The Australian services PMI wasn't so impressive, still expanding but much slower, in fact their softest expansion in five months.

The UST 10yr yield starts today down at 2.80% and a -9 bps drop. 

The price of gold is down sharply, down a very chunky -US$42 at US$1766/oz.

And oil prices are down very sharply, down a massive -US$12.50 at just under US$96.50/bbl in the US, while the international Brent price is just on US$100.50/bbl. Even natural gas prices are falling.

The Kiwi dollar will open today -¾c lower at 61.4 USc. Against the Australian dollar we are lower at 90.7 AUc. Against the euro we are a little firmer at 59.9 euro cents. That means our TWI-5 starts today at just on 70.1 and -20 bps softer.

The bitcoin price has slipped since this time yesterday and is now at US$19,708 and down -1.0%. Volatility over the past 24 hours has been moderate at +/-2.9%.

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.