Dairy price rise beats expectations; US housing starts impress; Shanghai stocks slump again, EMs face huge capital outflow; Merkel faces rebellion; NZ$1 = 65.8 US¢, TWI-5 = 70.6

Here’s my summary of the key events overnight that affect New Zealand, with news of a better than expected jump in dairy prices at this mornings GDT auction.

Overall, prices were up +14.8% from the previous auction. But that just emphasises how low they had gotten.

Today’s prices just bring us back to what prices were a month ago and those were not flash at all. Average prices are still -34% below where they were a year ago; in fact SMP is -47% lower.

But a rise – and one that beat market expectations – will be welcome. Today’s is the first rise in the past eleven auctions.

36,900 tonnes were sold, lower than the previous auction, but otherwise higher than any other event this year.

One rise won’t relieve the payout pressure but if it is followed up by more in two weeks – and that is what the futures market indicates – then commentators might start talking about a ‘bottom’. But far too early to do that now.

Elsewhere, US housing starts impressed markets. July data came in +10% above the same month a year ago, +12% higher for single family houses. These levels are near an eight year high.

But yesterday, the Shanghai stock market slumped again, down -6%, and shares in about 1,000 companies fell by the 10% daily limit. Investors are worried that no more stimulus is coming, that all their Government is doing is the very modest -5% currency devaluation of the past week. They think this is nowhere near enough to halt the slide in Chinese growth.

Uncertainties in China are having a disastrous impact in emerging markets. Capital outflows are surging, in fact at twice the rate we saw in the GFC. This is hurting countries from Asia to South America in a significant way.

And the EU-Greek bailout deal is not quite done yet. Among the EU parliaments that must approve it is Germany and there are signs of trouble. Chancellor Angela Merkel faces a rebellion in a vote shaping up as her last chance to keep Athens in the euro zone. Holding things up are German fears that the IMF will require significant creditor haircuts if it is to come back in to support the deal. A couple of other smaller countries fear that as well.

In New York, the UST 10yr yield benchmark is unchanged today at 2.18%.

The oil price is up $1 and now just under US$43/barrel, with Brent crude still just under US$49/barrel.

The gold price is also hardly changed, now at US$1,117/oz.

The New Zealand dollar starts today no different to where it was at this time yesterday, despite the dairy price jump. It is at 65.8 US¢, at 89.7 AU¢, and at 59.7 euro cents. The TWI-5 is at 70.6.

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 »

Daily exchange rates

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