US rises; the China opportunity; monetary policy progress; UST 10yr yield 2.31%; oil falls further; gold holds; dairy prices lower; NZ$1 = 66.3 US¢, TWI-5 = 71.1

Here’s my summary of the key issues overnight that affect New Zealand, with news the rout in commodity prices continues.

But first, the number of Americans filing new applications for unemployment benefits last week dropped to its lowest level in more than 40 years, suggesting their labour markets are in steadily improving shape. The American consumer’s ability to buy stuff fuels the world economy. And the US Fed will have noticed. They will also have noticed the rise in the ‘leading indicator‘ from a respected surveyer. There are definite signs of sustained momentum in data out of the US recently.

But the future driver of demand may need to be shared with China. A new report out shows that Chinese consumption as a share of real GDP has fallen for more than five decades, from 76% in 1952 to just 28% recently, one of the lowest levels anywhere. In comparison, the same share in the United States is 76%, in New Zealand about 68%. Heck, in India it is 52% a more normal level for emerging markets. China is at a unique point and rising consumption will be the big trend over the coming decades.

Overnight the IMF released a review of how well monetary policy is working in the major economies and it is a positive review. They say the goal is to close the output gaps that opened up during the GFC and there is clear progress in the US and EU. And in Japan they say that gap is about to close completely. The IMF like the ‘spillover effects’ of accommodative monetary policies.

And from the “you-don’t-need-to-make-laws-to-make-changes’ file, the sugar industry is scrambling along with its clients because consumers are turning their backs on its product as they fear the health impacts from excessive use. Apparently personal responsibility is still a core driver in consumer behaviour.

In New York, the UST 10yr yield benchmark is unchanged at 2.31%.

Oil markets are again lower. The US benchmark price is now well below US$49/barrel, and Brent crude is down to US$55/barrel. We have seen a -20% drop in oil prices in the past month and they are back to the low levels we last saw in April.

The gold price has made a small bounce today but is still at only US$1,095/oz.

However this morning’s latest USDA survey of dairy prices still show weakening trends, confirming the GDT auction results. No good news on this front yet.

The Kiwi dollar has gained some ground overnight. We are start today at 66.3 US¢, at 90.1 AU¢, and at 60.3 euro cents. The TWI-5 is at 71.1.

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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