Rising NZD undermines higher dairy prices

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 of a rising risk mood among investors and that is generally 'helping' commodity producers.

But for us, the overnight dairy auction brought mixed results. Overall prices were up +2.2% in USD terms, but with the fast-rising NZD, they actually slipped -0.5% in local currency terms. It is obvious from the results that demand is highest for foodservice commodities with butter up +4.7%, cheese up +2.9%, and SMP up 2.5%. WMP only rose +1.5% in USD terms. This was the fifth straight auction that has avoided a fall in USD prices. Nothing in today's event will change the forecasts of the new season farmgate milk payout.

US housing starts in September were little-changed from August, but they didn't push on ahead to the extent expected. And building permit levels were also much softer than expected. Behind both trends are supply-chain woes - no builder needs the weight of partially built houses they can't sell.

And speaking of property developers, in China, Evergrande made an interest payment due for some of its local currency debt. But concerns continue to linger about the developer’s huge overall debt load. And foreign holders look like their investment will be worthless.

The OECD has updated its long term global fiscal outlook and found that the world has much larger problems that the recent run up of debt to handle the pandemic. Population aging and the related rising demand for public services pose very large funding problems for governments in the period to 2060. But they also say, taxes don't need to rise so long as reforms to boost employment rates and raise retirement ages are put in place soon. The problem of older people quitting the workplace early, as we have seen in the pandemic, is an especially corrosive trend and we are starting on the back foot. Unless it is addressed and soon, much higher taxes will come into play - or much reduced services.

In the minerals world, the price of copper it touching record highs in spot markets.

Australia's central bank bravely expects their economy to return to growth in Q4-2021 after the Delta outbreak derailed a Q3 recovery which they had also earlier projected. But hedging its bets it still does not expect to raise interest rates until 2024, board minutes showed.

The UST 10yr yield opens today up +5 bps to be now at 1.63%. 

The price of gold has risen by +US$3 to US$1769/oz.

And oil prices are up strongly, up +US$1.50 at just under US$83/bbl in the US, while the international Brent price is now just under US$85/bbl.

The Kiwi dollar opens today also on the rise and now at just on 71.6 USc and up +½c since this time yesterday. Against the Australian dollar we are now at 95.8 AUc. Against the euro we are up sharply at 61.6 euro cents. That means our TWI-5 starts today at just on 75.1, and now well over the top of the 72-74 range of the past eleven months.

The bitcoin price has risen +2.0% from this time yesterday and is now at US$62,955. Volatility over the past 24 hours has been moderate at just over +/-2.2%.

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.