Dairy prices rise again; Fed Beige Book reports higher wages; China factories struggle; China plans $1 tln stimulus; Brazil recession drags on; UST 10yr yield 1.84%; oil up and gold down; NZ$1 = 68.1 US¢, TWI-5 = 72.2

Here’s my summary of the key events overnight that affect New Zealand, with news China is rolling out some serious stimulus.

But first, dairy prices rose for the fifth time in the past seven bi-weekly auctions. They were up +3.4% this morning led by butter, cheese and skim-milk powder. WMP was the laggard. This latest rise was somewhat unexpected mainly because the signals are usually only about wholemilk powders. Although they will be welcome, they only take prices back to where they were in January and are still a long way from pulling the industry out of its funk.

Around the world, factory data indicated a steady state with manufacturing neither growing or contracting. In the US their latest factory data came in much better than expected in May. And this is despite surprisingly low car sales in the month although some of this was due to production delays.

There was confirmation of the better factory data from the US Federal Reserve this morning. They see tight labour markets and wages rising across the whole economy as a consequence.

Official factory data out in China was not very encouraging however although it was ‘positive’ for the third straight month after a long set of declines. Unofficial data for the same sector was negative. Meanwhile their service sector is still expanding at a respectable pace, despite signs of a slowdown.

China is rolling out some major stimulus to counter this slowing growth. It said it will ‘invest’ just over NZ$1 tln in transport infrastructure projects over the next three years. The plan includes 303 projects covering railways, highways, waterways, airports and urban rail transit. 131 projects are in 2016, 92 projects in 2017 and 80 projects in 2018.

Brazil is in tough times, unfortunate ahead of their showpiece Olympic Games. Their economy shrank by -4.7% in the first quarter of 2016 compared with the same period a year ago and that is now the fifth consecutive quarter of shrinkage. They are in a long recession. Brazil is the world’s 9th largest economy.

In contrast, Australia’s economy grew at a better-than-expected +3.1% year-on-year in the first quarter of 2016, boosted by exports and a rise in household spending. Australia is the world’s 19th largest economy.

In New York the benchmark UST 10yr yield is basically unchanged at 1.84%.

The oil price is also basically unchanged today, although with a hint of upside, with both the US benchmark and the Brent benchmark now just under US$50/barrel.

The gold price is lower today, now at US$1,210/oz.

And finally, the NZ dollar will start today higher at 68.1 US¢, at 94 AU¢, and at 61 euro cents. The TWI-5 index is now at 72.2. Yesterday’s good terms of trade data and a halo effect from the good Aussie GDP data are behind the rise. This mornings better-than-expected dairy auction hasn’t hurt either.

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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