Gremlins infect the optimists

Kia ora,

and 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 news the stopping of Boeing 737MAX production has upended market optimism.

But first up today, there has been a surprise drop in dairy prices at the overnight auction. Overall prices are down -5.1% in US dollars and -5.8% in New Zealand dollars as the Kiwi dollar has also fallen overnight. The retreat was led by WMP prices which were down -6.7% and SMP which were down -6.3%. This is the biggest fall since March 2017 which came after a string of declines and was followed by a string of rises. Today's result will come as a complete surprise to most analysts who were becoming increasingly bullish about farmgate returns this season. But this bump in the road could wipe off as much as -70c from some current season payout forecasts.

In the US, housing starts recovered in November and are now +13% higher than the same month a year ago. Building permits are up +11% on the same basis which is a notable 12 year high. These increases were above analyst forecasts.

The Fed also recorded a small rise in industrial production in November, reversing two straight months of declines.

Data for American job openings which is for October, came in on the positive side as well.

All this data pre-dates the phase one trade deal, but together you would think it would be juicing up Wall Street. But not so; it is flat in mid-day trade with the S&P500 up just +0.1%.

Perhaps one reason is that their major exporter, Boeing, has shut its 737MAX production and this will have a significant ripple effect on the economy going forward. In Europe, Airbus can't make jets fast enough now.

In Canada, their manufacturing sector sales are dragging the chain, and the Boeing news won't help there either.

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In China, the IMF has firmed up its 2020 growth forecast to +6% and confirming Beijing's own target is quite feasible.

Perhaps that added to optimism because the Shanghai equity market rose another strong +1.3% yesterday.

But there is continuing trouble with excessive office space in the top tier cities with vacancy rates over 10% and rising, more in second tier cities. And this is complicating the plans of many companies to sell off property to bolster balance sheets, in a number of high profile cases an action necessary to retain their listing status. In the residential scene, the high-end Beijing property market is bouncing back strongly.

In Europe, Brexit fears are returning as the hard-line positions taken by the British are dousing optimism the split could be amicable.

In Australia, regulator ASIC is accusing NAB of a major fees-for-no-service violation, one that may involve a penalty of up to AU$10 bln because there may be more than 10,000 clients affected and the penalty is substantial in each case.

The UST 10yr yield is at 1.88% and down -1 bp since this time yesterday. 

Gold is at US$1,476/oz and up +US$2 overnight.

US oil prices are higher at just under US$61/bbl and the Brent benchmark is just over US$66/bbl.

The Kiwi dollar will start today more than -¼c lower at just under 65.7 USc. On the cross rates we are holding at 95.9 AUc. Against the euro we are noticeably lower too at 58.9 euro cents. That puts our TWI-5 at just on 70.8.

Bitcoin is now at US$6.728 and down -5% from this time yesterday. News of ponzi fraud is sweeping Chinese markets where most bitcoin trading takes place.

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

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