Markets sense banking contagion risks are fading

<p>Kia ora,</p><p>Welcome to Wednesday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.</p><p>I'm David Chaston and this is the international edition from Interest.co.nz.</p><p>And today we lead with news that equity and bond markets are in more of a positive mood ahead of the US Fed's meeting tomorrow morning.</p><p>But first today, there was another <a href="https://www.globaldairytrade.info/en/product-results/" target="_blank"><strong>dairy auction</strong></a> overnight and it was yet another weaker one, made worse by both a slumping cheddar cheese price, and the recent gains by the NZD. Overall prices were down -2.6% in USD terms and down -3.3% in NZD terms from the last auction. That puts them -36% lower than year ago levels. Every product fell, the least by the high-volume WMP (-1.5%), and the most by the cheese price (-10.2% from two weeks ago).</p><p>Of the 25 auctions in the past year, 19 have delivered lower prices. The price index is now back to a level we last had in December 2020. This continuing slide will probably have analysts reaching for the calculators to assess what the farmgate milk price will have to be reduced by.</p><p>US <a href="https://www.redbookresearch.com/" target="_blank"><strong>retail sales</strong></a> inched higher last week from year-ago level on a same store basis (+3.2%) but that isn't enough to account for retail inflation. Retail volumes continue their slow shrinkage.</p><p>However there was an unexpected surge in American <a href="https://www.nar.realtor/newsroom/existing-home-sales-surged-14-5-in-february-ending-12-month-streak-of-declines" target="_blank"><strong>existing home sales</strong></a> in February with them rising to an annual rate of 4.58 mln or more than +14% higher than year-ago levels. The apparent end of rising mortgage rates has emboldened buyers to commit - and sellers to respond. That was their largest rise since July 2020 and ends a year-long decline. But prices aren't responding to the additional deman