Dairy prices rise as China's milk production falls

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 dairy prices are still rising.

We got an increase in dairy prices at the overnight GlobalDairyTrade auction from the prior event, but it was a small pullback from prices at last week's Pulse event. Overall prices were up +1.9% in USD terms, up +3.6% in NZD terms, so a good result. WMP let the rises with a +3.2% gain, but the main pullbacks were in the cheeses with cheddar down -3.1% and mozzarella down -6.6%. SMP rose +0.9% from the prior full event but was down -1.1% from last week's Pulse event.

This is still a good result and will probably encourage some analysts to update their new season payout forecasts, just as BNZ analysts did last week. The possibility of a $10/kgMS payout is still in play after these results.

Holding the WMP prices up is the unexpectedly sticky fall in Chinese milk production (due to low profitability) and a rather steep and unexpected fall in their WMP inventories. This will underpin WMP demand for a while and rising New Zealand production will bring a virtuous tone to the party as well.

In the US, although the average American voter may have voted 'negative', they are acting 'positive' in their spending with the Redbook retail sales growth up +5.1% last week from the same week a year ago. And those sort of gains are what giant Walmart is racking up. (Presently, these gains are essentially volume gains. But of course, if the US gets aggressive tariffs, price rises will drive these numbers higher with inflation.)

US housing starts hit a bump in the road in October, down -3.1% to just over a +1.3 mln starts (annualised rate), but the fall was because construction activity fell sharply in the South due to their hurricanes. Obviously that will recover soon for the same reason. But in the background it is generally challenging for house builders because mortgage interest rates are remaining high. Still, sales at a 1.3 mln is about average for 2024.

A big question hangs over the US housing markets, both for new and used houses. The incoming Administration seems committed to quitting the two big institutions that make the market for 30 year fixed mortgages, Fannie Mae and Freddie Mac. They tried in the last Trump Administration and were thwarted by Congress, but they seem more determined this time. If that happens it will be an earthquake for housing finance in the US, and probably be the demise of their unique long-term fixed rates.

September data released yesterday by the US Treasury shows a huge inflow of foreign funds into the US. There was +US$341 bln of private net flows in the month, plus another +US$57 bln by "official" (government) transactions. This is easily the largest single monthly inflow ever. (For reference, the US Federal Government deficit averaged -US$153 bln monthly in the year to September.)

Canadian CPI inflation was up +2.0% in October, a blip up from September's +1.9%. Their food prices were up +2.7% within that, rents up +7.3%. But these were offset by much lower energy costs.

After growing rather well in the April to August months, Malaysian export growth as pulled back in September and October with only modest changes. Malaysian import growth is pulling back too, but it this is still expanding at twice the export growth rate.

In Hong Kong, the clampdowns on freedoms of expression are getting fiercer. And it is no longer 'legal' to mention Jimmy Lai, let along the umbrella freedom protests.

And China is moving to make it an offense to operating in financial markets unless pricing is "rational".

In India, they are again battling seasonal air pollution, and it is particularly bad this year, especially in the north.

The UST 10yr yield is now at just on 4.39% and down -6 bps from yesterday at this time.

The price of gold will start today at US$2623/oz and up another +US$13 from this time yesterday.

Oil prices are little-changed, still at US$69/bbl in the US while the international Brent price is still just on US$73/bbl.

The Kiwi dollar starts today at 59 USc and up +30 bps from this time yesterday. Against the Aussie we are unchanged at 90.5 AUc. Against the euro we up +20 bps at 55.8 euro cents. That all means our TWI-5 starts today at just over 68.6, and up another +10 bps from yesterday.

The bitcoin price starts today at US$92,318 and up +0.3% from this time yesterday. Volatility over the past 24 hours has been modest at +/- 1.7%.

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

You can get more news affecting the economy in New Zealand from interest.co.nz.

Kia ora. I'm David Chaston. And we will do this again tomorrow.