Dairy prices down especially WMP; US data very upbeat; Europe waits for Greek vote; China needs work says World Bank; US UST 10yr yield 2.41%; NZ$1 = 67.5 US¢, TWI-5 = 71.6

Here’s my summary of the key issues from overnight that affect New Zealand, with news of a big fall in dairy prices at the overnight auction.

There was a major fall in the price of whole milk powder which was down -10.8% in the GDT index from the previous event in US dollars. Overall, prices were down -5.9% in that weighted index. You will hear a lot today from economists and other commentators – including me – about how this will cast a pall over the local economy, and how it likely makes the recent Fonterra 2015/16 payout forecast unsustainable at $5.25/kgMS.

In the table below we have set out the average price/MT comparatives, and they speak for themselves. (Note those details below are not the weighted index prices which others will report, they are the average prices for each item class auctioned.)

The New Zealand dollar fell against the greenback, but not because of the weak dairy auction; it is more to do with the flight to the ‘safer’ US dollar. Currency markets have been distracted by Greece and China. However, thank heaven for the floating currency which has acted as a shock absorber during this commodity correction. It could have been a lot worse.

In the US, private employers hired the most workers in six months in June and even factory activity expanded at a faster pace, providing fresh evidence their economy was gathering solid momentum after contracting at the start of the year. Today’s data is more positive that what we reported yesterday and that is important because today we are reporting June data; yesterday it was April data that was released. June car sales were especially bright. May construction data was also out today and that was better than expected.

In Europe, all eyes are on the Greek vote now, and apart from Greece bleeding badly, policy decisions are on hold until that result is known. There are few positives in the region at present. And signals coming from the Athens government were very contradictory.

In China, factory data for June is still weak, but the services sector data is surprisingly resilient. Japan turned in good car sales numbers.

The World Bank has reviewed China’s prospects and has reported major concerns. It is calling for a ‘fundamental reconfiguration of the role of the state’ for the country to get out of its new funk.

Also Australian factory data was not good, with that sector contracting at a faster rate.

Back in New York, the UST 10yr benchmark yield has risen today and is now at 2.41%.

US oil markets are a lot lower however with the US benchmark price now just under US$57/barrel, and Brent crude just under US$62/barrel.

The gold price has fallen and is back at US$1,169/oz.

The Kiwi dollar starts today a little lower against the US dollar, but unchanged against most others. It is currently at 67.5 US¢, at 88.2 AU¢ which represents a recovery of all of yesterday’s loss, and 61.1 euro cents. The TWI-5 is now at 71.6.

weighted average $/MT   1-Jul-15 16-Jun-15 change 1-Jul-14 change
    today previous % year ago %
Whole milk powder US$ 2,054 2,357 -12.9 3,459 -40.6
NZ$ 3,043 3,378 -9.9 3,945 -22.9
Skim milk powder US$ 1,875 1,978 -5.2 3,810 -50.8
NZ$ 2,778 2,835 -2.0 4,345 -36.1
Butter US$ 2,694 2,707 -0.4 3,181 -15.3
NZ$ 3,991 3,879 +2.9 3,628 +10.0
Cheddar cheese US$ 3,060 3,128 -2.2 4,226 -27.6
NZ$ 4,533 4,483 +1.1 4,820 -5.6
    ——- ——- —— —— ——
All products US$ 2,276 2,409 -5.5 3,595 -36.7
NZ$ 3,372 3,452 -2.3 4,100 -17.8

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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