Dairy prices fall, especially WMP, and especially in NZD; US housing starts rise; Canada get a new govt; China's energy:GDP ratio improves; UST 10yr yield 2.07%; NZ$1 = 67.5 US¢, TWI-5 = 71.7

Here’s my summary of the key events overnight affect New Zealand, with news of the latest dairy auction.

Today’s event brought the pause some analysts were expecting. Overall prices were down -3.1% in US dollars, but they were down -6.1% in New Zealand dollars, and that makes it more than just a minor adjustment.

The core whole milk powder price dropped -4.6% to US$2,694 and what is notable about this is that this is well below what the NZX derivatives market was signaling just yesterday. The fall in WMP prices in NZ currency is -7.6%.

Since the last auction the NZ dollar has strengthened by almost +4% and that is why these auction results are doubly disappointing.

The New Zealand dollar dropped about -50 bps on the news and has stayed down, but is still +3.3% higher than the early October auction. This is a case where the currency is accentuating the problem, rather than helping mitigate it.

In the US, data out overnight reported strengthening housing starts, but also soft growth in building permits. Their house building industry is healthy but the signals ahead are variable. Still, the building permit data is +4.7% higher than the same month a year ago. The strength is in the West. Demand for rental housing is boosting the numbers.

Apartment living is a core part of their housing stock. And we are starting to see some serious pushback against online shopping from that quarter. A major landlord has announced it will no longer accept parcel deliveries for its tenants due to the overwhelming volume involved. Online buying has become so prevalent that existing apartment infrastructure cannot handle the flood.

In Canada, the federal elections there have brought a change of government with the Conservative+NDP coalition ousted by the Liberals. That there is a change is no real surprise, but what is is the strength of the Liberals win in the East, especially the poor Maritime Provinces. The Conservatives won the West, the Liberals the East. Government has always been difficult in Canada when there is these sharp regional differences. The first priority of the new government looks like it will be tax cuts. (Prior to the election Liberal leader Trudeau expressed support for the TPP deal.)

In China, the scale and effect of their economic transition is turning some data on its head. Until recently analysts looked at energy usage – electricity in particular – for signs of how the ‘real’ economy was performing. But with the shift away from heavy industry, their energy-to-GDP ratio is changing rapidly and in the past year electricity use only grew +1% while output grew +6.9%. Things are on the move in China.

In New York, the UST 10yr yield benchmark continued on its slow rise higher overnight and is currently at 2.07%.

The US benchmark oil price is marginally lower again at just over US$45/barrel, and the Brent benchmark is just on US$48/barrel.

The gold price is slightly higher in trading in London and New York and now at US$1,179/oz.

The New Zealand dollar starts today lower after the dairy auction. It is currently at 67.5 US¢, at 93.1 AU¢, and 59.5 euro cents. The TWI-5 is at 71.7.

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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