Information breakfast; Miners eye 10-year commodity super cycle

Here’s our summary of key economic events overnight with news that commodity prices are on the rise again, and it could be a decade-long commodity super cycle if you believe the big miners.

First today, the overnight dairy auction saw prices increase by +4.2% in US dollars and +4.0% in New Zealand dollars. This is the third strong result in a row and prices are now up +14% since the start of 2022. WMP dominant price is up +4.2% and SMP price is up +6 .0%. We must also welcome the price of butter, up +5.1% to reach more than NZ$10,000/tonne for the first time.

The farm gate payment price forecast will not be affected by this and could experience a late season boom, which is welcome as milk volumes are under pressure. We are on the downside of this dairy season with peak dairy well past, so more attention will now be focused on next season’s forecast. With global restaurant markets recovering, things look bright on that front.

In the United States, Wall Street is in a hesitant rally on mixed signs tensions between Ukraine and Russia could ease. Or it could be a fake head on Russia’s part.

During this time, U.S. retail sales increaseand last week the pace picked up to be +15.4% above the same level a year ago, and there are clearly gains here well above inflation.

Producer price in the United States are still increasing and at a very high pace, up +9.7% compared to a year ago in January and at about the same pace as in December. There is no respite yet and they increased by +1% in January alone. Even their “core” PPI was up +8.3% year over year. The case for a Fed rate hike is reinforced by this data.

The New York Fed Empire State Factory Survey saw optimism for the future dip slightly and the overall situation did not improve as much as expected. But new orders and shipments remained flat and unfilled orders increased. Delivery times continued to lengthen. Labor market indicators pointed to a solid increase in employment and a longer average workweek. The prices paid index remained close to its recent peak and the prices received index reached a new high. Capital and technology spending plans remained strong.

Canadian housing starts data continues to decline. But Canadian home prices continue to soar a new frenzy.

In China, foreign direct investment is increasing, but a slower pace and a dip in pace are now quite noticeable. They like to report year-to-date data that masks the recent drop. By the way, the upgrade of the China-New Zealand free trade agreement is now approved by the two countries and will enter into force on April 7, which bodes well as it marks the 50th anniversary of diplomatic relations and 14 years since the original FTA was concluded.

China is facing a severe labor market crisis. Millions of graduates are entering the market just like some large companies dismiss workers. Beijing officials are worried and are looking to SMEs to expand and pick up the slack. But SMEs have their own misbehavior now.

Japan reported its anticipated Q4-2021 economic activity data yesterday. They say their GDP grew at an annualized rate of 5.4% during the period, lower than the 5.8% expected but much better than the -2.7% decline in the third quarter (which was revised to be less than the -3.6% drop initially announced).

In Germany, economic sentiment has improved in February (despite the Ukrainian problems) but not as much as expected.

the lithium carbonate price broke a new record yesterday. And China is reporting that the prices of some of its rare earth minerals are also rising sharply.

The major Australian miners are saying they see ten years of high commodity prices ahead of them.

In New South Wales, there has been an increase in 8,201 new community cases reported yesterday, now with 50,802 locally acquired active cases and 16 more daily deaths. There are now 1,583 people hospitalized there, far from their peak. In Victoria they reported an additional 8,162 new infections yesterday, also an increase. There are now 50,967 active cases in that state – but there have been 20 deaths. Queensland is reports 5,286 new cases and 10 deaths. In South Australia, new cases slipped to 1,027 yesterday and 2 more deaths. The ACT has 455 new cases and no deaths, and Tasmania has 513 new cases and no deaths. Overall in Australia, nearly 24,000 new cases have been reported.

The 10-year UST yield opens today at 2.04% and +4 basis points higher than yesterday at this time. The UST 2-10 yield curve today starts steeper at +46 bps. But their 1-5 curve is steeper at +86 basis points and their 30 day-10 year curve is at +201 basis points. The Australian 10-year bond is up +7 bps at 2.24%. The 10-year Chinese government bond is firmer by +1bp at 2.82%. And the New Zealand government 10-year is +4 basis points higher at 2.82%.

On Wall Street, the S&P500 is up +1.4% in its Tuesday afternoon trades. Overnight, European markets all closed sharply higher, mostly +1.8% or higher, with the exception of London which rose +0.8%. Yesterday, Tokyo ended down -0.8%, Hong Kong also down -0.8% but Shanghai up +0.5%. The ASX200 ended Tuesday’s session down -0.5% but the NZX50 only fell a small -0.1%.

The price of gold starts today at US$1852/oz and down -US$10 from the same time yesterday.

And oil prices are down -US$1.50 to just over US$90.50/bbl in the US, while the international Brent price is slightly above US$92/bbl.

The Kiwi Dollar will open slightly firmer today at 66.3 USc. Against the Australian dollar, we remain unchanged at 92.8 AUc. Against the euro, we remain at 58.4 euro cents. That means our TWI-5 today starts little changed at just 70.8.

Bitcoin price is up +3.3% since this time yesterday and now at US$44,110. Volatility over the past 24 hours has been high at +/- 3.2%. In India, their central bank is calling for a ban on cryptocurrencieslikening them to a Ponzi scheme and claiming they threaten the “financial sovereignty” and “undermine the financial integrity” of a country given that there is no underlying cash flow.

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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