Commodity prices generally in retreat

Kia ora,

Welcome to Wednesday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.

I'm David Chaston and this is the international edition from Interest.co.nz.

And today we lead with news that with a few notable exceptions, commodity prices are soft across the board.

The overnight dairy auction brought a -2.3% retreat, principally because the powder prices fell. WMP was down -2.8% and SMP was down -5.2%. However cheese was up +4.0%, that only ingredient to show a gain. The overall decline was the first in the first of the year and the only significant one in the past 15 events. Last week's GDT Pulse event's retreat signaled that this correction was on the cards. One retreat in 15 isn't significant however at this point and it is unlikely it will cause any analyst to change their forecast payout levels.

Last week's retail sales in the US rose +3.0% from the same week a year ago, on a same-store basis, just enough to stay ahead of inflation. The American middle class is still creating the core consumer demand that essentially powers the global economy.

But the same was not true for factory orders in January, which were down -1.6% on that same basis. From December they fell at a sharper pace.

However, the American services sector was still expanding in February, even if it was marginally back off the fast pace in January. And this expansion was confirmed in a separate internationally-benchmarked services survey.

And their logistics industry is expanding faster too, indicative of rising commercial demand in February.

Encouragingly, American vehicle sales rose to a 15.8 mln annualised rate in February, an almost +6% gain on January's rate. And that puts them above the recent long run average.

A major set-piece meeting of the People Congress in Beijing has seen them set an "about +5%" growth target for 2024. But even the Premier who delivered the target acknowledged it will be a reach. But analysts see it as a "target without a Plan".  Without such a plan, there is unlikely to be any support for global commodity prices. The sharp retreat of foreign investment is drawing calls for 'action' to reverse the slide.

Lower energy costs (and energy intensity) are still driving down EU producer prices. Industrial producer prices in the Euro Area decreased by -8.6% year-on-year in January, but that was a moderation from a revised -10.7% drop recorded in the preceding month.

Australia delivered a bumper current account surplus in Q4-2023 or +AU$11.8 bln, much more than was expected. This was their best 2023 quarter, taking the annual current account surplus to +AU$31.9 bln. That probably means their Q4-2023 GDP activity will be positive too, helped by a slump in imports and less Aussies making overseas trips. Australian Q4 GDP results will be released later today.

And staying in Australia, their competition authorities have decided not to appeal their loss in the case that overturned their block on the ANZ-Suncorp banking acquisition.

January air cargo data was released overnight and it pointed to rising demand and a strong start to 2024. International cargo demand was +20% higher than year ago levels, even better in the Asia/Pacific region.

The UST 10yr yield starts today at 4.15% and down -8 bps from yesterday. 

The price of gold will start today up +US$9/oz at US$2126/oz. That is another new record high.

Oil prices are down -50 USc at just over US$78/bbl in the US while the international Brent price is now just over US$82/bbl.

The Kiwi dollar starts today at just on 60.9 USc again, marginally softer. Against the Aussie we are holding at 93.6 AUc. Against the euro we have eased fractionally to 56.1 euro cents. That all means our TWI-5 starts today at just on 70.2 and down another -10 bps.

The bitcoin price starts today at US$65,430 and down -2.8% from this time yesterday. At one point it did hit a record high in the past 24 hours but has backed off since. Volatility over the past 24 hours has been high at +/- 3.4%.

You can find links to the articles mentioned today in our show notes.

You can get more news affecting the economy in New Zealand from interest.co.nz.

Kia ora. I'm David Chaston. And we will do this again tomorrow.