Gold and bonds send clear warnings

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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 bond markets are flashing warning signs.

First today, the overnight dairy auction has brought sharply lower prices on rising volumes offered. The key WMP price was down -7.5% in USD terms, down -6.3% in NZ dollar terms. Cheese (-5.3%), butter (-2.8%) and SMP (-4.6%) all got much lower auction prices as well. Overall, that is a weighted average fall of -5.1% in US dollar terms and -4.6% down in New Zealand dollar terms. This event brought an unexpectedly large price correction and prices are now down -5.6% year-on-year after a few months of recording year-on-year gains. It will bring analysts to relook at their rising 2020/21 season farmgate milk price forecasts, even if they don't change them just yet.

US factory orders rose more in June than expected, but this is now being seen as an outdated trend.

More current, US retail sales rose marginally last week from the week before but are still a large -7.1% lower that for the same week a year ago.

Eastern China is battened down for a seasonal typhoon. The Eastern US is similarly bracing for a major hurricane. In both zones, these major storms break a long quiet period of such storm events. However, that doesn't make them any less of a risk to the economies they affect.

The storms aren't keeping buyers away at Chinese car dealers. Sales rose +15% in July from a year earlier to 2.1 mln units.

Australia has recorded another huge monthly trade surplus. In July it posted an AU$8.2 bln surplus for the month, taking the 12 month total to AY$78 bln. This surplus has been expanding for a long time now. In the equivalent year to June 2019 it had a surplus of AY$49 bln, and that was vastly higher than the AU$7 bln surplus in the year prior to that.

China may be grumpy with the Aussies, but it just keeps on buying. And paying ever higher prices. Iron ore prices are now up +80% in the past nine months (although they are still a long way below the levels that existed in the 2010 to 2014 period).

Yesterday, the RBA announced the results of its monthly monetary policy review and while it made no interest rate changes, it did emphasise that it will be intervening more vigorously in secondary markets to keep bond yields low. And it raised its forecasts of unemployment levels coming to Australia. They are now expected to hit 10%.

And regulator APRA says Australian banks have now deferred AU$274 bln in loan repayments for customers, allowing another $40 billion to pause their repayments in June as an emergency relief. That is similar to May, and is expected to rise substantially in August even if not so much in July.

In global equity markets were little-changed overnight, and Wall Street is marking time as well so far today. Yesterday. Tokyo, Hong Kong, and the ASX200 all rose about +2% and the NZX50 almost +1%. But there are risk-off signals today and these gains are unlikely to be sustained when markets open in our time zone.

In Australia, there have now been 18,729 cases reported, another +411 overnight, and still very much concentrated in Victoria but also small and growing pockets in both Sydney's suburbs. Queensland seems to have a lid on it there. Their death count is up to 232 (+11). Their recovery rate is now under 58%. There are now 7707 active cases in Australia (+228) and almost all are community transfer.

The latest global compilation of COVID-19 data is here. The global tally is 18,359,000 and that is up +211,000 since this time yesterday. Global deaths reported now exceed 696,000 (+6,000).

A quarter of all reported cases globally are in the US, which is up +56,000 from this time yesterday to 4,888,000. US deaths are now just over 159,600 and a death rate of 482/mln (+3/mln). And the net number of people actively infected in the US rose overnight to 2,273,000.

The UST 10yr yield has fallen -5 bps today on the sharp risk aversion tone on Wall Street and is now just on 0.51% and a new record low.

The gold price is sharply higher today, up +US$33 to US$2007/oz and a new record high. At one point earlier it reached US$2010/oz.

Oil prices are up, but by less than +US$1/bbl today. They are now just under US$42/bbl in the US and the international price is now just over US$44.50/bbl.

But the Kiwi dollar has stayed soft against the US currency and still at 66.1 USc. Against the Australian dollar we are -½c lower at 92.4 AUc. Against the euro we are down at 56.1 euro cents. That means our TWI-5 is now a little softer at 69.3.

The bitcoin price is down -2% today at US$11,211.

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. We will do this again, tomorrow.

327 episodes