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Source: ONE News
The big jump in average global dairy prices on Fonterra's online
auction could not really have come at a better time.
After the depressing collapse of South Canterbury Finance this week
and the gloomy economic outlook from the NZIER, confidence levels
in the New Zealand economy were starting to look flaky.
Trust me, for someone who has to go on the television every day and
talk about the economy, it had become very hard to find much good
news about the place and I was starting to sound like a broken
record prattling on about the on-going risks of a double dip
recession.
Today however, finding good news was easy for a change.
Not only had dairy prices surged in New Zealand again, but
manufacturing data in China and US had come through very strong,
sending stock markets around the globe into a strong rally.
Australia too had racked up another stellar quarter of growth with
US business channel CNBC describing our neighbour as the "'wonder
down under".
Now don't get me wrong, there is still plenty to worry about and a
one-off surge in dairy prices and a bounce in global markets does
not immediately change the economic outlook.
The risks of double dip recession and deflation are still
there.
For example, we could easily get a negative jobs number out of the
US on Saturday that sends things back down again.
However...there can be no doubt that the world just felt a hell of
a lot better on Thursday morning than it did on Wednesday.
And frankly when you've just had one of your country's largest
non-bank lenders fall over, a sudden and expected bout of
confidence inducing news is something to be embraced.
The local dairy numbers in particular were important given the
fears that the collapse of South Canterbury Finance might dent
confidence in the crucial dairy producing sector.
Now there will be questions of course about the sustainability of
the dairy price spike.
Prices have been very volatile over the last few months and it's
possible this jump could be just due to the drought in Russia
putting the squeeze on wheat feed stock prices for other dairy
producers.
However we won't have to wait too long to find out if the dairy
price rise is more 'structural' in nature, because from this month
Fonterra is to start conducting its auctions every two weeks.
The big news
One last thing on South Canterbury Finance...
I think the government deserves some credit for the way it handled
things on the day of the collapse.
It successfully prevented any market fallout. NZ Herald Political
Correspondent John Armstrong got it dead right in my opinion when
he described it as textbook crisis management by the
government.
Right from the outset it was clear the government had a strong plan
in place to deal with the collapse.
The market and SCF investors were left in no doubt as to what was
happening and when it would happen. There was no sense of panic at
all.
It was extremely sad to see South Canterbury Finance fall over. But
the market at the very least was given some certainty and
finality.
And 'certainty' is of course something that is in very short supply
at the moment.
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