Information breakfast; Commodity prices soaring

Here’s our roundup of key overnight economic events affecting New Zealand, with commodity news at the forefront of a global economic shift.

The top ten commodities traded globally are Brent (oil), steel, WTI (petroleum), soybeans, iron, corn, gold, copper, aluminum and silver, in this order.

But copper prices fell to US$7,716/ton at the end of last week, a far cry from the US$10,000+ level they reached in early June.

Aluminum prices fell to US$2,244/tonne, which is also a far cry from the mid-March high above US$3,800/tonne. They are now back to where they were in mid-2021.

Iron-ore prices are going nowhere, despite all the talk of stimulus and rebounds in China. And that too in the face of supply difficulties in China. World steel prices are stagnating despite high energy costs.

Same wheat prices are falling, in this case based on new planting data from the USDA indicating grain acreage and inventory levels above market expectations.

Only corn, soy and oil remain elevated. The rest is in a funk now, a developing fade.

You should note that this is a long weekend in the United States, their three days July 4 Independence Day weekend. The markets will not reopen there until Wednesday, our time.

Investors ended last week in a pessimistic mood, believing a recession is imminent and accordingly. But we need to be clear that there is no impending recession, only “talking” at this point. It remains to be seen whether investors will be convinced. But one group, equity investors, ended last week challenging this negative view of the herd. They seem reassured that they can’t lose – if a recession hits, it could delay or reverse rate hikes and p/e ratios will remain high, supporting current valuations. If the recession does not arrive, these values ​​can be maintained only on the basis of good trading conditions.

Helping their mood was data from China.

The private sector factory GPA recorded that manufacturing output rebounded as their pandemic restrictions eased, as did the official PMI reported on Thursday. But this one was actually a stronger result than the official result – not by much, but it registers a better expansion. It was their best in over a year. Japan and South Korea are still expanding, but expanding in Taiwan has evaporated. All countries are reporting strong cost pressures and fading new order levels.

Hong Kong may have been on vacation on Friday to ‘celebrate’ China’s takeover of the territory and the visit of the current emperor, but before that they released some grim retail sales data showing how the takeover has been a wet blanket for the residents of the once vibrant city.

In India, they introduced export duties on gasoline, diesel and jet fuel to help maintain domestic supplies, while imposing a windfall tax on oil producers who have benefited from higher world crude oil prices. They also increased their import taxes on gold.

And not helping investors were reports that US factories were expanding at their slowest pace in two years in June.

The highly regarded place ISM factory PMI arrived with a more modest expansion, but weaker than expected. New orders contracted for the first time in two years.

The international reference Markit PMI is slightly better than expected, but down sharply from May. And this registers almost the same modest expansion as that of the ISM. But it also saw a decline in new orders. Tight supply chains and high cost inflation have not gone away.

Both are proof that customers are striving to reduce inventory in their systems. All eyes will be on the distance to go, but for now it looks like a short fix. But it won’t just affect US factories, it will have global implications. So far, this impact has not really manifested itself on the world stagebut it will.

Meanwhile, Eurozone inflation has hit again another record in June at 8.6% as price pressures widened, and its peak could still be months away, adding to the case for rapid ECB rate hikes, and likely starting this month when they next review on Friday July 22, 2022 NZT.

Investors now seem to be rushing out of the Buy Now Pay Later sector. The rush to the outside is underlined by the valuation crash Swedish company Klarna, which once had a valuation of US$46 billion. The latest update is 6.5 billion US dollars. It is unlikely to rise from there. Similar pullbacks are underway in the Aussie BNPL sector. AfterPay sellers will be happy with their timing; Jack Dorsey not so much.

The BNPL is only the most visible of the retreats of many fintechs. Profitability is what investors are focusing on, not just “growth”.

Australia’s property market is on track for a -15% year-on-year decline by mid-2023, the weakest performance in more than fifty years, and that’s according to analysts. of Deutsche Bank.

The storms gripping Sydney and eastern New South Wales are get serious. Their giant Warragamba dam overflows, meaning it no longer limits downstream flooding. Thousands of homes in parts of Sydney that have never been flooded before have been warned they could face significant threats. More than 40 evacuation orders, affecting around 32,000 people, are at risk of being evacuated. It’s a big “wet” that could last through the rest of 2022, forecasters say.

The 10-year UST yield today begins to decline -9 basis points from this time Friday to 2.89% and it ended the month in New York almost exactly where it started, although it has reached 3.49% between the two. The UST 2-10 yield curve is little changed at only +5 bps and their 1-5 curve is much flatter at +13 bps. Their 30-day-10-year curve is flatter at +160 basis points. Australia’s 10-year bond is down -1bp at 3.47%. The 10-year Chinese government bond is unchanged at 2.84%. And the 10-year New Zealand Government will start today at 3.71%. A week ago, this rate was 4.01%, a decline of -30 basis points during this period.

The price of gold ended last week at US$1813/oz in New York. And as we mentioned earlier, India has increased its import taxes on gold from 7.5% to 12.5%, which will not help the price of the gold.

And oil prices are little changed at just over US$107/bbl in the US, while the international Brent price is just above US$111/bbl. A week ago, these prices were very similar.

Russia has confiscated (without compensation) the minority stakes of the majority Japanese partners in a major gas project in the Far East. It will be a long time (and after Putin) before a non-Russian company will risk an investment in a Russian project.

The Kiwi Dollar will open softer today at 62.1 USc and a drop of -1c in one week. Against the Australian dollar, we are firmer at 91.1 AUc. Against the euro, we are unchanged at 59.6 euro cents. This means that our TWI-5 starts today at just 70.4 but down -70 basis points in a week.

Bitcoin price has only slipped slightly since this time on Saturday and is now at US$19,148 and down -1.3%. Volatility over the past 24 hours has been modest at +/-1.6%.

The easiest place to stay on top of the risks associated with today’s events is to follow our Economic calendar here ».

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