90 seconds at 9 am: China's record deficit

Dairy prices stabilise on lower volumes; US housing starts jump; China BOP slumps; UST 10yr yields higher; oil and gold lower; NZ$1 = 73.4 US¢, TWI-5 = 76.9

20th May 15, 7:31am by David Chaston

Here's my summary of the key issues from over night that affect New Zealand, with news of a record balance of payments deficit in China.

But first, there was another dairy auction overnight and prices were pretty much unchanged. In US dollar terms they were down another -2.2% from the previous auction, but were actually higher by almost +1% in NZ dollar terms. Since the beginning of the year there has been up and down and overall prices are down a bit less than -6% in US dollar terms and unchanged in New Zealand dollar terms.

Volumes sold were 20% lower than the equivalent auction a year ago, but the number of successful bidders this time was the highest this year; buyers may be returning.

Today's results showed only a -0.5% fall for the key whole milk powder price and its smallest reduction in the past six auctions. But the elusive rebound the industry is waiting for has still not happened.

In the US, housing starts jumped to their highest level in more than 7 years in April and building permits soared. This is a good sign for their economy.

In data out late yesterday in China, it showed that they ran a balance of payments deficit of US$80 bln in the first quarter of 2015. This is the largest quarterly net outflow on record. The speed of the outflow is raising concerns over financial stability and complicating efforts by their central bank to use lower interest rates to support their slowing economy. US$80 bln a quarter may be a record, but in terms of the overall size of the Chinese economy it is not large.

Back in New York, the UST 10yr benchmark yield held its recent gains, rising marginally to 2.24%.

The US oil price fell in trading today and is now at US$57/barrel, while Brent crude is at US$64/barrel. This change basically reflects a higher US dollar.

The gold price is lower too at US$1,207/oz.

The New Zealand dollar starts today lower against the greenback at 73.4 US¢, but higher against the Aussie at 92.7 AU¢, and at 65.8 euro cents. The TWI-5 is at 76.9.

If you want to catch up with all the local changes yesterday, we have an update here.

The easiest place to stay up with event risk today is by following our Economic Calendar here »

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6 Comments

by Stephen L | 20th May 15, 9:04am 1432069485

China still seems in a very significant current account surplus of 2% of GDP, so if that were to come down to zero for a quarter, that shouldn't remotely stress them. However I do accept that a slowing of their exports suggests a further slowing in world demand, unless other countries have taken up the productive slack. Culturally as well, the Chinese may be like the Germans and Japanese, and despite central government efforts to the contrary, slow their own consumption to be less than their income regardless, even though at a macro level, it is in their and the world's interest that they lift consumption. The reduced consumption model is a slippery slope for the world economy, should they head down that path.

by Henry_Tull | 20th May 15, 10:05am 1432073110

gdt is just pushing further away that beloved/hat hanging $3,500.

With $2,4XX for as far as one can see, https://www.globaldairytrade.info/en/product-results/whole-milk-powder/

thinking is now on the opening fg number for next month.
will it have the accuracy of prior years (which yrs), will it start with a 5 or a 4, how could 6 be justified?

http://www.stuff.co.nz/business/farming/dairy/68566553/fonterra-farmers…

Along with the milk price this season, the GMP scheme has been a rollercoaster ride.Fonterra's offer in June last year for 40 million kg/ms at a GMP price was well under-subscribed, which saw the co-operative's then-opening season forecast of $7kg applied.... "It's a very visceral measure of the volatility. To my mind, that means if that volatility and those numbers are so disparate, it only drives home the importance of having a tool to manage that volatility."

looking back on this last year, that $3,500 could have been best left unsaid, was like a ghost price, not required by Act or reg, but used to show why fg price was elevated re gdt. (wasn't gdt meant to be the basis of things, rather than an elevated est.. of what gdt is wished for)?.

will this year also have its ghost/spirit/wish number?

by Casual Observer | 20th May 15, 9:37am 1432071446

Agree Henry - will be interesting to see.

It will also be interesting to see what, if any, effect these prices will have on the young farmer contract/sharemilker positions. Usually in downturns the number of these type of jobs reduces.

by Andrewj | 20th May 15, 11:48am 1432079289

"High, and getting higher"

"Milk production levels are still high, and getting higher," said Jon Spainhour, at Chicago-based commodity broker Rice Diary, raising the prospect that producers may have overreacted to market signals in 2013 from China, the top milk importing country.

"There's a possibility that there was a supply shock in China that manifested itself as [sustainable] demand to the rest of the world," he said.

http://www.agrimoney.com/news/dairy-prices-hit-six-year-low-as-spring-f…

by Malarkey | 20th May 15, 11:58am 1432079933

It's supply and demand.

It's a boom, not a bubble.

We're all gonna be rich!

by Andrewj | 20th May 15, 12:02pm 1432080161

"Worryingly the later delivery contract periods have softened more aggressively at recent auctions pointing to little buyer anxiety that they will need to pay higher prices anytime soon."
"Taken with NZD strength in recent months we expect more conservatism to be applied to next week's opening Fonterra milk price forecast for 2015/16. We are expecting something in the $5.00-$5.25/kg MS range, which with low deferred payments from 2014/15 will make the 2015/16 season very challenging for many operations."

http://www.fxstreet.com/news/forex-news/article.aspx?storyid=14ad4547-6…