Dairy prices slip; US PMIs disappoint; other US data positive; China to retaliate against Canada; Australia posts current account deficit; UST 10yr 3.84%; equities drop; gold and oil drop; NZ$1 = 61.9; TWI = 70.2

Here's our summary of key economic events overnight that affect New Zealand with news financial markets are looking for excuses to be negative, and they found one - sort of.

But first up today there was another full dairy auction and that brought a somewhat disappointing result. Overall prices fell a minor -0.4% in USD, down -1.1% in NZD. This event failed to maintain the upward demand for WMP, which fell -2.5% hurting the overall result. That contrasted with most other components, especially SMP which was up +4.5%. China and "North Asia" were the dominant buyers today but there was notably less demand for WMP from other regions. Although it was an unexpectedly soft result overall, at least it basically confirmed most of the prior months gains.

In the US, the two August factory PMIs each show a contracting manufacturing sector. The ISM one improved from July's deeper contraction, but the S&P/Markit one slipped back but to a similar level to the ISM one. Slower new order growth was a shared feature, especially for export orders. Although the variance in both from market expectations was very minor, it has had an outsized impact on the mood of financial markets today, post the US-holiday. Equities fell, benchmark yields retreated, and the USD softened.

Market ignored the rise of economic optimism in the RCM/TIPP survey, now at a 17 month high.

They also ignored the rise of US retail sales last week at physical stores, up +5.0% above the same week a year ago on a same-store basis.

Also ignored by markets was the 'good' logistics managers index for August that showed firms are gearing up positively for Q4-2024 activity.

The Canadian factory PMI continues to be marginally disappointing, although it is broadly stable.

China said it will likely impose tit-for-tat tariffs on Canadian canola imports as a retaliation for Canada's duty level on them dumping EVs into Canada.

In Australia and despite strong mineral exports, they are now back running balance of payments deficits. Australia’s current account balance fell by AU$4.4 billion to a deficit of -AU$10.7 bln in the June quarter. This was the largest since June 2018, double what was expected, reflecting continued falls in bulk commodity prices and higher income paid to non-residents. They ran a -AU$6.3 bln current account deficit in Q1. For the year to June, they now have a -AU$18.8 current account deficit, the largest annual level since March 2018.

The UST 10yr yield is now at just on 3.84% and down -9 bps from yesterday. The key 2-10 yield curve inversion is back at -4 bps. Their 1-5 curve inversion is deeper at -74 bps. And their 3 mth-10yr curve inversion is now inverted by -141 bps. The Australian 10 year bond yield starts today at 3.98% and back down -9 bps. The China 10 year bond rate is at 2.15% and down -1 bp. The NZ Government 10 year bond rate is now just on 4.34% and unchanged from this time yesterday.

Wall Street has opened after the holiday down -2.0% on the ISM result trigger. The NASDAQ is down -3.1%. Overnight, European markets were all down about half that. Tokyo ended its Tuesday trade basically unchanged. But Hong Kong dipped -0.2% and Shanghai fell -0.3%. Singapore rose +0.5% however. The ASX200 was down a minor -0.1% in its Tuesday trade. And the NZX50 slipped its own -0.2%.

The price of gold will start today down -US$8 from yesterday at US$2491/oz.

Oil prices have dropped -US$3.50 from yesterday to just under US$70/bbl in the US while the international Brent price is now just on US$73.50/bbl. That makes it the lowest since the brief dip at the end of 2023, and prior to that, at 2021 levels. The restoration of Libyan oil supply after the apparent end of political and security issues there was a key trigger to today's drop.

The Kiwi dollar starts today down -40 bps from yesterday at 61.9 USc and a two week low. Against the Aussie we are +40 bps higher at 92.1 AUc. Against the euro we are -20 bps lower at 56.1 euro cents. That all means our TWI-5 starts today at 70 and down -20 bps from yesterday.

The bitcoin price starts today at US$57,914 and down almost -1.0% from this time yesterday. Volatility over the past 24 hours has been modest at just on +/- 1.9%.

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