Commodity prices gain momentum

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By Interest.co.nz, Interest.co.nz / Podcasts NZ, and David Chaston. Discovered by Player FM and our community — copyright is owned by the publisher, not Player FM, and audio is streamed directly from their servers. Hit the Subscribe button to track updates in Player FM, or paste the feed URL into other podcast apps.

Kia ora,

Welcome to Friday's Economy Watch where we follow the economic events and trends that affect New Zealand.

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

Today we lead with news of more momentum in the commodity super cycle.

Firstly, the US reported a big drop in jobless claims for last week, reinforcing the recovery in their labour market. There are now 'only' 3.8 mln people on these benefits, a very sharp decrease from the 22 mln a year ago. In fact, the latest data suggests 'normal' pre-pandemic claims levels are now in sight. In fact, announced layoffs and job cuts fell in April to their lowest level in more than 20 years.

In Canada, home prices could climb +14% this year as low rates stoke demand, their housing market regulator says.

But today it is all about commodity prices. Increasing optimism over the global economic recovery has pushed all higher. Government stimulus measures and rising investment in doing the job. However, supply side issues are also contributing to market tightness.

For copper, the transition to sustainable energy networks has powered its price to over US$10,000/tonne. Iron ore prices rose sharply again yesterday despite (or maybe because of) rising political tensions between China and Australia. Coal prices are shooting up too on rising steel demand.

And global food prices shot up again in April. Output is up in most places, but sharply rising demand especially out of China is keeping stocks low and prices high. Meat and dairy prices are part of this global trend, but the big gains are for soy, canola and palm oil, again mostly based on Chinese demand. You can see the consequences in the Brazilian and Borneo rainforests.

China's frustrations with Australia have boiled over and Beijing has announced it will stop talking to Canberra. In a notice on an office website, Beijing has applied an "indefinite suspension of all activities under the China-Australia Strategic Economic Dialogue Mechanism". It is particularly unhappy with "certain people in the Australian federal government". It is a largely symbolic move, and one that underlies China's weakness to be able to respond in a way that really hurts Australia without hurting itself more.

The same issues are holding the EU back from ratifying its big investment agreement with China - and the Chinese are frustrated with that delay too.

And now China has expressed anger at New Zealand for the unanimous Parliamentary condemnation of how China are 're-educating' their Uighur minority. But given this was a statement from their Wellington embassy rather than from Beijing directly, the trade consequences may be mild for us.

In China itself, there are going doubts about the strength of the recovery in their factory sector, especially that part focused on exports. Chinese exporters are still reluctant to invest even after shipments surged during the pandemic, partly due to a sharp rise in labour costs and partly due to lingering uncertainty from the US-China trade war. Beijing wants to talk to the US about easing tensions. But the US wants to talk about China living up to the deal it had with Trump.

The UST 10yr yield starts today at 1.56% and down -2 bps overnight.

The price of gold starts today at US$1815/oz and that is up +US$30 since this time yesterday to its highest since mid-February.

Oil prices are down +US$0.50 today at just under US$65/bbl in the US, while the international Brent price is at just on US$68/bbl.

The Kiwi dollar opens today at 72.3 USc and firmer again since this time yesterday. Against the Australian dollar we are still at 93 AUc. But against the euro we are still at 60 euro cents. That means our TWI-5 is still at 74.1.

The bitcoin price is now at US$56,960 and a mere -0.8% below this time yesterday. Volatility in the past 24 hours has been a moderate +/- 1.7%.

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

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

Kia ora. I'm David Chaston and we’ll do this again on Monday.

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