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More stagnation everywhere, more inflation in the US

Play Episode Listen Later Jun 2, 2025 6:20

Kia ora,Welcome to Tuesday's Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.I'm David Chaston and this is the international edition from Interest.co.nz.And today we lead with news the Americans seem to be making a concerted effort to adopt a stagflation policy. The USD is falling toward a three year low, gold is rising again, as are US benchmark interest rates.But first, the week ahead will feature central bank rate decisions from Canada (expect a hold at 2.75%), the ECB (-25 bps to 2.15%) and India (-25 bps to 5.75%). And the week will end with the US non-farm payrolls report (+130,000 and extending the ho-hum trend).But the week will be dominated by factory and service sector PMIs, closely watched for the consequences of trade war activity. More damage came from the US over the weekend with the doubling of steel tariffs, from 25% to 50%. These are certain to make the US steel industry even less competitive globally, embedding higher producer costs for American factories and higher prices for its customers.We can see that from the latest ISM factory PMI for May, where a small contraction is now taking place, and the cost pressures are still very high. The final S&P/Markit May factory PMI recorded the most cost pressure since 2022, but a tiny expansion in this one.China released its official PMIs over the weekend, with the factory version contracting much less, and their services little-changed in a tiny expansion. Inflation pressures aren't evident here. The US trade pressure may be preventing China's economy from growing much but it isn't pushing it into a contraction. And so far, Beijing has resisted Trump's request for a phone call with Xi.And there were May PMIs out for Japan (contracting less), Canada,(holding a sharp contraction) Taiwan (contracting less), Korea (small contraction, but stable) Singapore (stable small contraction) and Australia (stable but expanding a bit less) on Monday. So this set isn't yet showing much change, but the trade war does seem to be embedding stagnation. Inflation doesn't seem to be much of a problem here, it is only the US that is getting them both.Stagnation without inflation does allow central banks to try a rate cut remedy - a remedy not available to the Americans.In China they are applying both monetary (lower rates) and fiscal policies (more spending) to stabilise their situation. Beijing is spending big to counter the downward pressure on its economy. As a result, the country's broad fiscal deficit expanded at its quickest clip since 2023 in the first four months of 2025, reaching a -¥2.7 tln (-NZ$630 bln) deficit in the period, almost 60% more than in the same period in 2024.They need all of that because it is pretty clear their real estate sector slump isn't anywhere near over yet, despite all the official help for it.We should also note that it is a holiday in China today, for Dragon Boat Festival.India reported Q1-2025 GDP outcomes, claiming a heady expansion of +7.4% from a year earlier, far better than the +6.7% expected and the +6.4% expansion in Q4-2024. This expansion was led by both the construction sector, and consumer spending.And Canada also reported an expanding economy in Q1-2025, gaining +0.5% in the quarter to be +2.2% higher for the year. Both these indicators of economic activity are better than analysts had expected. Of course these are only of historical interest because they pre-date the tariff-war actions of the US that started in April.Back in the US, the final University of Michigan consumer sentiment survey recovered its early month drop in the second half of the month, ending similar to the April level. The pause in the tariff war and the hope this would ease inflation pressures during the survey period was said to be behind the mood change. Still, this level is very pessimistic, -24% lower than year-ago levels.In Australia, job ad growth has turned into a decline, with the number of job ads dropping -1.2% in May from April, when they fell a downwardly revised -0.3%. Year on year they are down -5.7% although they remained +14% higher than pre-pandemic levels.The UST 10yr yield is now at 4.46%, and up +6 bps from Friday. The price of gold will start today at US$3,375/oz, and up +US$86 from yesterday.Oil prices are up +US$2 in the US at just under US$63/bbl and the international Brent price is just under US$65/bbl.The Kiwi dollar is now at 60.2 USc, a +50 bps rise from yesterday at this time. Against the Aussie we are up +20 bps at just on 92.9 AUc. Against the euro we are up +10 bps at 52.7 euro cents. That all means our TWI-5 starts today at just on 68.2 and up +30 bps from yesterday.The bitcoin price starts today at US$104,272 and down -0.9% from yesterday. Volatility over the past 24 hours has been modest at just on +/-1.0%.You can get more news affecting the economy in New Zealand from interest.co.nz.Kia ora. I'm David Chaston. And we will do this again tomorrow.

Checking unbridled power

Play Episode Listen Later May 29, 2025 4:48

Inflation risks move back to center-stage

Play Episode Listen Later May 28, 2025 4:32

Kia ora,Welcome to Thursday's Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.I'm David Chaston and this is the international edition from Interest.co.nz.And today we lead with news the trade chaos and tariff-war skirmishes have markets worldwide watching for inflation signals as much as growth signals.First, in the US their Redbook retail index was up +6.1% last week from the same week a year ago, driven increasingly by tariff-tax price increases, which is why this metric is diverging so much from the formal retail sales volume data.American mortgage applications fell last week from the prior week. That is consistent with the benchmark 30 year mortgage rate rising, now almost touching 7% again.The Richmond Fed's regional factory survey came in negative again in May with activity slowing and new order levels still quite weak. The service sector report for the same mid-Atlantic region was weaker too. In both cases they recorded price pressures over +6%.The Dallas Fed services survey was just as negative, in fact even more so. Input prices are a real issue here too, over 5%..The well-supported US Treasury 5 year bond auction continued the trend of bidders wanting and getting higher risk premiums. This one delivered a median yield of 4.01%, up from 3.93% at the prior equivalent event a month ago.The minutes of the May 8 (NZT) Fed meeting released overnight revealed policymakers are uncertain on how to assess the future risks of inflation and their labour market, and how they can meet their dual mandate when forces are pushing in different directions. They seem to see the inflation risks are the key priority. They are also watching the USD depreciation because that too brings inflation risks. For them, it is a waiting game.India's April industrial production expansion slowed from March, but not by as much as was expected. It seems to be settling in at an under +3% rate which is far more modest than the overall economic expansion there. India's economic rise isn't really being built on manufacturing prowess. Of course the trade and tariff-war backdrop won't be helping.Euro area inflation expectations are rising again, and came in at 3.1% in the latest survey (in April) for the ECB, results they won't have liked. These expectations are back to early 2024 levels, unwinding the progress the ECB policymakers had thought they had won.In Australia, their monthly inflation indicator, also for April, shows it stuck at 2.4%. A small easing was expected but didn't eventuate. But 2.4% isn't a killer level and probably doesn't change expectations that the RBA will keep reducing its cash rate target, currently at 3.85%, by another -25 bps at their next meeting on July 8, 2025. A lot could change in between however, and analysts will be watching for upside risks.The UST 10yr yield is now at 4.48%, and up +4 bps from yesterday.The price of gold will start today at US$3,296/oz, and down -US$6 from yesterday.Oil prices are up +US$1.50 at just on US$62/bbl in the US and the international Brent price is now at US$65/bbl.The Kiwi dollar is down at 59.6 USc, a small +10 bps rise from yesterday at this time. Against the Aussie we are up +50 bps at just under 92.8 AUc. Against the euro we are up +30 bps at 52.8 euro cents. That all means our TWI-5 starts today still just under 67.9 and back up +30 bps from yesterday.The bitcoin price starts today at US$107,462 and down -2.6% from yesterday. Volatility over the past 24 hours has been modest at just on +/-1.4%.You can get more news affecting the economy in New Zealand from interest.co.nz.Kia ora. I'm David Chaston. And we will do this again tomorrow.

Data and sentiment diverge

Play Episode Listen Later May 27, 2025 6:21

Kia ora,Welcome to Wednesday's Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.I'm David Chaston and this is the international edition from Interest.co.nz.And today we lead with news a relief rally is underway on Wall Street, responding to the delays in tariffs by the US on EU goods.But first, an update of the overnight dairy Pulse auction where prices for both SMP and WMP slipped although less than the futures market had suggested. The WMP was down -2.7% in USD from the prior week's full event, and a bit more in NZD. To be fair both prices had risen sharply since April but this pullback still leaves it in a rising trend despite today's adjustment.Data releases resumed in the US after their weekend holiday with durable goods orders pulling back in April after the unusually strong March gains. The pullback was largely in line with what was expected however, -6.3% lower than the prior month but up +2.7% from a year ago. Perhaps worryingly, excluding aircraft orders, nomn-defence capital goods barely budged in April, a sign that boardrooms remain skittish about future investment.That was matched by the Dallas Fed's May factory survey where activity was reported flat with a decline in new orders.But consumers seem happier, according to the Conference Board's May survey of consumer sentiment. But it was a survey taken before the latest US threats on the EU, so there is a sense of 'relief rally' here after the China tariff pullback. However, despite the month-on-month gain, this indicator is still tracking lower on the longer term, still lower than year-ago levels.Sentiment will be challenged again soon. There were a couple of housing indicators out overnight, and both recorded falls in American house prices. The FHA one was spun as an improvement, but it wasn't. The S&P/Case-Shiller one was a gain but a tiny one and the least since mid-2023.The bond market isn't feeling any better. The latest US Treasury 2 year auction, although as well supported as usual, brought a median yield of 3.90%, up from 3.74% at the prior equivalent event a month ago.And we can note that pricing for Trump Media shares, a marketplace that basically attracts investors who are supporters, is doing terribly. TMTG is down -11% today, down -33% so far this year, down more than -50% from a year ago. To rescue itself, it says it wants to raise US$2.5 bln to shift into crypto investing. It is an idea not going down well with shareholders.Across the border, core Canadian business activity is struggling a bit too. April wholesale trade was down -0.9% from March. That is kind of a lot for a one-month impact, one that records the initial tariff-war skirmishes.Across the Pacific in China, profits at industrial firms rose +1.4% in the first four months of 2025 compared to the same four months in 2024, picking up from +0.8% growth in the January–March period. For April alone, that was a rise of +5.2% from April 2024. Having noted that, April 2024 was a weak base. Still, given the trade challenges, and that China's factories are still very export oriented and vulnerable to trade war risks, this has to be seen as a good result in the circumstances.And we should start to keep an eye on China's carmakers. It is attracting increasing scrutiny because the economic fundamentals seem to be leaking away and quite fast. It could be another 'property development' industry failure, and could have just as large consequences if it wobbles too. They have no problem making cars, and good ones. But not only are they making more than the world needs, there are serious questions as to whether they can sell them for more than they cost to make.We should probably note that South Korean consumer sentiment jumped in May, rising back to levels that were common in November 2024 and prior. The ugly confusion period when its president went full-Trump and tried a palace coup (which resulted in impeachment, one that was upheld by the courts) is now behind it and Koreans are breathing easier. The rule of law won against a power grab. South Koreans will vote in a snap presidential election on Tuesday, June 3.And still in South Korea, they should join the CPTPP and diversify its trade as part of the bloc in the face of US uncertainties, a senior trade ex-minister is saying. (New Zealand runs a huge trade deficit with Korea.)In the EU, consumer and business sentiment basically held steady in May, according to the latest update. The trade wars are not yet unnerving the Europeans.The UST 10yr yield is now at 4.44%, and down -6 bps from yesterday.The price of gold will start today at US$3,302/oz, and down -US$38 from yesterday.Oil prices are down -US$1 at just over US$60.50/bbl in the US and the international Brent price is still just under US$64/bbl.The Kiwi dollar is down at 59.5 USc, a -½c retreat from yesterday at this time as commodity currencies are out of favour today. Against the Aussie we are down -20 bps at just on 92.3 AUc. Against the euro we are holding at 52.5 euro cents. That all means our TWI-5 starts today still just over 67.6 and down -30 bps from yesterday.The bitcoin price starts today at US$110,309 and up another +1.2% from yesterday. Volatility over the past 24 hours has been modest at just on +/-1.2%.Check back with us at 2pm for the RBNZ's May Monetary Policy Statement and OCR review. As you will knwo by now, 'everyone' expects a -25 bps cut. But the outlook from there is reasonably clouded, so Governor Hawkesby's analysis at 3pm is keenly awaited. We will have full coverage.You can get more news affecting the economy in New Zealand from interest.co.nz.Kia ora. I'm David Chaston. And we will do this again tomorrow.

Wall Street holiday allows reassessments

Play Episode Listen Later May 26, 2025 4:28

Kia ora,Welcome to Tuesday's Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.I'm David Chaston and this is the international edition from Interest.co.nz.And today we lead with news we are being reminded of the central role the giant Wall Street markets play in global finance.It is a US holiday weekend, Memorial Day, and without those US markets operating, data releases and other market activity is very restrained.But in the US, Fed boss Powell delivered a graduation speech that contained a spirited defense of those who run public services and the core role they play in a crisis. He clearly showed there are no libertarians in a recession or threat of one. They all want "the government" to cover their backs.And the Trump Administration also shows the power of 'active' government policy setting. The using of tax policy to help your friends (and family) and punish your perceived enemies is on full display. And the use of tariffs to screw the scrum is a lever that also shows that clearly.From his bully-pulpit, Trump has delayed a punitive tariff threat on EU goods to July 9. It was enough to depress the USD on the capricious uncertainty and the EUR as hit a one-month high.We should note that American hot-rolled steel prices are now at US$900/tonne which is +29% higher than when Trumps tariff actions started to take shape at the start of 2025. These are policies that are embedding sharp producer price inflation there. And of course, they will rise from here, as tariff pressure builds on other efficient manufacturers outside the US.You can contrast that with Chinese steel prices. We don't have hot-rolled coil steel prices for China to hand, but we do have rebar steel prices there and they are now US$425/tonne, down from US$460/tonne at the start of 2025, so a -7.5% decrease. A crude matching of the US and China steel price shifts suggests the Chinese-sourced products have gained a +35% advantage in the period, largely offsetting the tariff actions. It is American consumers paying for all this infantile policy-making.Meanwhile, the world is getting on with business, but just with fewer data signals to start the week.In Canada, factory sales there were weakish in April, the weakest month of the year so far. Key to the fall were declining output in both their oil industry, and their car manufacturing.A recent review of the Canadian economy by the OECD suggests it will avoid recession, but that expansion will be hard to find in the present trade-war climate.Meanwhile, the province of Alberta is feeling very uneasy. There is a fringe movement there to cede from Canada and become a US state, built on the feeling that federal Canada doesn't appreciate the economic role they play in the Federation. But that overlooks the central role the US is playing in depressing the oil demand and prices they claim is 'theirs'. Joining the US would only accentuate the feelings of 'victimisation'.Across the Pacific, Singapore also released April factory production data and that rose faster from March, to be +5.9% higher than year-ago levels.The UST 10yr yield is now at 4.51%, and unchanged from yesterday while the New York bond market was closed. The price of gold will start today at US$3,340/oz, and down -US$17 from yesterday.Oil prices are holding at just on US$61.50/bbl in the US and the international Brent price is still just under US$65/bbl.The Kiwi dollar is still at 60 USc, and up +10 bps at this time. Against the Aussie we are up +30 bps at just on 92.5 AUc. Against the euro we are down -20 bps at 52.5 euro cents. That all means our TWI-5 starts today still just under 67.9 and up +10 bps from yesterday.The bitcoin price starts today at US$109,020 and up +1.6% from yesterday. Volatility over the past 24 hours has been modest at just on +/-1.4%.You can get more news affecting the economy in New Zealand from interest.co.nz.Kia ora. I'm David Chaston. And we will do this again tomorrow.

The turbulent ride continues

Play Episode Listen Later May 25, 2025 7:37

Kia ora,Welcome to Monday's Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.I'm David Chaston and this is the international edition from Interest.co.nz.And today we lead with news we have ended a turbulent week where the USD fell, US Treasury benchmark rates rose, and equities retreated. Gold jumped.The turbulence will continue into this coming week with the US president lashing out because his signature tariff policies aren't producing the economic growth or reshoring he anticipated and other countries have worked out how to game him. His new lashes are at the EU, and Apple, for not reshoring. Neither seem in awe of his power any more.But first, the coming week will be dominated by Wednesday's ORC review where a -25 bps rate cut to 3.25% is widely anticipated. Earlier that day there will be a dairy Pulse auction too.In Australia, they will update their monthly consumer price indicator, also on Wednesday. Elsewhere, South Korea will be reviewing its monetary policy settings this week, and Japan will release important industrial production, retail sales, and consumer sentiment updates.In the US, after their long weekend, markets are bracing for another uncertain week, driven by those tariff threats from Trump targeting the European Union and Apple. Investors will also focus on commentary from Fed officials, as well as the FOMC meeting minutes. Key US economic indicators include personal income and spending, the PCE price indices, durable goods orders, trade balance, the second estimate of Q1 GDP growth, corporate profits, pending home sales among others.But first we should note in China, their central bank injected ¥500 bln (NZ$120 bln) of new liquidity into financial institutions through their one-year medium-term lending facility on Friday. But that was less than the ¥600 bln added in April.China's net foreign direct investment actually fell in April from March, a very unusual shift. The fall wasn't large at -US$4.8 bln for the month but a notable shift from the +US$7.2 bln rise in April 2024 which was considered unusually small. Go back to April 2023 and it was +US$14.1 bln and +US$15.4 bln the year before. In the past two years, the August levels have stalled (but not retreated) and this is the first we have ever seen where there was a net outflow of foreign investment from China in a month. And Nikkei is reporting that the protracted real estate woes are pushing down lending rates, and now 80% of Chinese banks have seen their interest margins fall below the industry threshold for profitability, raising concerns over the sector's stability. Fifty-four of 58 commercial banks listed in mainland China and Hong Kong posted reduced interest margins compared with the previous fiscal year, according to the analysis, which evaluated financial results announced for the year ended December 2024.Japanese inflation is holding high, and came in at 3.6% in April, the same as in March. But that was its lowest since December. Food prices rose the least in four months but were still up +6.5% from a year ago, down from the March +7.4%. This dip came after the government took steps to curb rice prices that have doubled over the past year. High rice prices have cost the government minister 'responsible' for that sector his job last week.In Singapore, April CPI inflation held art a very low 0.9%, but that belies the monthly fall of -0.3% from March. This is the second month in a row they have had month-on-month deflation. That is largely due to falling costs for clothing, household durables, and entertainment. Food price increases were modest.Taiwanese retail sales growth was weak again in April. It hasn't really recovered after the unexpectedly large drop in February, bumping along essentially at year-ago levels.But Taiwanese industrial production is on fire, rising another sharp +22% in April from the same month a year ago. That is the best growth rate on record for them, apart from the distorted pandemic recovery.Across the Pacific in the US, this is the long Memorial Day holiday weekend in the US, the start of their summer season which won't end until their Labor Day holiday on September 1. (Traditional investors "sold in May, and went away" because volumes lighten and become more volatile over this northern summer period.)This is also the start of the US summer 'driving season'. American petrol prices are currently averaging US$3.196/US gallon. That is NZ$1.41/L. (A year ago it was +10% higher, equivalent to NZ$1.566/L.)And it is the start of their barbeque season. But prices are likely to rise further from the already record high levels because the number of cattle on feedlots is down, and the amount of beef stored in freezers is lower too.But of course, business carries on. There was an unusually large rise in new home sales in the US in April, taking them up to an annualised rate of 743,000, a level they haven't seen since mid-2022. After a string of weak months (and downwardly revised earlier data) builders are now resorting to widespread incentives to move stock, and it seems to have worked in April. Housing starts remained weak, and new building consents are declining still.In Australia and on their eastern seaboard it has been very wet with widespread flooding. And that is having a substantial impact on rural output. In particular, milk volumes are falling and milk prices are rising fast.The UST 10yr yield is now at 4.51%, and down -1 bp from this time Saturday. The price of gold will start today at US$3,357/oz, and down -US$5 from Saturday. But that makes it +US$170 higher than a week ago, a +5.5% jump.Oil prices are holding at just on US$61.50/bbl in the US and the international Brent price is still just under US$65/bbl.The Kiwi dollar is still at 59.9 USc, and unchanged from Saturday at this time. A week ago it was at 58.8 USc so an outsized +110 bps rise since then. Against the Aussie we are holding at just under 92.2 AUc. Against the euro we are unchanged at 52.7 euro cents. That all means our TWI-5 starts today still just under 67.8 and unchanged but up +40 bps for the week.The bitcoin price starts today at US$107,270 and down -2.5% from Saturday. Volatility over the past 24 hours has been modest at just on +/-1.1%.You can get more news affecting the economy in New Zealand from interest.co.nz.Kia ora. I'm David Chaston. And we will do this again tomorrow.

Risk premiums keep on rising

Play Episode Listen Later May 22, 2025 6:04

Kia ora,Welcome to Friday's Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.I'm David Chaston and this is the international edition from Interest.co.nz.And today we lead with news risk premiums keep on rising.But first, the OECD is reporting that the global expansion is leaking away, and quite quickly now. Economic activity rose by just +0.1% in the first quarter of 2025, significantly down from an +0.5% rise in the previous quarter. The US and Japan were the main drags in their data. And they say this is a departure from the higher and relatively stable growth rates recorded in the OECD area over the past two years.US initial jobless claims eased lower marginally, all accounted for by seasonal factors. There are now 1.79 mln people on these benefits, +103,000 more than at the same time last year.Existing home sales in the US fell -0.5% in April 2025, to their lowest in seven months and notably below what was expected. High mortgage rates are getting the blame.The first of the US PMI survey is out for May, the S&P/Markit one, and that reported output growth improved in the month, but prices spiked higher from the tariff impacts. And this was true for both the factory category, and their services category. It is better than a decline but in a broader historical perspective this isn't very impressive.Supporting that was the Chicago Fed's National Activity Index which not only recorded a decline in April, but March was revised lower too.Meanwhile, the Kansas City Fed factory survey for May slipped more negative again, even if hopes for the future remain positive.We don't usually report results of the US Treasury Inflation Protected Securities (TIPS), but today's 10 year event reveals the rising risk premiums investors are demanding, even as background inflation rises. Today's event delivered a median yield of 2.14% plus inflation, compared to the prior equivalent event a month ago of 1.86% plus inflation. These premiums are on the move wider, and are likely to widen substantially if Trumps 2025 Budget gets through Congress.North of the border, and in a bit of a surprise, Canadian producer prices slipped in April to be just +2.0% higher than a year ago. It turns out that many components for Canadian factories are sourced from the US and the falling US dollar has made them cheaper. That is certainly true for energy products, but true for many other components as well. Cheaper input costs will help Canadian factories push back against the tariff taxes their US customers have to pay.In Japan, they booked record high machinery orders in March, up +8.4% from a year ago, and far above what was anticipated. The outlook for the next three months looks good too. But we should note these gains are built on fast-rising domestic orders. Export order contributions were weak.Meanwhile, the Japanese May PMIs both slipped lower to be essentially flat (a marginal contraction for factories, a marginal expansion for services).In China, and in a sign of how broken their real estate development sector has become, local authorities are using bond funds to buy back unused land from struggling developers as a way to stop them completely collapsing.Singapore reported its change in economic activity for March and that came in at +3.9%, lower than the 5.0% growth in the December quarter but better than the expected +3.6%. But officials there downgraded their full 2025 expectations saying they will be lucky to get +2.0% growth this full calendar year - for all the obvious reasons.The Indian PMI for May stayed little-changed with a robust expansion. But they too are now noting rising price pressures.The flash Australia PMIs for May report a growth stall, for both their factory sector and their services sector. That was because they had their slowest growth in new orders in 2025 so far.Global container freight rates stayed low last week, up +2% from the prior week to be -28% lower than year-ago levels. And bulk freight rates rose +5.0% from a week ago but remain in the general low range they have been since early April.The UST 10yr yield is now at 4.55%, and down -5 bps from this time yesterday.The price of gold will start today at US$3,294/oz, and down -US$18 from yesterday.Oil prices are -50 USc softer today at just under US$61/bbl in the US and the international Brent price is just under US$64.50/bbl.The Kiwi dollar is now at 59 USc, and down -½c from yesterday at this time. Against the Aussie we are down -30 bps at 92 AUc. Against the euro we are down -10 bps at 52.4 euro cents. That all means our TWI-5 starts today still just under 67.4 and down a net -20 bps from yesterday.The bitcoin price starts today at US$111,542 and up +5.0% from yesterday. Volatility over the past 24 hours has been moderate at just on +/-2.5%.You can find links to the articles mentioned today in our show notes.You can get more news affecting the economy in New Zealand from interest.co.nz.Kia ora. I'm David Chaston. And we will do this again on Monday.

Bond market discontent grows louder

Play Episode Listen Later May 21, 2025 6:00

Kia ora,Welcome to Thursday's Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.I'm David Chaston and this is the international edition from Interest.co.nz.And today we lead with news the bond market is speaking, passing judgement on the Trump Budget - it doesn't like it.The benchmark US Treasury 10yr, 20yr and 30yr bond yields have all jumped +12 bps so far today. That means their holders are taking sharp capital losses as the price of 'safety', and new buyers want sharply higher risk premiums. These rates are closing in on pre-GFC levels now.After a couple of weeks of rises, US mortgage applications fell last week and that too was because of rising mortgage interest rates. Their benchmark 30 year rate is very much tied to the equivalent UST rates, so next week it is very likely mortgage interest rates will jump sharply too, with a consequential fall in new mortgage applications.And those rate rises are flowing through to the primary market as well. The overnight US Treasury 20 year bond auction was still well-supported but at a price, with the median yield jumping to 4.97%, up +22 bps from 4.75% at the prior equivalent event a month ago. It has been a long time since we have seen as sharp a price signal in the primary market.It is actually starker than that. At that prior event, the high bid was 4.81% and 6.5% of the auction was allocated at that level. At this latest auction, the high bid was 5.05% and 41% was allocated at that level.Stagflation, recession fears, and a clearly irresponsible Federal Budget proposal (just designed for one family's interest) is gnawing away at sentiment and now consumer demand. Overnight, current US crude oil stocks jumped on unexpectedly low demand. These inventories rose by +1.328 million barrels in the week that ended May 16, defying market expectations of a -1.85 million barrel decrease. That is a large, unexpected turn.It is too much for the equities market, which fell sharply on all this bond and demand news.In Canada, and in a surprise, new home prices fell, and rather sharply to be back to early 2024 levels. In fact the dip was the sharpest since the pandemic.Across the Pacific, Japan is facing bond stress as well. Yields on long-term Japanese sovereign bonds are soaring as demand for such debt falters, with many market experts saying the situation is unlikely to change anytime soon. Behind the shrinking demand are mounting investor worries over the health of Asia's No. 2 economy and fallout from US trade tariffs. Yields on 20-year JGBs rose yesterday (Wednesday) to 2.575%, their highest since 2000.Meanwhile, Taiwanese export orders surged almost +20% in April from a year ago to US$56.4 bln and easily exceeding market expectations of a +10% increase. This is their best month ever, outside the distorted period of the pandemic and its aftermath when volatility reigned.The Indonesian central bank cut its policy rate by -25 bps cut to 5.50%, as expected and taking it back to a level first fit in December 2022. Even though inflation is rising there it is only at just under 2% and well within its target range.In Australia, the six-month annualised growth rate in the Westpac-Melbourne Institute Leading Index, which indicates the likely pace of economic activity relative to trend three to nine months into the future, slowed to 0.2% in April from 0.5% in March, a stalling that wasn't expected.In a new update, the ABS said Aussie employers paid a record AU$104.8 bln in salaries and wages in March. Annual growth ranged from +3.7% in the mining industry to +11.9% in Electricity, gas, water and waste services. In dollar terms, the rises were greatest in the healthcare and social assistance services industry (+$1.1 billion or +7.8%), public administration and safety (+$0.6 billion or +8.1%), and construction ($0.6 billion or +7.1%).Join us for the Budget 2025 release after 2pm this afternoon. Although much has already been signaled, some will have been saved for the theatre on the annual budget release, and this is our opportunity to assess the overall health of the Crown accounts - and when we are next likely to return to surplus.The UST 10yr yield is now at 4.60%, up a very sharp +12 bp from this time yesterday. Wall Street is sharply lower, with the S&P500 down -1.5% in Wednesday trade. The price of gold will start today at US$3,313/oz, and up +US$28 from yesterday. (Remember the record high is US$3520/oz set on April 22, 2025.)Oil prices are a tad softer today at just over US$61.50/bbl in the US and the international Brent price is -50 USc lower at US$65/bbl.The Kiwi dollar is now at 59.5 USc, up another +30 bps from yesterday at this time. Against the Aussie we are up +10 bps at 92.3 AUc. Against the euro we are unchanged at 52.5 euro cents. That all means our TWI-5 starts today still just over 67.6 and up +10 bps from yesterday.The bitcoin price starts today at US$106,238 and essentially unchanged from yesterday. At one point it briefly hit US$109,500, but fell back just as quickly. Volatility over the past 24 hours has been moderate at just on +/-2.0%.You can find links to the articles mentioned today in our show notes.You can get more news affecting the economy in New Zealand from interest.co.nz.Kia ora. I'm David Chaston. And we will do this again tomorrow.

Superpower budgets drive irresponsible risks

Play Episode Listen Later May 20, 2025 6:14

Kia ora,Welcome to Wednesday's Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.I'm David Chaston and this is the international edition from Interest.co.nz.And today we lead with news both superpowers are dicing with unsustainable budget deficits that are posed to explode. The Moody's downgrade was just a teaser. The bond market will make the real judgment.But first today, the overnight dairy auction brought the expected settling of prices, even though they remain high. They dipped overall by -0.85% on the low volumes offered but with the backdrop that the European season is currently at its peak. WMP and SMP both dipped minorly and as signaled in the derivatives market. The Cheese price sank -9.2% however but it had probably gotten excessively high in prior events, so an unsurprising correction. Chinese buying presence was a feature of this event.US retail salesrose +5.4% last week from the same week a year ago, but this is clouded by the unknown impact of their new tariff-taxes. It is their slowest rise since late March and the impact of the tariff taxes will be starting to show up now. So it could well be that retail sales volumes are starting to decline now as a consequence.On Wall Street, there is growing nervousness about how the Federal Government's budget is being planned. If it goes through as the Administration is proposing, the US deficit to balloon sharply. And the bond market will have something sharp to say about that.In Canada, their inflation rate fell to 1.7% in April, but there was a special on-off factor that helped it. It dropped from 2.3% in March not quite hitting the expected 1.6% May level. A large part was a drop in energy prices not only because the oil price is easing but they also removed the consumer carbon tax. Food prices prices were up +3.8% however, especially the cost of fresh food.China has cut its key lending rates to record lows at yesterday's May fixing. The one-year loan prime rate, the benchmark for most corporate and household loans, was lowered by 10 basis points to 3.0%, while the five-year LPR, which is the basis for mortgage rates, was cut by the same margin to 3.5%. These changes were what markets were expecting and the first reductions since October. It is another in the string of monetary easing measures announced earlier this month.That official move was immediately followed by the four largest Chinese state-owned banks who cut deposit rates by between -5 bps and -25 bps. Those four core SOE banks are Bank of China, China Construction Bank, ICBC, (all of whom have New Zealand subsidiaries) and the Agricultural Bank of China. Other banks followed. Money is flowing out of savings accounts now, back to higher earning "wealth products', a move that in the past has been fraught with risk.The US isn't the only superpower flirting with deficit spending danger. China is too, as its fiscal stimulus pushed its four-month budget deficit to a record high of -¥2.65 tln in 2025 (-NZ$620 bln). And there is no public pushback on the wisdom of that.Malaysian exports took off in April with a strong +16.4% rise from the same month a year ago. If we look past the pandemic recovery growth, it was near their best export performance since 2018. But also came as imports surged +20% to a new all-time record high.In Europe, it might have been marginal but it is worth noting all the same - consumer sentiment got less bad in May. This seems to have broken the 2025 run of declines in these survey results, a decline that really started in late 2024.In Australia, they cut their cash rate target by -25 bps as expected to 3.85% which they say is still at a restrictive level, just less so. Inflation and trade uncertainties are still on their mind - and the risks to their continuing expansion were more so that markets were anticipating. Governor Bullock's press conference comments were more dovish than the rate change statement, and more dovish that many were expecting. The RBA also trimmed its growth forecasts. Markets now expect at least two more -25 bps rate cuts to come through in 2025. Yesterday's Bullock comments opens up the possibility of more.The UST 10yr yield is at 4.48%, up a mere +1 bp from this time yesterday.The price of gold will start today at US$3285/oz, and up +US$58 from yesterday.Oil prices are a tad softer today at just over US$62/bbl in the US but the international Brent price is +50 USc firmer at US$65.50/bbl.The Kiwi dollar is now at 59.2 USc, up +30 bps from yesterday at this time. Against the Aussie we are up +40 bps at 92.2 AUc. Against the euro we are down -20 bps at 52.5 euro cents. That all means our TWI-5 starts today still just over 67.5 and essentially unchanged from yesterday.The bitcoin price starts today at US$106,320 and up +0.9% from yesterday. Volatility over the past 24 hours has been modest however at just under +/-1.2%.You can find links to the articles mentioned today in our show notes.You can get more news affecting the economy in New Zealand from interest.co.nz.Kia ora. I'm David Chaston. And we will do this again tomorrow.

money canada australia europe china food chinese gold european drive new zealand bank budget bitcoin inflation cheese superpowers risks markets usc aussie oil administration moody nz kiwi federal government kia volatility malaysian bullock irresponsible rate cut ust rba aotearoa new zealand smp soe twi budget deficits auc lpr icbc steve bullock on wall street wmp china construction bank agricultural bank

The messy business of dealing with US mistakes

Play Episode Listen Later May 19, 2025 6:11

Kia ora,Welcome to Tuesday's Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.I'm David Chaston and this is the international edition from Interest.co.nz.And today we lead with news the US downgrade is seeing the trend of higher interest rates extend.And in the US, we have more negative signals. The Conference Board's Leading Economic Index (LEI) "plunged" by -1.0% in April, after declining sharply by -0.8% in March. The LEI has declined by -2.0% in the six-month period ending April and is now just shy of signaling 'recession' they say. But it is actually back lower than in the last Trump presidency when there was recession.At an investor day in New York, the boss of the US's largest bank, JPMorgan Chase, said investors are underestimating geopolitical and inflation risks. “Credit today is a bad risk,” he said earlier today. “The people who haven't been through a major downturn are missing the point about what can happen in credit.”In Canada, their largest province has announced a Budget that prioritises higher spending and larger deficits in the coming year in a direct effort to "protect Ontario". The next federal Canadian budget isn't due until at least September.In China, retail sales rose by +5.1% in April from the same month a year ago, moderating from March's over 1-year high of +5.9% and missing market estimates of +5.5%. But is was one of the still-good data releases from China, one that is in a rising trend and even better because they have virtually no inflation.Another positive data release from China came from their industrial production which grew by a claimed +6.1% in April from a year ago and better than the expected +5.5% gain. However, the latest figure eased from the +7.7% growth recorded in March. Meanwhile, electricity production rose only +0.9% in April, hardly supporting the much stronger industrial production data.China, which regulates the wholesale price of petrol and diesel, announced cuts overnight, to take effect immediately.Meanwhile their national real estate development investment fell sharply yet again, and the residential sector was down -9.6% from April last year. And prices for new, and previously-owned housing are still down sharply on a year-on-year basis even if there are small pockets of regional improvements.Meanwhile, Chinese residents trading foreign stocks or holding offshore accounts are being put on notice as authorities take fuller advantage of cross-border data to trace unreported earnings.In the EU, their economy is projected to grow by +1.1% in 2025 and +1.5% in 2026, and both are downgrades from the levels forecasted last autumn. This is according to the European Commission's Spring outlook. The downgrade is primarily attributed to the impact of rising tariffs and increased uncertainty stemming from recent abrupt shifts in US trade policy. On the inflation front, disinflation is now expected to proceed more rapidly than previously anticipated. Inflation in the Eurozone is projected to ease to 2.1% by mid-2025, reaching the ECB's target earlier than previously expected, and to decline further to 1.7% in 2026. And staying in Europe, we should probably note that BNPL giant Klarna, which also operates in New Zealand, is seeing its losses grow. In Q1-2025 they doubled to -US$100 mln as "consumer credit losses" rose sharply, even as revenue grew.Later today (at 4:30pm NZT), the Australian central bank will review its cash rate target, currently at 4.10%. It is widely expected to be cut by -25 bps to 3.85%. That would put it still above the New Zealand OCR at 3.50% and our official rate is also expected to be cut by -25% mid next week to 3.25%, restoring the differential. But although both cuts are expected and priced in, more attention will focus on the next likely shift. Some see the RBA 'done' at one cut with the next move a rise. Background inflation risks are still elevated there, their labour market isn't suffering, and growth prospects are still there even in the current turbulent world.The UST 10yr yield is at 4.47%, up a mere +3 bps from this time yesterday, but curves are steeper.The price of gold will start today at US$3227/oz, and up +US$25 from yesterday.Oil prices are holding again today at just over US$62.50/bbl in the US but the international Brent price is -50 USc lower at US$65/bbl.The Kiwi dollar is now at 58.9 USc, up +10 bps from yesterday at this time. Against the Aussie we are unchanged at 91.8 AUc. Against the euro we are also unchanged at 52.7 euro cents. That all means our TWI-5 starts today still just over 67.5 and up +10 bps from yesterday.The bitcoin price starts today at US$105,393 and essentially unchanged from yesterday. Volatility over the past 24 hours has been moderate however at just under +/-2.2%.You can find links to the articles mentioned today in our show notes.You can get more news affecting the economy in New Zealand from interest.co.nz.Kia ora. I'm David Chaston. And we will do this again tomorrow.

Recent history less relevant for analysts. It's now all about what is to come

Play Episode Listen Later May 18, 2025 6:37

Kia ora,Welcome to Monday's Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.I'm David Chaston and this is the international edition from Interest.co.nz.And today we lead with news analysts and investors are looking at the unfolding trade-war skirmishes through different lenses.The week ahead will be dominated for us by the 2025/26 Government Budget announcements on Thursday and before that the RBA rate decision tomorrow. Important in the background will be the bond vigilantes and their global assessments of risk premiums.While this is going on, the May PMIs will come through for most of the major economies. A number of countries will release their April CPI data too. And we will keep a close eye on Chinese data releases later today including for retail sales, industrial production, house prices and foreign direct investment levels. And Chinese demand will have an influence on the Wednesday full dairy auction as well.But first we should note that equity analysts are changing their tune. But it is not clear yet that investors are following them. Globally, Q1-2025 earnings have been good, with widespread results that beat forecasts. But for an increasing number of analysts, those good recent results are being dismissed because they now want to know how a company will fare in the Q2 and ahead world of trade disruption, sagging sentiment and higher costs. Stagflation offers few places to hide.The separate views between analysts and investors is probably clearest in the world's largest economy.Influential analysts at Moody's credit rating service are worried and have joined S&P and Fitch in a notable downgrade over the weekend of the US sovereign credit rating.That followed news that falling American consumer sentiment is hanging over the global economy. The University of Michigan consumer sentiment index dropped sharply in May from April when analysts expected it to rise. This is the fifth consecutive monthly decline, the lowest reading since June 2022, and the second-lowest on record. Hurting was rising inflation expectations largely around the impact of the tariff taxes. Sentiment is down by a quarter in a year.And retailing giant Walmart is only now starting to roll out tariff price increases, so the pressure on inflation will become even more apparent in the coming monthsCurrent assessments of personal finances sank nearly -10% on the basis of weakening incomes. Tariffs cost fears were spontaneously mentioned by nearly three-quarters of consumers, up from almost 60% in April. Inflation expectations for the year ahead surged to 7.3%, a new all-time high from 6.5% and long-run inflation expectations edged up to 4.6% from 4.4%.US housing starts stayed at a relatively low level and that was lower than expected. Given the impact of the tariff taxes, that won't really be any surprise. This is largely why new building consents fell further.Meanwhile, Bloomberg is reporting that the US Fed will trim 2500 jobs or about 10% of its workforce "over the next several years".And we should probably note that the Trump tax cut bill failed in a key US House of Representatives committee, mainly because conservative Republicans want greater spending cuts, including to Medicaid programs. In Canada, their senior loan officer survey of credit conditions tightened for both home loan lending and other lending. "Price" (the expectations of higher interest rates) was a key factor. But for non-mortgage lending the impact of tariffs was prominent also.In China, later today we get a big data dump for April activity which could be revealing on how they weathered the initial tariff-war impacts.And they may say they are best-buddies with Russia, but Russia can't afford to buy Chinese cars and has moved to block imports. It is hard to imagine China being happy with that because it will kill a trade of over 1 mln vehicles annually.Singapore's non-oil exports surged +12.4% in April from a year ago, far exceeding expectations of a +4.0% increase and accelerating from a +5.4% rise in March. It is the third consecutive month of export growth and the fastest pace since last July. There were sharp rises in exports of both electronics and non-electronic products.Although slightly dated now, we can report the Eurozone's trade surplus surged to a record +€37 bln in March, up from +€23 billion a year earlier, fueled by a sharp rise in exports, particularly to the US as buyers rushed orders ahead of incoming tariffs.The UST 10yr yield is at 4.44%, unchanged from Saturday. The price of gold will start today at US$3201/oz, and up +US$14 from Saturday. But it is down -US$137 from this time last week.Oil prices are holding today at just over US$62.50/bbl in the US and the international Brent price is still just under US$65.50/bbl. But both are up +US$1.50 from a week ago.The Kiwi dollar is now at 58.8 USc, unchanged from Saturday at this time. Against the Aussie we are down -10 bps at 91.8 AUc. Against the euro we are unchanged at 52.7 euro cents. That all means our TWI-5 starts today still just under 67.4 but up +40 bps from a week ago.The bitcoin price starts today at US$105,306 and up +1.3% from Saturday. Volatility over the past 24 hours has been modest at just under +/-1.4%.You can find links to the articles mentioned today in our show notes.You can get more news affecting the economy in New Zealand from interest.co.nz.Kia ora. I'm David Chaston. And we will do this again tomorrow.

Lots of US data releases, few supporting the Trump agenda

Play Episode Listen Later May 15, 2025 6:58

Kia ora,Welcome to Friday's Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.I'm David Chaston and this is the international edition from Interest.co.nz.And today we lead with news Trump's back-down on tariffs came as corporate decision-makers concluded reshoring isn't a good idea. There are few moves to bolster US-based production.But first today, Fed boss Powell spoke overnight and he focused on the challenges they face keeping inflation under control. He noted long-term interest rates are now notably higher, driven mainly by risk premiums rather than shifts in inflation expectations, while estimates of the longer-run neutral policy rate have also risen. He noted the US economy has changed a lot since their last review and warned that inflation might become more volatile in future due to more frequent supply shocks, which will make it harder for central banks to achieve price stability. Throughout his remarks, Powell also stressed the critical role of anchored inflation expectations. Meanwhile US initial jobless claims slipped slightly to 205,200 but that was what seasonal factors accounted for and what analysts were expecting. There are now 1.783 mln people on these benefits, a reduction from last week, but it is up almost +100,000 from this time last year.Maybe surprisingly, American producer prices fell by -0.5% in April, following a revised flat reading in March and defying market expectations of a +0.2% increase. This was the first decline in the PPI since October 2023 and the sharpest drop since April 2020, during the early pandemic period. The retreat was largely driven by a -0.7% fall in service costs, the largest since data collection began in December 2009, and that was due to a -1.6% drop in margins for trade services, because businesses are absorbing much of the impact from higher tariffs. PPI is now up +2.4% from a year ago.Industrial production in the US didn't rise as expected in April. In fact factory output fell -0.4%, reversing the increase in March. And the prospects of shifting significant production "back to the US" seem remote in many diverse categories.There were two regional factory surveys released for May overnight, and both declined somewhat. The NY Fed's Empire State survey reported another modest decline. The Philly Fed's survey for their core rust belt region recorded a sharp improvement, better than the improvement expected. But it is still in decline.In a sign of the times a major lithium battery recycler has entered bankruptcy.US retail sales were little-changed in April, following the upwardly revised +1.7% front-loaded pre-tariff surge in March. 2024 gains mean they are +5.2% higher than year-ago levels.The NAHB/Wells Fargo Housing Market Index in the US fell sharply in May to its the lowest since November 2023 and well below what was expected. Home builders are glum. Current sales conditions fell, sales expectations in the next six months edged lower, and they said traffic of prospective buyers has dropped recently.Meanwhile, housing starts in Canada jumped +30% in April from March and that was well above what was expected. It was their most since June 2023. US tariffs on Canadian softwoods is likely making Canadian house building costs lower.Across the Pacific, Japanese machine tool orders rose +7.7% in April from a year ago, but that growth was a slowing from +11.4% growth in March. But it was the seventh consecutive month of rising machine tool orders. Local orders dropped -5.4% from a year earlier while foreign orders jumped +13.3% on the same basis. India's exports were nothing special in April, certainly not reflective of a rising industrial power. They slipped from March but they were up +9.0% from a year ago due to gains in prior months.In Europe, industrial production rose by +2.6% in March from February, marking the strongest increase since November 2020 and rising from a good +1.1% gain in February. The result easily beat market expectations of a +1.8% rise. The surge was driven primarily by a rebound in output of durable consumer goods.In Australia, they added +75,500 jobs in April, almost 47,500 of them full-time positions. Their employed workforce grew +2.75% in the past year. Their jobless rate eased to 4.1% from 4.3% (although staying at 4.1% on a seasonally adjusted basis which is the metric others report). Inflation pressure plus this strong jobs report might have the RBA re-thinking the wisdom of a rate cut.Bulk freight rates fell -7.0% in the last week to be -18.5% lower than year-ago levels. Container freight rates were also -18.0% lower than year ago levels, but they did rise +8% last week with a surge in outbound cargoes from China across the Pacific on the sudden 'pause' in tariff hikes.The UST 10yr yield is at 4.45%, down -8 bps so far today.The price of gold will start today at US$3218/oz, and up +US$43 from yesterday.Oil prices are -US$2 lower today at just over US$61.50/bbl in the US and the international Brent price is just on US$64.50/bbl.The Kiwi dollar is now at 58.7 USc, down -40 bps from yesterday at this time. Against the Aussie we are down -10 bps at 91.7 AUc. Against the euro we are down -30 bps at 52.5 euro cents. That all means our TWI-5 starts today just over 67.2 and down a net -40 bps from this time yesterday.The bitcoin price starts today at US$104,020 and up +0.8% from yesterday. Volatility over the past 24 hours has remained modest at just under +/- 1.2%.You can find links to the articles mentioned today in our show notes.You can get more news affecting the economy in New Zealand from interest.co.nz.Kia ora. I'm David Chaston. And we will do this again on Monday.

Positives hard to find

Play Episode Listen Later May 14, 2025 4:44

Kia ora,Welcome to Thursday's Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.I'm David Chaston and this is the international edition from Interest.co.nz.And today we lead with news the price of gold is falling, long term benchmark interest rates keep on rising with larger risk premiums, and monetary policy regulators are coming round to the idea of rate cuts to bolster flagging economic expansion everywhere.But first in the US, mortgage application volumes rose marginally last week from the prior week for the period and holding on to the +11% jump of the previous period. Benchmark home loan rates were basically stable but at an elevated level averaging 6.86%.Canada building consents fell in March and by more than expected although to be fair it only cancelled the February rise and probably isn't too surprising given their election campaign and overall economic uncertainty around relations with the US.Meanwhile, Canadian vehicle sales took off in March, and to its best month since the pandemic, as buyers rushed to get hold of pickups, utes and light trucks ahead of the threat of sharply higher prices. On the other hand, car sales dived.In China, new yuan loan approvals were unusually weak in the April data released overnight. Banks approved loans at their lowest rate for an April since 2005, and at ¥280 bln, that was less than 10% of the good March level and less than half the year ago level, itself unusually weak. Of course, it reflects the initial impact of the trade war on Chinese businesses.In Australia we should note that large parts of Victoria and South Australia are in a severe drought condition, also even parts of Tasmania. Some say it is the worst "in a lifetime" with zero April rainfall extending into May. If there is any hope for livestock farmers it is that grain production has been high in other areas, enabling grain-fed beef to continue. Lucky for them, grain-fed beef demand is rising in China. Those drought conditions contrast with the endless rain Sydney is having.Next week on Tuesday, the Aussie central bank will be reviewing its 4.10% cash rate target. More analysts now see a -25 bps cut then. Although it is no certainty, financial markets also have it priced in.And staying in Australia, regulator ASIC is tackling Macquarie again. ASIC is suing Macquarie Securities alleging it engaged in misleading conduct by misreporting millions of short sales to the market operator for over 14 years. They allege that between 11 December 2009 and 14 February 2024, Macquarie failed to correctly report the volume of short sales by at least 73 million. ASIC estimates that this could be between 298 million and 1.5 billion short sales. The last ASIC action against Macquarie was just a week ago over compliance failures. Today's action is the fifth by ASIC against Macquarie since April 2024.The UST 10yr yield is at 4.53%, up +3 bps so far today.The price of gold will start today at US$3175/oz, and down -US$67 from yesterday.Oil prices are marginally lower today at just under US$63.50/bbl in the US and the international Brent price is just under US$66.50/bbl.The Kiwi dollar is now at 59.1 USc, down -30 bps from yesterday at this time. Against the Aussie we are up +10 bps at 91.8 AUc. Against the euro we are down -30 bps at 52.8 euro cents. That all means our TWI-5 starts today just under 67.6 and down a net -30 bps from this time yesterday.The bitcoin price starts today at US$103,147 and down almost -1.0% from yesterday. Volatility over the past 24 hours has remained modest at just under +/- 1.1%.You can find links to the articles mentioned today in our show notes.You can get more news affecting the economy in New Zealand from interest.co.nz.Kia ora. I'm David Chaston. And we will do this again tomorrow.

As the tempest fades, the net situation is worse

Play Episode Listen Later May 13, 2025 5:43

Kia ora,Welcome to Wednesday's Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.I'm David Chaston and this is the international edition from Interest.co.nz.And today we lead with news the relief rally following the US-China trade de-escalation continues, for equities at least. But worries continue about recession and inflation. Investors want higher risk premiums. And it seems China is in no hurry to resume buying from US sources.But first up today, the overnight dairy Pulse auction delivered similar but slightly lower results for both SMP and WMP that were achieved at last week's full auction, basically confirming the recent shifts, especially the up-shift for WMP.The April US CPI inflation rate came in at 2.3%, a touch lower than the 2.4% expected and which applied for March. That was largely due to fuel costs falling more sharply (-11.8%). The costs of food (+2.8%), rents (+4.0%) and transport (+2.5%) were all higher.Last week's Redbook tracking of US retail sales recorded a +5.8% rise from the same week a year ago. We will likely see this fade as the tariff-induced buying eases off now.The NFIB Small Business Optimism Index dropped in April to its lowest level since October 2024. But the retreat wasn't quite as much as was expected.US household debt data updates were a mixed bag. Total household debt rose +$167 bln from the prior quarter to a record high of $18.2 tln in Q1-2025. Delinquency rates rose from the previous quarter, with 4.3% of outstanding debt now in some stage of delinquency.US importers of Chinese goods still face much higher costs. The net position after the tempest and pullback is 'worse' for inflation, and negative for trade. Struggle is all ahead for global trade.In India, CPI inflation fell to 3.2% in April, and that is its lowest rate since before the pandemic. Food prices were up only +1.8% within that. The current overall inflation rate is now well below their central bank's 4% mid-point target. If it stays there, a rate cut in India may be on the cards.In Germany, there was a sharp bounce-back in the ZEW sentiment survey tracking in May, putting the unusual drop in April behind it. The survey indicates growing optimism for the next six months, driven by the formation of a new federal government there, progress in resolving tariff disputes, and signs of stabilising inflation. Nearly all sectors reported improved sentiment in May.In Australia, updated data seems to indicate that Kiwis are losing the desire to visit there. That said there were 104,600 visits by Kiwis in March, -9.3% fewer than in March 2024 and almost -10% fewer than in March 2018 (a pre-pandemic equivalent). For the year to March 2025, we made 1.367 mln visits to Australia, little different (+1.4%) to the same year in 2024. It is a similar story for Aussies visiting New Zealand. In March 2025 it was -1.7% less than the same month a year earlier.Consumer sentiment in Australia has stayed weak in March, according to a widely-watched Westpac-MM survey.We should probably note that good weather and favourable growing conditions in almost all regions has boosted wheat production - and is pushing down prices. They are now back to levels they first achieved ten years ago and are almost -60% lower than their peak in 2022. For similar reasons, corn prices are falling now too.The UST 10yr yield is at 4.50%, up +4 bps so far today.There rate may go higher. A Reuters poll of bond investors shows them increasingly concerned about both a global recession, and rising inflation. That is, stagflation.The price of gold will start today at US$3243/oz, and up +US$20 from yesterday.Oil prices are up +US$1.50 today at just over US$63.50/bbl in the US and the international Brent price is just over US$66.50/bbl.The Kiwi dollar is now at 59.4 USc, up +90 bps from yesterday at this time. Against the Aussie we are down -50 bps at 91.7 AUc. Against the euro we are up +30 bps at 53.1 euro cents. That all means our TWI-5 starts today just under 67.9 and up a net +50 bps from this time yesterday.The bitcoin price starts today at US$104,161 and back up +2.7% from yesterday. Volatility over the past 24 hours has remained modest at just on +/- 1.7%.You can find links to the articles mentioned today in our show notes.You can get more news affecting the economy in New Zealand from interest.co.nz.Kia ora. I'm David Chaston. And we will do this again tomorrow.

Wall Street soars on US-China tariff reprieve

Play Episode Listen Later May 12, 2025 4:46

Kia ora,Welcome to Tuesday's Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.I'm David Chaston and this is the international edition from Interest.co.nz.And today we lead with news mostly about the China-US Geneva 'agreement' and market reactions.First up, China and the US agreed to cut tariffs on each other by -115%. For the US that means they will go down to 30%. For China, down to 10%. Supposedly the deal is for 90 days to allow further negotiations, but it will likely be endlessly extended. Oddly, China was the only major power to impose reciprocal tariffs and this deal seem to make them a clear winner with the US meeting most of China's demands for de-escalation. Other countries who regarded themselves as friends and who have or are still 'negotiating' with the US are now in a much worse position. That includes neighbours Canada and Mexico, Japan, and of course the EU.Separately, India who made a big effort to deal with Trump, is spurned, and they have other security reasons to feel offended (justifiably or not).US merchants will rush to return to China supply. But it isn't clear that China will be doing the same with US products. The US trade deficit with China, already elevated, is likely to surge after this type of 'Trump negotiation success'.The equity markets liked the retreat and Wall Street took off. The USD strengthened, probably in a way the American's don't want. The bond market sees more risks and increased its risk premium. Gold and bitcoin fell sharply.The size of the tariff taxes became clear in April with the release of the US Budget Statement. These taxes cost US importers $16 bln in the month, an increase of +US$9 bln from a year ago, or +$500 mln/day, far lower than the +US$2 bln/day claimed by Trump. Of course they will now fall from here and it seems will never reach the claimed levels so any budget boost to tackle deficits - a clearly stated policy objective - is likely now in the bin.The May report from the USDA shows that grain production worldwide is rising while consumption isn't. So prices are falling especially in the US in response to their trade policies. More will be used there as feed grains. Oddly, this report noted lower production and export opportunities for beef but overlooked mention of what is presumed to be a surge in beef imports. They did say dairy production will be lower and imports higher.Across the Pacific, Chinese vehicle sales came in for April up +9.8% from the same month in 2024. These sales ran at 2.59 mln units an all-time record high for any April. NEVs took a record 47% share in the month. In all this, foreign brands are struggling to get a share, or even keep their share of this expanding market.The UST 10yr yield is at 4.46%, up +8 bps so far today. Wall Street has taken off today on the China tariff news, up +3.1% in Monday trade. The price of gold will start today at US$3223/oz, and down -US$100 from yesterday.Oil prices are up +US$1 today at just over US$62/bbl in the US and the international Brent price is just over US$65/bbl.The Kiwi dollar is now at 58.5 USc, down -60 bps from yesterday at this time. Against the Aussie we are down -20 bps at 92.2 AUc. Against the euro we are up +30 bps at 52.8 euro cents. That all means our TWI-5 starts today just under 67.4 and down -20 bps from this time yesterday.The bitcoin price starts today at US$101,401 and down -2.5% from yesterday. Volatility over the past 24 hours has been modest at just on +/- 1.5%.You can find links to the articles mentioned today in our show notes.You can get more news affecting the economy in New Zealand from interest.co.nz.Kia ora. I'm David Chaston. And we will do this again tomorrow.

Progress in Geneva? or just face-saving rhetoric?

Play Episode Listen Later May 11, 2025 6:24

Kia ora,Welcome to Monday's Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.I'm David Chaston and this is the international edition from Interest.co.nz.And today we lead with news with claims of "substantial progress" and "a deal we struck" by the Americans in their Geneva talks with China, but no indications of anything from the Chinese. Bluster from the White House doesn't count for much these days.But first in the coming week, US attention will shift to Wednesday's CPI data for April although no real surprises are anticipated. There will be April data for retail sales too, PPI data, housing starts, and the next sentiment update from the University of Michigan at the end of the week.China will report new loan data, house price data, and updates for industrial production and retail sales. Japan will release its Q1-2025 GDP data, and both South Korea and Australia will release labour market data updates. Locally we will get travel, population, retail and productivity data, not to forget the Q1 ready mixed concrete data (!).In Japan, household spending rose +2.1% in March from a year ago and far better than the expected +0.2% gain. It was the strongest growth since December. Helping was that the previous retreats of spending on food basically stopped, while spending on furniture and on recreation rose a good levels.China's April CPI inflation dipped -0.1% from a year ago, holding the same easing for a second month and that was what was expected. It was the third consecutive month of consumer deflation. Within that result, food prices were up +0.3% but beef prices fell -4.9% from a year ago, lamb prices were down -3.8%. Milk prices fell -1.2%.Deflation was more pronounced for producer prices, down -2.7% from a year ago, the steepest retreat for any month in 2025.Staying in China, April exports came in very much better than the pullback that was expected. In fact their trade surplus was almost as strong as the unusual March trade surplus. Few were expecting this 'good' result. Here are the results by trading partner.New Zealand exported twice what we imported from them. For Australia it was almost the same but the Aussies have a higher dependency on China than we do. For the US, they are still taking more that 10% of all Chinese exports although that is down from nearly 13% usually. But Chinese buying of American goods is now under 6% of all Chinese imports, down from the usual 16%. The Americans may have initiated the tariff war, but the Chinese have reacted far faster.Meanwhile China said its Q1-2025 current account surplus hit a record high, more than treble what it was in the same quarter a year ago. US demand saw their merchandise trade surplus leap, while their services deficit narrowed slightly.Across the Pacific in the US, that foreigners are avoiding travel there has been confirmed by new data that shows an historic drop in inbound travel spending. It has only been a sharper drop in the aftermath of the 9/11 attacks and the early stages of the badly-handled response to Covid. The US as a travel destination is a significant reason they have run services surpluses. The travel boycott may build over fears it is unsafe, amid numerous reports of immigration officers detaining tourists or denying entry even for transit.Further the American spring real estate season is shaping up to be 'a dud'. High unsold inventories, high price expectations, and still-high mortgage rates are putting off buyers during this prime selling period.The US barbeque season is approaching and the cost of beef is rising and rising. Tariffs are raising prices and drought is thinning local cattle supply. That means the Americans are more dependent than ever on imported beef, especially ground beef. They are price takers so are paying both the premium for the supply shortfall, plus the full imported tariffs.Looking north, although the Canadian jobless rate rose a touch more than expected to 6.9% in April (and a 3 year high), and there was only a minor rise in overall payroll employment, there was in fact a strong rise in full-time jobs and an equally notable fall in part-time roles.The Canadian dollar fell on the jobless rise. The overall softness however probably means the Bank of Canada will cut its 2.75% policy rate again at their next meeting on June 5 (NZT).The UST 10yr yield is at 4.38%, unchanged from this time Saturday and up +16 bps for the week. The price of gold will start today at US$3323/oz, and down -US$15 from Saturday.Oil prices are holding today at just on US$61/bbl in the US and the international Brent price is still just under US$64/bbl.The Kiwi dollar is now at 59.1 USc, down -10 bps from Saturday at this time, down -30 bps from a week ago. Against the Aussie we are unchanged at 92.2 AUc. Against the euro we are still at 52½ euro cents. That all means our TWI-5 starts today just under 67.6 and little-changed from Saturday, down -20 bps from this time last week.The bitcoin price starts today at US$104,041and up +0.9% from Saturday. Volatility over the past 24 hours has been modest at just under +/- 1.7%.You can find links to the articles mentioned today in our show notes.You can get more news affecting the economy in New Zealand from interest.co.nz.Kia ora. I'm David Chaston. And we will do this again tomorrow.

Smoke & mirrors

Play Episode Listen Later May 8, 2025 6:14

Kia ora,Welcome to Friday's Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.I'm David Chaston and this is the international edition from Interest.co.nz.And today we lead with news the US Fed looks more trapped in policy choices than it has for a long time.But first up today, a US-UK trade deal was announced to great fanfare. But in fact it isn't much. Rather it is a small set of carve-outs from the previous base case: Car tariffs on British-made cars would come in at 10% rather than 27.5%, steel tariffs would go to zero and the threat of future pharmaceutical tariffs would recede. The overall headline US tariff of 10% seems to still be in place; the UK has offered more market access to the US and a Boeing airplane order. But the US did not get changes on food standards or the UK's digital services taxation. The whole thing is very underwhelming. All headlines, no substance.But the equity markets liked it, even if the bond markets didn't. The USD rose on the news. Perhaps the equity markets also see progress coming in tomorrow's Swiss meeting between China and US representatives?Meanwhile, US jobless claims fell last week and by a bit more than seasonal factors would have assumed, coming in right at the level expected by analysts. There are now 1.846 mln people on these benefits, whereas a year ago there were 1.743 mln on them, a +5.9% rise.American labour productivity fell -0.8 in the March 2025 quarter as output decreased -0.3% and hours worked increased +0.6%. It is their first decrease in productivity since the volatile pandemic years, and prior to that, the first Trump presidency.March wholesale inventories rose marginally (+0.4%) but so did sales in the pre-tariff rush, so the inventory-to-sales balance was little-changed and not exhibiting any stress.Also not changing much were American inflation expectations in April, which isn't as sanguine as it sounds because they came in at the same elevated 3.6% level they jumped to in March. However, households' perceptions about their current financial situations deteriorated, with the share of consumers reporting that they are somewhat or much worse off compared to one year ago increasing. Similarly, households' expectations about their future financial situations deteriorated, with the share of those believing they will be somewhat or much worse off a year from now also rising.In Malaysia, their central bank held its policy rate at 3% overnight, as was expected. They have low inflation, 1.4%, and a good +4.4% economic expansion but one that is fading. And they are vulnerable to the tariff war. In the meantime, Malaysian industrial production is still expanding at a healthy clip.In Europe, German industrial production is on the come-back up +3.0% in March from February, and for the first time since May 2023, hardly lower than year-ago levels. Of course, this is data that predates the onset of the US tariff war.In England, their central bank cut its policy rate by -25 bps to 4.25%, also as expected. But two of their nine members voted for no change. It is their fourth rate cut since August 2023, when their rate reached 5.25% in the previous cycle. They currently have a 2.6% inflation rate, slowly easing, and a +1.4% economic expansion rate.With the Bank of England following the ECB down, along with Canada, soon Australia, and likely New Zealand, it does point out that the US Fed is now boxed in by US fiscal policy, basically unable to cut rates there because of the immediate inflation risks.In Australia, they changed their laws making it clearer that buy-now-pay-later contracts are covered by their National Credit Code (which is Schedule 1 to their National Credit Act). ASIC has now issued regulatory guidance for the BNPL sector.We should probably note that lithium prices have fallen further, with the bubble well and truly over, and prices back to their pre-bubble 2021 levelsThe reduction impetus is going out of global container freight rate changes, down just -1% last week to be -23% lower than year-ago levels. Bulk cargo rates stopped rising in the past week.The UST 10yr yield is at 4.37%, up +10 bps from this time yesterday.The price of gold will start today at US$3303/oz, and down -US$81 from yesterday.Oil prices are firmer today, up +US$1.50 at just under US$60/bbl in the US and the international Brent price is now just under US$63/bbl.The Kiwi dollar is now at 59.1 USc, down -60 bps from yesterday at this time, down a full -1c from Wednesday. Against the Aussie we are down -20 bps at 92.3 AUc. Against the euro we are unchanged at 52.6 euro cents. That all means our TWI-5 starts today just on 67.6 and down another -20 bps.The bitcoin price starts today at US$101,054 and up +4.6% from yesterday. Volatility over the past 24 hours has been moderate at just under +/- 3.0%.You can find links to the articles mentioned today in our show notes.You can get more news affecting the economy in New Zealand from interest.co.nz.Kia ora. I'm David Chaston. And we will do this again on Monday.

The US Fed warns of rising economic risks

Play Episode Listen Later May 7, 2025 5:24

Kia ora,Welcome to Thursday's Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.I'm David Chaston and this is the international edition from Interest.co.nz.And today we lead with news the global economy's track is no clearer today.First up, the US central bank kept it key policy rate unchanged at 4.50% for a third consecutive meeting in line with expectations. They are keeping their wait-and-see approach but watching to see if the tariff taxes drive up inflation and slow economic growth. They say they still see expanded economic activity despite signs net exports are volatile. So far they haven't seen the jobless rate move "and labour market conditions remain solid". But they are seeing elevated inflation, and they foresee risks of higher unemployment and higher inflation.Equity markets dropped on the release, as did benchmark bond yields. The USD hardly moved however.Earlier, it was reported that US mortgage application volumes jumped +11% last week from the previous week, ending the three consecutive slumps from earlier in the month. The rebound came after there was another small drop in benchmark mortgage rates.Across the Pacific, China's FX reserves rose in April to their highest level in more than six months (in USD).And staying in China, their central bank said it will cut the reserve requirement ratio (RRR) by -50 basis points, injecting about ¥1 tln in liquidity into their domestic economy. But the cut won't come until May 15 and will then be the first RRR cut in 2025. They also said they will lower the rate on seven-day reverse repurchase agreements by 10 basis points to 1.40%, effective tomorrow, Thursday, May 8. This is the first cut to this key policy rate since September 2024 and could lead to cuts in market and other regulatory rates.And despite denials on both sides, both China and the US said they will meet in Switzerland to discuss stuff on Saturday. Interestingly, the Chinese side will be represented by their lead person for China-US economic and trade affairs, but the US side won't be led by its USTR, but the more senior Treasury Secretary.In the EU there were no surprises in their March retail sales volume data, holding flat again.However, there was positive data out of Germany, where factory orders rose +3.6% in March from February, well above market expectations of a +1.3% gain and putting behind it February's lackluster result. It was their strongest increase since December, with broad-based gains across sectors.Meanwhile, Poland cut its official interest rate by -50 bps to 5.25%. Falling inflation and weak economic activity prompted the move, but it was unusual because they have elections due on May 18 and they are battling Russian election interference.In Australia, regulator ASIC said it has imposed additional conditions on Macquarie Bank's Australian financial services licence after multiple and significant compliance failures – some going undetected for many years and one for a decade.And it seems Peter Dutton wasn't the only party leader to lose his seat at the weekend election. The Greens leader will too. In fact, like the Liberals, the Greens vote fell rather sharply at that election.Separately, the OECD said the global trade in fake goods reached almost US$½ tln in the latest data they have - which is for 2021, posing risks to consumer safety and compromising intellectual property. The breakdown in trade cooperation since won't have lessened the problem.The UST 10yr yield was at 4.28%, down -3 bps from this time yesterday before the US Fed announcement, then slipped slightly further to 4.27%.The price of gold will start today at US$3384/oz, and down -US30 from yesterday.Oil prices are firmer today, down -50 USc at just on US$58.50/bbl in the US and the international Brent price is now just under US$61.50/bbl.The Kiwi dollar is now at 59.7 USc, down -30 bps from yesterday at this time. Against the Aussie we are unchanged at 92½ AUc. Against the euro we are down -20 bps at 52.6 euro cents. That all means our TWI-5 starts today just on 67.8 and down -20 bps.The bitcoin price starts today at US$96,653 and up +2.2% from yesterday. Volatility over the past 24 hours has been modest at +/- 1.6%.You can find links to the articles mentioned today in our show notes.You can get more news affecting the economy in New Zealand from interest.co.nz.Kia ora. I'm David Chaston. And we will do this again tomorrow.

Buckle in for a day of big announcements

Play Episode Listen Later May 6, 2025 6:09

Kia ora,Welcome to Wednesday's Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.I'm David Chaston and this is the international edition from Interest.co.nz.And today we lead with news we are in for a day of significant announcements, but locally and internationally.But first up today, the overnight full dairy auction brought higher prices, up +4.6% in USD terms and up +3.0% in NZD terms. Of note, the butter price hit a new all-time record high of US$74992/tonne. Also, cheddar cheese rose a very sharp +12.0% from the prior full event, and the dominant WMP price was up a heady +6.2%. This has been a very positive outcome, even if it was on relatively low off-season volumes.There seemed to be two big background drivers. First, EU production is slipping and today's NZ auction prices seem to be equalising with European pricing. And secondly, there was a substantial increase in demand from Southeast Asian buyers, shifting from EU supply. Today's result will bring upside to the payout - if it is maintaintained in future events.Elsewhere, there was a good rise in US retail sales last week, up +6.9% from the same week a year ago in the Redbook survey. But as we have noted previously, it is now hard to separate the inflationary effect of the tariff taxes from volume gains. It is about now that the tariff-tax impact will start happening. All eyes are on Apple, because they won't be able to avoid price hikes much longer now.Retaliatory tariff taxes also juiced up US exports in both goods and services in March but it was minor and similar to February. US imports however shot up to a new all-time record high. So the American trade deficit also hit a new record exceeding -$140 bln for the monthNone of this is helping sentiment. The latest survey, this one the RealClearMarkets/TIPP Economic Optimism Index retreated in May from April when a gain was anticipated. It was at its lowest in seven months.Meanwhile, the US logistics managers index returned to more usual levels, but allowing it to do that were rises in inventory and freight costs, rather than the efficiency components.There was a well-supported US Treasury 10 year bond auction earlier today, and that delivered a median yield of 4.28% which was down -6 bps from the prior equivalent event a month ago.Tomorrow will be dominated by the US Fed's meeting outcome. Changed interest rates are unlikely, but there will be intense interest in how they view the present and future economic landscape.In Canada, the widely-watched local Ivey PMI turned into contraction in April.In China, the Caixin Services PMI expansion eased back in April, down from March's three-month high to be below analyst forecasts. This is now the softest expansion in their services sector in seven months. But this Caixin version reported a slightly faster expansion than the official version.There is a lot going on today, and amongst that we are expecting a significant Chinese briefing by their central bank and other regulators about new moves to respond to their economic pressures triggered by the tariff war.In Europe, their April services PMI didn't fall into contraction as expected. Rather it stayed just on the positive side. But it is an anemic expansion all the same.In Australia, household spending slipped in March from February, to be +3.5% higher than March 2024. Of special note was the very sharp -1.3% dive in Queensland.There was an even sharper retreat in building consents in Australia in March with a big -15% dive in consents for building apartments.The UST 10yr yield is now at 4.31%, down -3 bps from this time yesterday.The price of gold will start today at US$3414/oz, and up +US$101 from yesterday, and heading back towards its April 23 record high.Oil prices are firmer today, up +US$2 at just on US$59/bbl in the US and the international Brent price is now just under US$62.50/bbl.The Kiwi dollar is now at 60 USc, up +40 bps from yesterday at this time. Against the Aussie we are up +0 bps at 92½ AUc. Against the euro we are up +50 bps at 52.8 euro cents. That all means our TWI-5 starts today just under 68 and up +10 bps. The Japanese yen has strengthened to limit the TWI-5 shift.The bitcoin price starts today down a mere -0.3% from yesterday at US$94,563. Volatility over the past 24 hours has been low at +/- 0.9%.Join us at 10:45am for the release of the important March quarter jobs report for New Zealand. We are expecting no rise in employment and a rise in the unemployment rate to 5.3%. Variations from that might be market-moving.And then at 2pm we will be covering the RBNZ's half-yearly Financial Stability Report. This will be Christian Hawkesby's first big set piece presentation as Governor, a role he holds until at least October.You can find links to the articles mentioned today in our show notes.You can get more news affecting the economy in New Zealand from interest.co.nz.Kia ora. I'm David Chaston. And we will do this again tomorrow.

Focus turns to the US Fed

Play Episode Listen Later May 5, 2025 5:21

Kia ora,Welcome to Tuesday's Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.I'm David Chaston and this is the international edition from Interest.co.nz.And today we lead with news all eyes are now turning to the US Fed and the results of their meeting about to start.But first up in the US, the widely-watched ISM services PMI for April came in better than expected with a modest expansion, off a nine month low in March. New orders drove the result as did higher inventories. Employment contracted again. Activity was little-changed but still expanding. However price pressures jumped to their highest since February 2023.This contrasts with the globally-benchmarked S&P Global/Markit version which reported its slowest growth for 17 months amid subdued demand and a slump in business confidence and rising costs. Financial markets are preferring to look at the ISM one, however.All eyes now turn to Thursday's (NZT) US Federal Reserve board meeting where most observers think they will hold policy unchanged to see how the price impact of tariffs works out.There was a well supported UST 3yr bond auction this morning and that delivered a median yield of 3.77%, up slightly from 3.70% at the prior equivalent event a month ago.In Washington, there are still no tariff deals. There are negotiations but it seems no-one is rolling over in the way the new US Administration assumed.And as you will already probably know, Warren Buffett has announced his retirement as CEO at the end of this year, when he will be aged 95 years. But he will remain chairman of Berkshire Hathaway.In Canada, things aren't good with their service sector suffering a steep contraction of activity in April.And recession fears are putting a real downer on their real estate markets.Across the Pacific, China is still on holiday. Singapore's April retail sales weakened from March, down a sharpish -2.8% to leave them up just 1.1% from the same month a year ago. Car sales were a significant factor in the month-on-month drop, but not all of it.The results of the weekend's Singaporean general election are in and there was no surprise that they had engineered a dominant win for their ruling PAP party, enough to retain their two-thirds-and-more majority. They won 87 of the 98 seats 'contested' with 67% of the vote. Their courts ensured the opposition could only run weak candidates. They have a 'democracy' in name only.Post-election in Australia, the ASX200 fell -1.0%, and their benchmark 10 year bond rose +10 bps from pre-election levels. Investors think they are facing at least six more years of a Labor-led government, three at least with a majority-Labor government.The key trends in the Aussie election were a stark gender divide with women overwhelmingly repelled by the Liberals, immigrant votes, including Chinese votes, increasingly attracted to Labor, and the rise and rise of Teal candidates (who are social liberals, economic conservatives). The opposition Liberal Party are likely to compound their mistakes by selecting two older socially conservative men to the top leadership.The other notable trend from the Aussie election was the near wipeout of the Greens. Even their leader is having trouble holding his seat.Global food prices rose in April but are only back to the same level they were in 2023 and well below March 2022 levels. But the rise was largely down to rises for meat (up +4.3% from year-ago levels), and especially dairy (up +23% on the same basis).The UST 10yr yield is now at 4.34%, unchanged from this time yesterday.Oil prices are weaker again, down -US$1 at just on US$57/bbl in the US and the international Brent price is now just under US$60/bbl. These are still four year lows, hurt by the combination of easing global demand along with rising output.The Kiwi dollar is now at 59.6 USc, down -20 bps from yesterday at this time. Against the Aussie we are down -20 bps at 92.3 AUc. Against the euro we are little-changed at 52.3 euro cents. That all means our TWI-5 starts today just under 67.9 and up +10 bps.The bitcoin price starts today down -1.0% from yesterday at US$94,803. Volatility over the past 24 hours has been modest at +/- 1.1%.You can find links to the articles mentioned today in our show notes.You can get more news affecting the economy in New Zealand from interest.co.nz.Kia ora. I'm David Chaston. And we will do this again tomorrow.

Gold drops sharply from its recent highs

Play Episode Listen Later May 2, 2025 5:08

Kia ora,Welcome to Friday's Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.I'm David Chaston and this is the international edition from Interest.co.nz.And today we lead with news the gold price is tumbling today, ending its recent spectacular rise.But first, American initial jobless claims rose to 223,600 last week, more than expected. There are now 1.907 mln people on these benefits, +153,000 more than at this time last year, a rose of +8.7%.But job cuts announced in April came in less than you might have thought at 105,400, certainly less than for March. But they are +62% higher than year-ago levels.The widely-watched ISM manufacturing PMI for April slipped into a deeper contraction than in March, although slightly less so than expected. Output shrank more sharply and prices rose faster. Meanwhile, new orders declined at a slower pace although new export orders fell steeply. This survey was quite a bit more negative than the S&P Global/Markit version we noted yesterday.One sector that has lost much of its momentum is the US construction industry. It atrophied somewhat in March, again.The expectation is that tomorrow's US non-farm payrolls report will deliver a rise of +130,000, about half the levels they had at the back end of 2024. But there may be downside risks to this estimate. A very weak result will put the Fed in a real bind, having to choose between rescuing jobs in a faltering economy, or pushing back on rising inflation. The last time they had serious stagflation was in the late 1970s, and then the Fed chose fighting inflation over preserving jobs and growth. It caused social unrest, but it beat inflation, and ended stagflation's curse - until now. But fifty years later, few people understand that curse and it's corrosive effects.Across the Pacific, the Bank of Japan held its key interest rate steady yesterday as the new American tariff policy casts a shadow over the Japanese economy. The central bank kept its policy rate at 0.5% during its first board meeting since Washington announced a wave of "reciprocal" tariffs in early April. The yen fell. The BOJ also stood pat at its March meeting following a +25 bps hike in January.And don't forget, China is on holiday, until Tuesday. So data releases there are sparse. It may be a good time for some of them to take a break; outbound export shipments to the US are reportedly down -50%. Despite that, there are signs the US is desperate to get trade talks going but Beijing is playing hard to engage.Australia reported a merchandise trade surplus of +AU$10.8 bln in March. This was a good improvement from the relatively low +AU$8.4 bln in March 2024, but similar to the average March in the prior five years (+AU$10.6 bln). (Australia usually reports seasonally adjusted values, and are much lower than the actual values this year, for some reason.)The Aussie federal election is in its final day now. Pundits seem to think the incumbent government will be returned but with a reduced majority, maybe even requiring a coalition partner. We will know soon enough.Global container freight rates fell -3% last week from the prior week to be -23% lower than year ago levels. Bulk freight rates were little-changed.The UST 10yr yield is now at 4.23%, up +5 bps from this time yesterday.The price of gold will start today at US$3214/oz, and down -US$95 from yesterday.Oil prices are holding lower at just on US$58.50/bbl in the US and the international Brent price is now just under US$61.50/bbl. These remain four year lows, down to level last seen in April 2021.The Kiwi dollar is now at 59 USc, down -40 bps from yesterday at this time. Against the Aussie we are down -20 bps at 92.6 AUc. Against the euro we are little-changed at 52.3 euro cents. That all means our TWI-5 starts today just on 67.4 and down -10 bps.The bitcoin price starts today up +2.8% from yesterday at US$96,810. Volatility over the past 24 hours has been modest at +/- 1.9%.This briefing is taking a few days off for a short break. We will resume on Tuesday, May 5, 2025.You can find links to the articles mentioned today in our show notes.You can get more news affecting the economy in New Zealand from interest.co.nz.Kia ora. I'm David Chaston. And we will do this again on Tuesday.

The US becomes a drag on the world economy

Play Episode Listen Later Apr 30, 2025 7:26

Kia ora,Welcome to Thursday's Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.I'm David Chaston and this is the international edition from Interest.co.nz.And today we lead with news the consequences of US policy changes are now starting to show up in the data.The big overnight news is the Q1-2025 US GDP report. The American economy shrank at an annualised rate of -0.3% in the period, the first retreat since Q1-2022. This was a sharp reversal from +2.4% growth in the previous quarter and well below market expectations of +0.3% growth. A surge in imports was one key factor as businesses rushed to stockpile goods in anticipation of higher costs from the tariff announcements. But that didn't include consumers because their spending growth cooled to 1.8%, the slowest pace since Q2-2023. Federal government spending fell -5.1%, the steepest drop since Q1-2022.That 'cooled' consumer spending reversed in March with a tariff-stocking-up rise for them too (especially for cars) ahead of the April cost increases. PCE inflation cooled a little, but not yet back to mid-2024 levels. Personal disposable income rose less than spending in March.Financial markets reacted negatively to the larger than expected GDP shifts.This weekend we get the April non-farm payrolls report and currently markets expect a smallish rise of +130,000. But that may be an over-estimate. The ADP survey of private business only added +62,000 workers to their payrolls in April, less than half of the downwardly revised 147,000 payrolls in March and well below market expectations of +115,000.April data is weaker than for March, so prospects for Q2-2025 economic activity do not look flash for the giant US economy. US mortgage applications sank again last week, and for a third straight week. A pullback in new orders and production levels in April saw the Chicago PMI contract for its 17th consecutive month.But US pending home sales jumped in March from February, ahead of tariffs which are expected to make new home purchases more expensive. But they are -0.6% lower than year-ago levels which itself was a weak base.And still in the US, it is becoming clearer who will be paying the tariffs. Retail giant Walmart has raised the white flag, telling Chinese suppliers to resume shipments suggesting to them it will 'absorb' the new border costs. Of course they will be passed on to consumers.Across the Pacific, we are looking ahead to the Bank of Japan rate decision later today, although the landscape has changed there and they are unlikely to raise their +0.5% policy rate now.Japan's industrial production was weakish in March, coming in lower than expected from the prior month to be little-changed from March a year ago. At the same time they reported retail sales +3.1% ahead of the same month a year ago which was lower than expected, also with current weakness from February.Nearby, Korea said their industrial production came in better than expected in March although not as strong as for February. Korean March retail sales however gave back a small bit of the outsized rise in February.In China, their May Day holiday starts today and runs to May 5, inclusive. (They were required to work on April 27 (Sunday) to give them five consecutive "days of rest". They may not be resting; travel bookings for domestic trips are up through the roof this year. (Don't forget, in China, the standard working week is 8 hours per day, 40 hours per week, which is a five-day work week (Monday-Friday). However, it's important to note that the 996 work culture, where employees work from 9am to 9pm, six days a week, is a common reality, especially in their tech industry.)Once again the official factory PMI for China came in with a small contraction (a definite slowing), while the private Caixin version came in with a small expansion, although a slight slowing. Separately, the official services PMI came in with a slightly better expansion. In all cases, new order levels retreated.In Europe, the German economy expanded slightly in Q1-2025 from Q4-2024. Inflation was steady in April at 2.2%, and retail sales were up +2.2% on a volume basis from March year-ago levels, but little change from February.That all helped the overall EU GDP to expand +1.4% in Q1-2025 from a year ago, up +0.4% from Q4-2024. It is rate that the EU outperforms the US, and this isn't so much because the EU is rising, more that the US is falling.Whichever way you sliced it, Australia's inflation came in at 2.4% in March from a year ago. That was true for the quarterly CPI, and the monthly inflation indicator. Both were little-changed from the respective prior releases. There's now talk of a post-election rate cut from the current 4.10% cash rate target.The pre-tariff shoring up saw air cargo demand spike in March, led by activity in Asia/Pacific, and the US. Come April and May, this spike is expected to reverse quite sharply. Passenger air travel is flattening right out, especially in North America. But it is being held up by strong China and India domestic demand, and still-good Asia/Pacific international demand.The UST 10yr yield is now at 4.17%, unchanged bp from this time yesterday.The price of gold will start today at US$3309/oz, and down -US$10 from yesterday.Oil prices are down more than -US$2 at just under US$58.50/bbl in the US and the international Brent price is down more than -US$3, now just over US$61/bbl. These are four year lows, down to level last seen in April 2021.The Kiwi dollar is now at 59.4 USc, unchanged from yesterday at this time. Against the Aussie we are down -20 bps at 92.8 AUc. Against the euro we are little-changed at 52.3 euro cents. That all means our TWI-5 starts today just on 67.6 and essentially unchanged.The bitcoin price starts today down -1.3% from yesterday at US$94,182. Volatility over the past 24 hours has been modest at +/- 1.2%.You can find links to the articles mentioned today in our show notes.You can get more news affecting the economy in New Zealand from interest.co.nz.Kia ora. I'm David Chaston. And we will do this again tomorrow.

Dumb policy brings dud results

Play Episode Listen Later Apr 29, 2025 4:40

Kia ora,Welcome to Wednesday's Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.I'm David Chaston and this is the international edition from Interest.co.nz.And today we lead with news negative data is starting to flow more aggressively in the US as the consequences of dumb policy show through. It been a track to decline for the first 100 days of Trump II.First, the US Redbook index of retail sales rose +6.1% last week from the week before, but the strong suspicion is that much of this is inflation-related.And that is supported by a sharp drop in consumer sentiment reported by the Conference Board, down to a 13 year low in April and confirming the UofM earlier sentiment survey.US job openings fell by -288,000 to 7.192 mln in March, down -901,000 from a year ago to the lowest level in six months and well below market expectations of 7.5 mln. The drop was broad-based. Their quit rate rose to an 8 month high.The US trade deficit in goods widened sharply to -US$162 bln in March, the largest on record, and well above the expected -US$146 bln gap as tariff threats drove US importers to front-load their purchases. Unsurprisingly, that alos generated a spike in wholesale inventories.This bad trade result probably cements a very weak Q1-2025 GDP result. The next AtlantaFed GDP Now update will come tomorrow, and is unlikely to be pretty.The Dallas Fed's services sector survey pointed to weaker conditions and a weaker outlook.The Canadian election has resulted in a narrow win for the center-left (in North American terms) Liberals and the Quebec coalition partner. This is an unusual fourth consecutive win for the Liberals, and an unlikely one, very much aided by Trump trolling. It will be a tough gig because they are clearly facing recession, also flowing from the newly-fractious US relationship.The ECB survey on consumer inflation expectations in the euro-zone rose in March with the year ahead expectation up to 2.9%, its highest in a year.EU consumer sentiment dropped in March and to its lowest since December.And we should probably note that Denmark says it wants the EU to join the CPTPP.In Australia, there are three days left of campaigning in their federal election. Polling is tightening. Despite those polls still showing Labour ahead, much will depend on how voters rank their preferences, which could make it rather close.The overnight dairy Pulse auction came in better than the futures market signaled. The SMP price rose as expected and to its highest in a year, but the WMP price did not fall as expected, rather it showed a small gain and to its highest in three years.The UST 10yr yield is now at 4.17%, down another -4 bps from this time yesterday.The price of gold will start today at US$3319/oz, and down -US$17 from yesterday.Oil prices are down -US$1.50 at just on US$60.50/bbl in the US and the international Brent price is down a bit less, now just under US$64.50/bbl. These are two-week lows as global trade tensions and weak US data dampened the demand outlook.The Kiwi dollar is now at 59.4 USc, down -0.2% from yesterday at this time. Against the Aussie we are up +10 bps at 93 AUc. Against the euro we are unchanged at 52.2 euro cents. That all means our TWI-5 starts today just on 67.6 and down -10 bps.The bitcoin price starts today up +1.3% from yesterday at US$95,401. Volatility over the past 24 hours has been low at +/- 0.9%.You can find links to the articles mentioned today in our show notes.You can get more news affecting the economy in New Zealand from interest.co.nz.Kia ora. I'm David Chaston. And we will do this again tomorrow.

'Unusual' is putting it mildly

Play Episode Listen Later Apr 28, 2025 4:42

Kia ora,Welcome to Tuesday's Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.I'm David Chaston and this is the international edition from Interest.co.nz.And today we lead with news there have been some unusual events overnight. And that's putting it mildly.Canadians are voting in federal elections, ones where the winner will need to tackle a weird US administration. The US president injected himself into the campaign at the last minute with a claim Canadians should vote for him to make Canada the 51st state of the US. There are no exit polls yet, but it is likely to steel Canadians to reject the call in record numbers whatever the result is.The clear instability of the Trump action saw Wall Street fall almost immediately but has recovered slightly since. There are nerves on Wall Street about some impending Big Tech results out soon too.In the real world, Canadian wholesale sales slipped -0.3% in March.In the US, the Dallas Fed factory survey dived to its worst level since the pandemic, and before that its worst level since early 2016. The fall was worst in new orders. Inflation rose. Confidence in the future weakened. The US oil patch isn't a happy place.In Europe, we should probably note that there has been a major electricity grid failure in Spain and Portugal with much of the country blacked out, although service is now being restored.Separately, a key ECB figure said the European Central Bank may cut interest rates below the neutral level that keeps the economy in balance. He said euro zone inflation may come in lower than expected as a result of American tariff actions and require the much looser settings.In Asia, India said its industrial production rose +3.0% in March from a year ago, similar to the slowdown reported in February, a lot more tamer than the expansion rate has been recently although back to its long term average. This is not evidence their economy is booming from manufacturing.In China, their centr5al bank is signaling that both rate cuts and reserve ratio cuts are on their to-do list "at the right time". Both will boost liquidity and shore up any economic wavering.Singapore's unemployment rate ticked up a little, but only from an historically low level and only back to its long-run level.Singapore has a national election on Saturday, May 3. No surprise is expected in a contest closely controlled by the ruling party.Australia's federal election is on the same day and that outcome is a lot more uncertain.Australia is one of very few countries to have a AAA credit rating from Moody's, S&P, and Fitch. Now analysts at S&P are openly concerned about the cost of election promises in light of their budget forecasts that earlier showed long-term deficits rising. Election victory might be a bit of a poisoned chalice if it also comes with a downgrade, higher debt servicing costs and rising deficits. Public policy choices then become very hard, very necessary, and very unpopular.The UST 10yr yield is now at 4.21%, down -4 bps from this time yesterday.The price of gold will start today at US$3336/oz, and up +US$17 from yesterday.Oil prices are down -US$1 at just under US$62/bbl in the US and the international Brent price is down a bit more, now just over US$65.50/bbl.The Kiwi dollar is now at 59.6 USc, unchanged from Saturday at this time. Against the Aussie we are down -30 bps at 92.9 AUc. Against the euro we also down -30 bps at 52.2 euro cents. That all means our TWI-5 starts today still just on 67.7 and down -30 bps as well.The bitcoin price starts today little-changed at US$94,137 and down just -0.1% from this time yesterday. Volatility over the past 24 hours has been modest at +/- 1.4%.You can find links to the articles mentioned today in our show notes.You can get more news affecting the economy in New Zealand from interest.co.nz.Kia ora. I'm David Chaston. And we will do this again tomorrow.

China pushes itself ahead

Play Episode Listen Later Apr 27, 2025 6:18

Kia ora,Welcome to Monday's Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.I'm David Chaston and this is the international edition from Interest.co.nz.And today we lead with news this week we may start to see some hard data from the US and how the Trump insurgency is affecting the world's largest economy. Already sentiment surveys seem pretty negative.For us, the week ahead will be dominated by the March quarter financial system data releases from the RBNZ on Wednesday.Internationally, we will remain trapped watching the chaotic policy changes from Washington and trying to assess how they may impact us. Wall Street's earning season releases will also be a big influence, especially results from Big Tech. And the Americans will release their Q1-2025 GDP results, PCE inflation data, and their ISM PMI survey results. And at the end of the week we will get the April non-farm payroll results for the US labour market.The Bank of Japan is scheduled to review its monetary policy, but they are unlikely to make any changes in the fog of uncertainty around trade policies. Australia will release its Q1-2025 CPI data (expect a dip to 2.2%). China will release its official PMI survey results.Over the weekend, China said its March industrial profits were better than expected, but private sector profits slipped again. However, overall profits rose +0.8% from a year ago. Also better were foreign company profits which were up +2.8% on the same basis.China said they are adding another ¥500 bln in medium-term lending facility funding. This is the second month they have pushed out substantial additional liquidity in this way.And China says more than 120 million people have benefited from their old-for-new consumer goods trade-in subsidy program, driving sales of more than ¥720 bln.And the BS meter is on high after Trump said that “we're meeting with China” on tariffs, comments aimed at soothing jittery financial markets. But Chinese officials say no talks have taken place.In fact, China cancelled some large pork and soybean orders to US suppliers. American farmers not only have to bear the brunt of trade policy gone rogue, they are also battling rouge weather.Singapore said its industrial production rose in March, a bounce-back from a weak February result. But the recovery wasn't as strong as analysts had expected.Across the Pacific, US initial jobless claims fell last week to +209,700 and to the level expected. But seasonal effects suggested this reduction should have been larger. There are now 1.89 mln people on these benefits, still higher than year ago levels. This is despite Federal pressure on States to deny long term undocumented workers access to benefits.New durable goods orders jumped in March by +10.9%, the largest rise in seven months. Capital goods orders rose +24.1%. But non-defense, non-aircraft capital goods orders were only up +1.8%. This is probably why the March or April PMIs didn't note a general rise in factory orders.US existing-home sales fell -5.9% in March from February to be -2.4% lower than one year ago.Meanwhile the Kansas City Fed factory survey reported lower activity, higher costs, and unchanged order levels.Nationally, the Chicago Fed's National Activity Index reported a small slip in March. This is consistent with the overall Fed Beige Book monitoring.And finally for the US, the UofM sentiment survey for April was -8.4% lower than for March, -32% weaker than a year ago. These are big drops. Year-ahead inflation expectations surged from 5.0% in March, an unusually high level, to 6.5% this month, the highest reading since 1981.North of the border, Canada reported February retail sales and they slipped from January to be +2.1% ahead of year ago levels. This data is volume data, so a real increase.And its election day in Canada (tonight NZ time). There has been a notable surge in early voting. Official data for this was released a week ago, and that showed 7.3 million electors had voted in advance at that stage. This is a +25% increase from the 5.8 million electors who voted in advance in the last federal general election in 2021. They have 27.6 mln eligible voters this time.The UST 10yr yield is now at 4.25%, up +1 bp from this time Saturday.The price of gold will start today at US$3318/oz, and up +US$88 from Saturday.Oil prices have held from Saturday be still just over US$63/bbl in the US and the international Brent price is now just under US$67/bbl.The Kiwi dollar is now at 59.6 USc, down -10 bps from Saturday at this time. Against the Aussie we are down -10 bps at 93.2 AUc. Against the euro we unchanged at 52.5 euro cents. That all means our TWI-5 starts today still just on 68 and unchanged from Thursday, but up +40 bps from a week ago.The bitcoin price starts today at US$94,238 and down -0.8% from this time Saturday. Volatility over the past 24 hours has again been low at +/- 0.7%.You can find links to the articles mentioned today in our show notes.You can get more news affecting the economy in New Zealand from interest.co.nz.Kia ora. I'm David Chaston. And we will do this again tomorrow.

A Trump tariff backdown coming?

Play Episode Listen Later Apr 23, 2025 5:38

Kia ora,Welcome to Thursday's Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.I'm David Chaston and this is the international edition from Interest.co.nz.And today we lead with news that as tariffs kick in, the US gets higher prices and lower activity. The White House is signaling it wants to pull back from its bluster (whiff of panic?), although China is yet to respond.But first in the US, mortgage applications fell sharply last week to be just +6% above the weak week a year ago. Benchmark interest rates rose, which seems to have choked off new purchase borrowers, and refinance borrowers.Sales of new single-family homes rose +6.0% in March from a year ago at a seasonally adjusted annualised rate of 724,000 and the highest in six months, and much better than market expectations of 680,000 homes. But to be fair this latest level is still within the range it has been for the past 27 months. They still have unsold inventories of over 8 months of sales at the current rate, which is a lot for builders to carry.The latest US Treasury bond auction, for the key 5yr Note, was well supported but delivered a yield of 3.93%, down from 4.04% at the prior equivalent event a month ago. This is the maturity that foreign institutions prefer so is a good indicator of foreign support of US debt instruments. More than a quarter of all US Treasury debt is owned by foreigners, more than a third in the 2-5 year maturities. If we see a pullback, it will be in these auctions, and evidenced by rising yields.The S&P/Markit US Manufacturing PMI rose marginally in April from March to a small expansion, better than the market expectations of a small contraction. Although growth was modest, this marked the fourth consecutive month of expansion in factory activity. Meanwhile, the equivalent services PMI fell sharply to a two month low. There are warning signs here. Prices charged for goods and services rose in this latest month at the sharpest pace for 13 months, increasing especially steeply in manufacturing (where the rate of inflation hit a 29-month high) but also picking up further pace in services (where the rate of inflation struck a seven-month high). More generally, sentiment fell among the surveyed companies.The US Fed's April Beige Book is out and it is picking up similar themes; lower sentiment, stuttering demand, and rising prices. They are more muted in the Beige Book surveys, but they are still being noted.There were 'flash' PMIs out for other countries overnight too. The EU factory PMI contracted its least in 27 months, but their services PMI retreated a bit more. In India, both of their PMIs stayed very expansionary. In Japan, there was a "return to growth" in April. In Australia, the new order components are rising but most other aspects are not. Election uncertainty may be playing a role here.In China, they said they will issue ¥1.3 tln (NZ$300 bln) in ultra-long-term special government bonds starting today (Thursday). Some of that liquidity will be used to fund consumption incentives as they try to speed their shift away from export dependency.Coal prices hit a four year low yesterday as warm autumn weather in Asia, and lower industrial demand is being swamped by high output. Prices are now back to where they were in 2016. Rising supply and stunted demand is having the same price impact on oil.Global financial stability regulators are increasingly worried about the resilience of the financial sector, and have issued a warning about the consequences of dodgy and capricious public policy.The UST 10yr yield is now at 4.38%, down -2 bps from this time yesterday.The price of gold will start today at US$3282/oz, and down -US$116 from yesterday.Oil prices have fallen -US$2.50 from yesterday to be now just over US$61.50/bbl in the US and the international Brent price is now just on US$65.50/bbl.The Kiwi dollar is now at 59.6 USc, down another -20 bps from yesterday at this time. Against the Aussie we are down -10 bps at 93.6 AUc. Against the euro we up +30 bps at just on 52.6 euro cents. That all means our TWI-5 starts today still just at 68 and unchanged from yesterday.The bitcoin price starts today at US$93,933 and up +2.7% from this time yesterday. Volatility over the past 24 hours has again been modest at +/- 1.8%.You can find links to the articles mentioned today in our show notes.You can get more news affecting the economy in New Zealand from interest.co.nz.Kia ora. I'm David Chaston. And because tomorrow is the Anzac Day holiday, we will do this again on Monday.

Bessent cheerleading not based on anything

Play Episode Listen Later Apr 22, 2025 4:53

Kia ora,Welcome to Wednesday's Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.I'm David Chaston and this is the international edition from Interest.co.nz.And today we lead with news reality and expectations seem to be diverging.But first up today we can report that the weekly dairy Pulse auction for SMP and WMP brought little-change in the WMP price from the previous full GDT auction in USD, while the SMP price rose +3.0% on that same basis, but basically a recovery. However things are reversed in NZD due to the weaker greenback, with the WMP price falling -1.4% and the SMP price only up +1.7% in our currency.Internationally, the IMF warned that rising US tariffs are marking the start of a new global era of slower growth. Since January, sweeping import duties and retaliation are raising trade barriers to levels not seen since the Great Depression. The IMF cut its global growth forecast for 2025 to +2.8% from +3.3%, and sees continued weakness through 2026. The US will be among the hardest hit, with 2025 growth cut to +1.8% from +2.7%. Others like Mexico, Canada, China, and the EU will feel some effects but are likely to be minor compared to the US.Meanwhile, the US Treasury Secretary has told a private meeting the tariff war is unsustainable and will ease 'soon'. News of these remarks has led to a financial market rally. The problem remains however as neither Trump or China show any signs of backing down, and Bessent himself admitted that talks to de-escalate haven't even started. Markets might be getting ahead of themselves, as is Bessent.In the US, the Redbook retail impulse monitor was up +7.4% last week from the same week a year ago, the highest since the end of 2022. But this is becoming more of a measure of inflation than real sales activity as the tariff-taxes get passed through.The Richmond Fed's factory survey for the mid-Atlantic states reported weak results. It plummeted to -13 in April from -4 in the previous month, and well below market expectations. It is the sharpest decline in factory activity since November. Meanwhile their service sector gauge fell too.The latest and large US Treasury bond auction saw less support, but more than sufficient. However the median yield fell back to 3.74%, compared to the 3.94% at the prior equivalent event a month ago.Canadian producer prices rose +4.7% in the year to March, but they are rising at a quicker pace in recent months. Canada is in its final week of election campaigning.Across the Pacific, Taiwanese export orders rose to the elevated level of US$53 bln in March, but they have been doing this for so long now that the year-on-year gain isn't special for them, 'only' up +12.5%.In the EU, consumer sentiment fell more than expected in April to its lowest level since November 2023.The UST 10yr yield is now at 4.39%, a -1 bp dip from this time yesterday. The price of gold will start today at US$3398/oz, and down -US$19 from yesterday.Oil prices have risen +US$1 from yesterday to be now just under US$64/bbl in the US and the international Brent price is now just on US$67.50/bbl.The Kiwi dollar is now at 59.8 USc, down -20 bps from yesterday at this time. Against the Aussie we are up +10 bps at 93.7 AUc. Against the euro we up +20 bps at just on 52.3 euro cents. That all means our TWI-5 starts today now just on 68 and little-changed from yesterday.The bitcoin price starts today at US$91,488 and up +5.4% from this time yesterday. Volatility over the past 24 hours has again been moderate at +/- 2.6%.You can find links to the articles mentioned today in our show notes.You can get more news affecting the economy in New Zealand from interest.co.nz.Kia ora. I'm David Chaston. And we will do this again tomorrow.

The Trump disaster keeps getting worse

Play Episode Listen Later Apr 21, 2025 7:47

Kia ora,Welcome to Tuesday's Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.I'm David Chaston and this is the international edition from Interest.co.nz.And today we lead with news that gold is rising, being the 'last man standing' as a perceived safe-haven asset. And American bond funds are having a moment, a negative one. Outflows are continuing, building selling pressure at the rate of about US$10 bln per week and have done so for the past five weeks now.The position of the US dollar and US Treasuries are being directly undermined by the US president. He and his advisers have been raging about the role of the Fed boss. If he tries to remove him, expect a larger market reaction, especially from the bond market. But so far it is all bluster.But first, it will be a short, truncated week post-Easter with just three business days until Frida's ANZAC Day holiday. Our March export results are one of the few data releases. We will also get an update this week from the RBNZ's six-monthly credit condition survey.Internationally, we will get the start of the March 'flash' PMIs for April. Wall Street will continue with its early earnings season results, dominated this week by big tech. US durable goods orders for March, and confidence survey results for April are also due for release this week.Over the weekend China left its key lending rates unchanged for the sixth consecutive month in April. After that, the yuan rose as did the Hong Kong and Shanghai stock exchanges. Expectations for a reserve ratio cut to boosrt bank liquidity are mounting there.China ramped up its budget spending in the first quarter at the fastest pace since 2022, allocating nearly 22% of planned outlays to counter weakening foreign demand amid an ongoing tariff war. The move is part of a broader strategy to boost domestic demand and support industries hit by trade tensions.Earlier they said foreign direct investment into the country is struggling again. In January it was down -14% from a year ago to ¥13.4 bln in the month. It rose to ¥16.6 bln in February. a +16% year-on-year gain. But it March it was only ¥6.9 bln, a -45% drop from from the same month a year ago. China prefers to look at this data "year-to-date" but that masks the current weakness.Japanese CPI inflation stayed high in March although it did slip to 3.6%, and the second consecutive decrease and the lowest of 2025.Across the Pacific, the US dollar has fallen to a three year low. Sentiment is being undermined by the Trump attacks on the US Fed. And it seems pretty clear that the US in now in a tariff-tax recession. Not only is the Atlanta Fed's GDPNow signaling a -2.2% economic contraction, the blue chip 'consensus' forecasts are now showing up with contraction forecasts too. And the spread into investors funds is happening rather quickly now. 90 of the top 100 best-performing exchange-traded funds of last year are down in 2025, with an average loss of -13%, according to Bloomberg Intelligence.American new housing starts unexpectedly dropped -11.4% in March from February to an annualised rate of 1.324 mln, the lowest level in four months and virtually the same as the same month a year ago. But the expectation is that these will fall from here as new-builds get much more expensive from the tariff-tax effect.US initial jobless claims came in at 220,000 last week, an increase although less of an increase than seasonal factors would have anticipated. But that puts them +5.1% higher than year-ago levels.Diving even more is the Philly Fed's factory survey in the heartland Pennsylvania manufacturing rust belt. This is the icon region the tariff-taxes are supposed to save. But they aren't feeling any benefit - although hardly surprising to everyone but MAGA zealots. New orders dropped to pandemic levels, and apart from the pandemic, the overall sentiment has seen its fastest and steepest drop since these survey records started in the 1970s.In Canada, they are a week away from their federal election (Monday, April 28, 2025 Canadian time). The polls are tightening but the incumbent Liberal Party still holds a comfortable lead over the Conservatives. Likewise in Australia, their federal election is in the week after that. Polls there also show a comfortable lead for the incumbent Labor Party. In both cases, the conservative forces are undermined by the toxic Trump effect. But on the other side, the Labor Party is wavering in some key heartland Sydney seats, hurt by "the Gaza issue".In Europe, they are in a better position to cut interest rates because they also don't have the inflation pressures the US has. And they have. The European Central Bank cut its policy interest rates by -25 bps on Thursday, as expected, marking the sixth consecutive cut since June and bringing the key deposit rate down to 2.25%. They say their disinflation process is progressing well and they have now dropped previous references to a "restrictive" policy stance. They also say that their growth outlook has worsened from the escalating trade tensions.On Thursday, Australia released its March labour market data and there was a good +33,000 rise in new jobs, bouncing back from the February drop. The March data saw the increase evenly split from an increase in full-time jobs and part-time jobs. Their jobless rate unchanged stayed at 4.2%. There are +308,000 more people employed in Australia over the past year, a rise of +2.2%. The UST 10yr yield is now at 4.40%, up +7 bps from this time Saturday. Wall Street is taking it on the chin in its Monday session, down a very sharpish -3.1% on the S&P500, and staying down. The Nasdaq is down -3.6%, the Dow down -3.3%, so a broad retreat. The price of gold will start today at US$3417/oz, and up +US$90 from Saturday.Oil prices have fallen (in USD), down -US$1.50 from Saturday to be now just over US$63/bbl in the US and the international Brent price is now just on US$66/bbl.The Kiwi dollar is now at 60 USc, up +60 bps from Saturday at this time and its highest in six months. Against the Aussie we are up +50 bps at 93.6 AUc. Against the euro we unchanged at just on 52.1 euro cents. That all means our TWI-5 starts today now just under 68 and its highest since mid December.The bitcoin price starts today at US$86,811 and up +2.6% from this time Saturday. Volatility over the past 24 hours has again been moderate at +/- 2.2%.You can find links to the articles mentioned today in our show notes.You can get more news affecting the economy in New Zealand from interest.co.nz.Kia ora. I'm David Chaston. And we will do this again tomorrow.

Powell warns of 'challenging scenario'

Play Episode Listen Later Apr 16, 2025 6:51

Kia ora,Welcome to Thursday's Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.I'm David Chaston and this is the international edition from Interest.co.nz.And today we lead with news gold has taken off, hitting yet another new all-time record high as fear stalks markets today and risk is definitely 'off'. But the NZD is rising. As we publish, markets are moving quickly so this snapshot will date just as quickly.But first in the US, mortgage applications fell -8.0% last week from the same week a year ago, with the refinance component down a rather sharp -12% on the same basis. These retreats came as benchmark mortgage rates rose +20 bps from a week agoA rush to buy cars ahead of the April tariff taxes delivered a boost to March retail sales that was even more than expected. Without those car sales, March retail was barely improved, and that does not adjust for price inflation so in volume terms, core retail sales are declining now. That trend will have global implications.American industrial production rose +1.3% from a year ago and this does adjust for price changes, so a small improvement. But it did shrink in March compared to February.Sentiment by American house builders was little-changed in March from February, but it is -21% lower than a year ago, and -13% lower than two years ago. In fact, excluding the pandemic, you have to go back to the GFC to find it this poor in a March month. That is not good because it is the start of their Spring selling season. Survey results show that tariff taxes are not being paid by importing countries, rather by the builders at this stage. As profits dive, that will be passed on to buyers next.There was a US Treasury 20 year bond auction earlier today and demand was slightly lower so the median yield rose to 4.75%. That is a rise from the 4.59% at the prior equivalent event a month ago.Fed boss Powell was talking earlier today, saying that tariffs pose a real challenge to meet their dual inflation+jobs mandates. Inflation pressures are here now which argues for rate settings to rise, while economic growth is expected to leak away soon hurting jobs, arguing for a rate cut. He said they will "wait for greater clarity" to see where the dominant pressure comes from.These comments were not the magical thinking equity markets wanted to hear, and the realities of what faces the US economy has seen Wall Street pull back today. The Nasdaq is down -3.9%, the S&P500 down -2.8%. The Dow is down -1.8%. Gold is the safe-haven parking lot.In Canada, they are also waiting. Rather than continue with their rate cut track, the Bank of Canada has paused that track, keeping its policy rate at 2.75% as they too watch inflation rise and economic activity leak away. Interestingly, the TSX is only down -0.3%, hit far less than Wall Street.Across the Pacific, Japan's February machinery orders rebounded sharply, rising well above market expectations for a modest +0.8% increase to its highest level in a year. Manufacturing orders rose +3%, while non-manufacturing orders jumped +11.4%. This rise matches the separate machine tool order data for March which was also up sharply. And these first see prosperity ahead; The Reuters Tankan sentiment index rose sharply in April. But the same firms surveyed were gloomy for the months further out in 2025.China claimed its economy grew at a +5.4% rate in Q1-2025 (real), the same rate as for Q4-2024. They said retail sales were up +5.9% (nominal) in March from a year ago, better than the +4.0% in February and the best rise since December 2023 which benefited from a low base. They also said industrial production was up +7.7% (nominal) in March, far better than the +5.6% expected and far better than the +5.9% February gain. Electricity production was only up +1.8% (real) year on year in March, so either they are making spectacular energy efficiency gains, or something other than electricity powers their industry, or something doesn't add up. Anecdotal reports from many regions don't paint quite the picture these official stats paint.Meanwhile, Chinese new home prices in March edged lower from February, but there are range of changes in the 70 top Chinese cities. Still only Shanghai shows a year-on-year gain. Among the same cities, none show any gain for resales of existing houses and some declines are now as much as -11% (Jinhua, 7 mln population, and Tangshan, 7.7 mln).The UST 10yr yield is now at 4.27%, down another -6 bps from this time yesterday. The price of gold will start today sharply higher at a new record of US$3337/oz, and up +US$108 from yesterday or +3.3%.Oil prices have firmed marginally, up +50 USc from yesterday to be now just over US$62/bbl in the US and the international Brent price is now just over US$65.50/bbl.The Kiwi dollar is now at 59.3 USc, up +20 bps from yesterday at this time and still the highest since mid-December. The fall of the USD embeds. Against the Aussie we are unchanged at 92.9 AUc. Against the euro we down -40 bps from yesterday at just on 52.4 euro cents. That all means our TWI-5 starts today now just on 67.6 and unchanged from yesterday.The bitcoin price starts today at US$83,854 and holding again, down less than -0.9% from this time yesterday. Volatility over the past 24 hours has again been modest at +/- 1.3%.You can find links to the articles mentioned today in our show notes.You can get more news affecting the economy in New Zealand from interest.co.nz.Kia ora. I'm David Chaston. This podcast will take a break over the Easter holiday weekend and we will do this again Tuesday.

The tariff war skirmishes get messy

Play Episode Listen Later Apr 15, 2025 6:00

Kia ora,Welcome to Wednesday's Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.I'm David Chaston and this is the international edition from Interest.co.nz.And today we lead with news the gears of the global economy are grinding disconcertingly as the unnecessary trade war is prosecuted with little strategy and no apparent viable end game.But first up today, the latest full dairy auction brought an overall rise of +1.6% in USD. However, the fall and fall of the USD has completely undermined this result, with prices in NZD falling -2.1%. In USD all categories except SMP rose, and demand was strong from "North Asia" (ie China). Milk fats were in demand, while global milk supply is waning in the major producers, underpinning the demand. Pity about the currency effect.Inflation is showing up in the retail trade in the US, with the weekly Redbook index up +6.6% from the same week a year ago. There is no way that reflects a volume riseBusiness activity continued to fall in March in the New York Fed's factory survey in the New York state. New order levels extended their decline/In Canada, their CPI inflation rate eased lower to 2.3% in March. That is after the eight-month high of 2.6% in February. The March result was tamer than expected (2.6%) and below forecasts by the central bank of 2.5%. It comes after some GST and other tax changes earlier have now been flushed through their data. The Bank of Canada next meets to review its official policy rate later today, but it will be the economic impact of their unfriendly neighbour that will dominate policy, rather than current inflation. They will likely hold off making rate changes for now, keeping the 2.75% policy rate. That is a change from the earlier expected cut.Canadian housing starts came in weak in March, down more than -11% from the same month a year ago.India CPI inflation rate fell in March to 3.3%, its lowest since 2019. Food price inflation fell to 2.7%. Both were much lower than expected and well below the central bank's policy rate mid point of 4%.Indian exports rose sharply in March from February in the normal seasonal pattern. Their imports rose even more so their trade deficit grew from the prior month, although only back to its usual level.In China, they are cancelling their orders for Boeing aircraft, a blow to the US aircraft industry.In February, EU industrial production rose, a surprise gain and the best monthly gain in two years.But that wasn't an indicator for economic sentiment. The latest ZEW survey reveals a sharp deterioration as they watched the US turn away from friend to foe, making them feel boxed in between the US and Russia. It was a shift reminiscent of the uncertainty during the pandemic.And it seems that trade talks between the US and the EU are making "litte" (ir no) progress.In Australia, the latest release of the RBA minutes was a dull affair, giving little guidance on how they are going to deal with the trade and inflation challenges. It's all 'wait-and-see' and 'respond-to-data' for them. But they do claim to be in a good position to be able to act decisively if it is needed. A cut on May 20 is still possible however.OPEC's latest monthly review lowered its demand outlook, although some observers thought the smallness of the cutback was brave in the circumstances.And we should also note that there are now three elections due soon. Canada goes to the polls on April 28. Australia votes on May 3. And now a snap election has also been called in Singapore, also for May 3. Being Singapore, that unsurprisingly leaves very little time for campaigning. All these elections will have the Trump shadow hanging over them, and it very much helps campaigning to present an anti-Trump stance. Trump has resurrected the fortunes of the centre-left candidates, enough to cancel the anti-incumbent mood.The UST 10yr yield is now at 4.33%, down another -4 bps from this time yesterday.The price of gold will start today at just on US$3229/oz, and up +US$16 from yesterday.Oil prices have firmed marginally, up +50 USc from yesterday to be now at US$61.50/bbl in the US and the international Brent price is now just over US$64.50/bbl.The Kiwi dollar is now at 59.1 USc, up +30 bps from yesterday at this time and the highest since mid-December. The fall of the USD extends. Against the Aussie we are down -10 bps at 92.9 AUc. Against the euro we up +30 bps from yesterday at just on 52.4 euro cents. That all means our TWI-5 starts today now just under 67.6 and up +30 bps from yesterday.The bitcoin price starts today at US84,616 and holding again, up a mere +0.1% from this time yesterday. Volatility over the past 24 hours has been modest at +/- 1.2%.You can find links to the articles mentioned today in our show notes.You can get more news affecting the economy in New Zealand from interest.co.nz.Kia ora. I'm David Chaston. And we will do this again tomorrow.

Volatility without guardrails

Play Episode Listen Later Apr 14, 2025 4:45

Kia ora,Welcome to Tuesday's Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.I'm David Chaston and this is the international edition from Interest.co.nz.And today we lead with news the week started with a strong risk-on mood and equities rose on Monday in Asia, and especially in Europe. Wall Street opened with the same vibe, but lost momentum in the middle sessions, although it is returning in the later session. It's volatile.But first in main street US, the New York Fed's consumer expectations survey mirrored the other recent sentiment surveys, noting a defensive turn in the mood. Consumers' year-ahead expectations about their households' financial situations deteriorated in March, with the share of households expecting a worse financial situation one year from now rising to 30%, the highest level since October 2023. Those surveyed said they see higher inflation in a year, up to 3.6% from 3.0% in the February survey. The expectations for earnings growth fell, and for joblessness to rise. Of course, this one was taken before the heavy tariff policies hit in early April. The April update will be available on May 9 (NZT).In Washington, the Trump administration is moving swiftly to end enforcement of white collar crime, dismissing federal prosecutors involved in enforcing foreign bribery cases, crypto crime, and money laundering crime. Its open season for white collar criminals. Washington is also apparently open for far-right Russians.It is so risky to visit the US, EU diplomats are now being issued with burner phones for their visits, just like they do when visiting China or Russia.On the tariff front, exemptions are coming for car parts, new tariffs for pharmaceuticals. The common thread is bolstering profits for campaign supporters. Need a favour? Go to Washington with money for Trump.In Canada, their central bank is about to review its monetary policy settings. It was on a rate cutting track, but is now more likely to leave its policy rate unchanged given the inflationary threats from the trade war.In China, their exports surged by +12.4% in March to US$314 bln, far above market forecasts of +4.4% rose and accelerating sharply from a +2.3% rise in the January–February period. It marked the fastest increase in overseas sales since last October, driven by the urgent frontloading before the American tariffs took effect. Since November when talk of tariffs first became a credible risk, the rise of Chinese exports has been exceptional. Meanwhile, March imports fell -4.3%. As a consequence, China's merchandise trade surplus has hit record levels in 2025.We exported +13% more to them in Q1-2025 from a year ago, and imported -5% less. Australia exported -29% less, and imported -5% less, for comparison.The UST 10yr yield is now at 4.37%, down -13 bps from this time yesterday. The price of gold will start today at just on US$3213/oz, and down -US$23 from yesterday.Oil prices have dipped -50 USc from yesterday to be now at US$61/bbl in the US and the international Brent price is now just under US$64.50/bbl.The Kiwi dollar is now at 58.8 USc, up +½c from yesterday at this time and the highest since mid-December. The fall of the USD extends. Against the Aussie we are up another +20 bps at 93 AUc. Against the euro we up +60 bps from yesterday at just on 51.9 euro cents. That all means our TWI-5 starts today now just on 67.3 and up +40 bps from yesterday.The bitcoin price starts today at US$84,546 and holding, and down a mere -0.3% from this time yesterday. Volatility over the past 24 hours has been modest at +/- 1.6%.You can find links to the articles mentioned today in our show notes.You can get more news affecting the economy in New Zealand from interest.co.nz.Kia ora. I'm David Chaston. And we will do this again tomorrow.

Even for Trump, this is a weird flip-flop

Play Episode Listen Later Apr 13, 2025 9:12

Kia ora,Welcome to Monday's Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.I'm David Chaston and this is the international edition from Interest.co.nz.And today we lead with news things are turning sour in the trenches of the US economy - for consumers, many non-prime corporate borrowers, and even investors in some local manufacturing they did at the behest of Trump.But first in the week ahead our news will be dominated by the March quarter CPI release on Wednesday. Japan, India and the UK will also release inflation updates this week. The central banks of Canada, the ECB, Turkey and Korea will be re-assessing their monetary policy settings, and obviously they will focused on how the global tariff war by the US will affect them, and the role monetary policy can play to mitigate the coming negative influences.China will report its Q1-2025 GDP result, and Germany will report any changes in economic sentiment.On Wall Street, the Q1-2025 earnings season will kick off and reports from the major financial institutions will come in early. There will be a lot of attention on them, especially if they start to report a bumpy ride from the economic uncertainty.However, the big news over the weekend is that China is standing its ground. Beijing raised tariffs on American imports to 125% on Friday, hitting back against Trump's decision to hike duties on Chinese goods to 145%, and raising the stakes in the trade war. They repeated the "fight to the end" rhetoric, also saying they will "counterattack". "Even if the US continues to impose higher tariffs, it will no longer make economic sense and will become a joke in the history of world economy. At the current tariff level, there is no market acceptance for US goods exported to China."On immediate consequence of all this is that investors are turning away from the US dollar as a safe haven. And perhaps turning away from US Treasuries too.Equity markets seem to be ignoring a sharp change in US consumer sentiment. The University of Michigan survey plunged in April to its lowest level since June 2022 and well below what was anticipated. That's the fourth straight month of pullback, and this survey is now more than 30% lower since the November 2024 election. It is signaling growing worries about trade war developments that have oscillated over the course of the year.American consumers report multiple warning signs that raise the risk of recession: expectations for business conditions, personal finances, incomes, inflation, and labour markets all continued to deteriorate this month. The gauge for current economic conditions fell along with the component measuring expectations which is now at its lowest since May 1980. Meanwhile, year-ahead inflation expectations surged to 6.7%, the highest reading since 1981, from 5% in March. The five-year inflation expectations gauge edged up to 4.4% from 4.1%.To mitigate some of that, Trump cancelled his tariffs as they affect mobile phones, their components, computers and other electronics. Even for Trump, this is pretty odd. It is now very much cheaper to import iPhones and the like from China than make them in the US. There will be many investors, especially those who have started building out US manufacturing facilities at the behest of Trump, who are likely to be a touch unhappy with this flip-flop and they still have to pay 145% tariffs on their imported parts. Clearly Trump has zero idea about how tariffs work, although that is not news. Commerce Secretary Lutnick added confusion in a weekend interview saying the tech tariff cancellation will be temporary.Meanwhile, March producer price inflation in the US actually eased to 2.7% its lowest in five months, aided by a sharp drop in energy costs. Without those fuel cost drops, the index would have risen slightly to 3.3%.There are signs that lending activity is tightening sharply in the US. For two weeks, there have been no - zero - high yield leverage loans for corporates in the US. The funds making these loans are having sharp investor outflows, and banks have become quite risk averse. A credit crunch is underway for most non-prime borrowers. If it extends, there will be real trouble.In Canada, not only are they rejecting American products and travel options now, a new trend is that they are net sellers of US real estate they had as holiday homes.India released February industrial production data over the weekend and that showed growth decelerated sharply to +2.9% from a year ago, down from an upwardly revised +5.2% in January. Markets had expected a +4.0% rise in February, so this is a big miss and is the weakest expansion since August.In China, their March new yuan loans came in at +¥3.6 tln, sharply higher than the +¥1.0 tln in February and slightly more than anticipated. New bank debt support is flowing as they intend, but to be fair it isn't overly different to the usual seasonal pattern. It is even less that the record March new-debt flows in March 2023 of +¥3.89 tln, but it is the second highest March level ever, and +17.8% more than March 2024. Foreign currency lending dived -34% however.China's vehicle sales jumped in March from February to 2.9 mln units, but the near-term change is distorted by the Chinese New Year holiday period. NEVs rose to 1.2 mln of those units, now 42% of all sales. They seem to be on target to sell almost 33 mln vehicles in 2025, almost double the level in the US.Meanwhile, State-linked Chinese funds (the 'home team') stepped in to rescue Chinese stocks last week. But it's an expensive exercise, involving more than ¥7 tln so far and likely to have to go up much more than that. China's own credit crunch is coming at some point, but they can put it off a while yet.Separately, China is also battling unusually cold weather at present with much travel in the north cancelled.In Europe, German CPI inflationcame in at 2.2% in March (2.3% on an EU harmonised basis), slightly lower than in February, and lower than expected. Food prices were up +3.0% and the price of services were up +3.5%. It is also falling energy costs that are keeping a lid on their inflation.Coal and steel prices are falling, with the coal price now down to a level it first achieved in 2016.The UST 10yr yield is now at 4.50%, up +1 bp from this time Saturday.The price of gold will start today at just on US$3236/oz, and up another +US$2 from Saturday, and yet another new record high. That is up +US$217 or +7.1% from this time last week.Oil prices are unchanged from Saturday to be holding at US$61.50/bbl in the US and the international Brent price is now just over US$64.50/bbl. These are the same levels we had a week ago.The Kiwi dollar is now at 58.3 USc, up +10 bps from Saturday at this time and the highest since mid-December. A week ago it was 55.6 USc so a mammoth +270 bps appreciation or +4.7%. Against the Aussie we are up +20 bps at 92.8 AUc. Against the euro we down -10 bps from Saturday at just on 51.3 euro cents. That all means our TWI-5 starts today now just over 66.9 and up marginally from Saturday, up +130 bps from a week ago.The bitcoin price starts today at US$84,792 and firming, and up +1.2% from this time Saturday. Volatility over the past 24 hours has been modest at +/- 1.3%.You can find links to the articles mentioned today in our show notes.You can get more news affecting the economy in New Zealand from interest.co.nz.Kia ora. I'm David Chaston. And we will do this again tomorrow.

Wall Street cancels tariff optimism, resumes selloff

Play Episode Listen Later Apr 10, 2025 7:05

Kia ora,Welcome to Friday's Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.I'm David Chaston and this is the international edition from Interest.co.nz.And today we lead with news equity markets have cancelled yesterday's relief rally.But first in the US, initial jobless claims rose last week to 215,000, +7.7% higher than the week before, but identical to the same week a year ago. There are now just under 2 mln people on these benefits, up slightly from the 1.93 mln a year ago.US CPI inflation fell to 2.4% in March, its lowest level since February 2021. Because this was data taken before the tariff chaos, it seems this may be the low point for the foreseeable future. Food was up +3.0% and rents were up +4.0%. Medical care was up +3.0%. However petrol prices restrained the overall rises, down -9.8%. Very low oil prices will keep a lid on the total even if other living costs rise much faster.Today's UST 30 yr bond auction was well supported, but the median yield came in at 4.73%, up from 4.56% at the equivalent event a month ago.The US government reported a budget deficit of -US$161 bln in March, a -32% decrease from the previous year, largely due to a calendar shift in benefit payments. Despite this monthly decline, the broader fiscal picture remains concerning, with the US Treasury reporting a -US$1.3 tln deficit for the first half of fiscal 2025, a +23% rise from the previous year. This marks the second highest deficit for the first six months of any fiscal year, trailing only the -US$1.7 tln gap in fiscal 2021. Tax cuts for the rich in this environment looks exceedingly irresponsible, especially if the tax rises on consumers via tariffs don't raise the outlandish sums forecasted.Just how damaged the US government agencies have become, Musk's DOGE fired all the safety regulators that oversaw Tesla.The April USDA WASDE report out overnight shows that US corn inventories are lower than expected. Beef exports are expected to fall on retaliatory tariff actions against the US and beef imports are expected to be lower too for the same tariff reason. The net result seen in lower prices for US producers. Lower prices for US milk producers too as exports shrink. US farmers will be net losers from the tariff hostilities.Across the Pacific, Japanese producer inflation is rising, now its highest since mid-2023. Producer prices there rose +4.2% in March from the same month a year ago, above market estimates of 3.9%. It was their 49th straight month of producer inflation, with cost rising further for most components.Taiwanese exports surged again in March, up +18.6% from a year ago and a record high for any month. A +8.5% rise was expected. That is two consecutive months of outsized expansion. April tariff actions may well affect this impressive result going forward, but if US customers have no alternative sources, the tariff taxes will fall on the buyer.In China, they not only have to fight off the US tariff policies, they have a resurgence of domestic deflation issues. Their March CPI fell -0.1% when a +0.1% was anticipated. Their PPI fell -2.5% when a -2.3% retreat was anticipated. On the consumer price front, food prices are -0.6% lower than a year ago, of which beef prices fell -10.8% and lamb -5.4%. Milk prices fell -1.7% on the same basis. They want to shift to a consumer-based society, but in the meantime their existing export sector is going to take major hits which will affect consumption, and there seems little upside to consumer demand in the current circumstances. Their "over-capacity" is going to expose them. You wonder if they have any more appetite for capitalism's "creative destruction" than Western economies, who have proven to have virtually none.And staying in China, Beijing's drive to turn its economy into a consumption-led one relies of Chinese consumers spending and buying. But the evidence is that they are as spooked by the trade war as anyone and have turned consumption-shy.In March Australian inflation expectations fell to 3.6%, a four year low. But in April they jumped back up to 4.2% underscoring the ongoing uncertainty surrounding their domestic economic outlook and inflation trajectory in the face of fallout from the tariff war. Given they have both a jobs, and an inflation mandate, the RBA is in for a tricky period ahead with its policy choices.Container freight rates rose +3% in the past week to be -23% lower than a year ago. Basically trans-Pacific rates firmed slightly while trans-Atlantic rates eased. Bulk freight rates fell a very sharp -21% in the past week to be -20% lower than year ago levels.The UST 10yr yield is now at 4.40%, unchanged from this time yesterday.Wall Street is currently down -3.4% on the S&P500 in its Thursday trade as the tariff-pause relief rally runs out of puff in the face of realities and reverses. The price of gold will start today at just on US$3162/oz, and up another +US$92 from yesterday.Oil prices have fallen -US$2 from yesterday to be just under US$60/bbl in the US and the international Brent price is now just on US$63/bbl.The Kiwi dollar is now at 57.4 USc, up +120 bps from yesterday at this time and a three week high. Against the Aussie we are up +30 bps at 92.4 AUc. Against the euro we up +20 bps from yesterday at just on 51.3 euro cents. That all means our TWI-5 starts today now just under 66.5 and up +70 bps from yesterday.The bitcoin price starts today at US$79,207 and falling, and down -2.4% from this time yesterday. Volatility over the past 24 hours has been moderate at +/- 2.8%.You can find links to the articles mentioned today in our show notes.You can get more news affecting the economy in New Zealand from interest.co.nz.Kia ora. I'm David Chaston. And we will do this again tomorrow.

Now it's the bond market's turn for pain

Play Episode Listen Later Apr 9, 2025 5:14

Kia ora,Welcome to Thursday's Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.I'm David Chaston and this is the international edition from Interest.co.nz.And today we lead with news that past notions of safe havens have been upended, and now it is the turn of the bond market to be roiled. The cost of long-term money is rising sharply as risk premiums leap.First, China has reacted in equal measure to Trump's capricious 104% tariffs on their goods, with their own extras, a 50% retaliatory tariff. The predictions any junior could see from the known Smoot-Hawley tit-for-tat protectionism are playing out.The first to blink hasn't been the Chinese. Trump has made an about-turn and paused higher reciprocal tariffs "for 90 days" that hit dozens of trade partners just after they became effective, while raising duties on China further to 125%. This u-turn surprised markets which is having an emotional relief reaction. But any gains today will be built on sand.So we are in a period of unmoored 'policy', with all the impacts ahead of us. History tells us this doesn't end well, for anybody including us.American homeowners know what's coming, and are rushing to fix their mortgage rates before they rise unaffordably. There was a sharp +20% rise in mortgage applications last week from the week prior, with the refinance component up an eye-popping +35% and almost double the level of a year ago. Borrowers sense they may not see rates this low again for a long time.Meanwhile, at the other end of the interest rate market, US Treasury yields are leaping, which means prices are dropping and holders are taking large losses. Today's US Treasury 10 year bond auction was well supported but at notably higher yields. Today the median yield was 4.34% whereas at the prior equivalent event a month ago it was 4.27%. This is a market where participants have regulatory obligations to buy.But in the open secondary market, the effects are starker. The UST 10 year yield rose +16 bps just from yesterday. (from a month ago, up +11 bps). Volatility is a new feature of these bond markets too.There was some US wholesale inventory data out overnight, but it was for February, and these were up just +1.1% from a year ago. But of course this was from a period well before the April omnishambles.Also out today were the US Fed minutes from their March 20 (NZT) meeting, but the views in these have all been overtaken by subsequent events, so have little current relevance. But even back then they sensed threats to inflation from Washington's tariffs, with heightened concerns about stagflation.In Japan, machine tool orders jumped sharply in March driven by export orders. They were up +11.4% year-on-year for the sixth consecutive month. Domestic demand remained stableIn India, and as expected, their central bank cut its policy interest rate by -25 bps to 6.00%. They cited easing inflation, slowing economic output, and growing global trade tensions as the reasons why they cut for a second successive time.The UST 10yr yield is now at 4.40%, up +16 bps from this time yesterday. Risk premiums are growing.Wall Street is currently up +7.4% on the S&P500 in its Wednesday trade as the tariff-pause relief rally kicks in. Who knows where it will end today. The price of gold will start today at just under US$3070/oz, and up +US$91 from yesterday. Perhaps this is one commodity exhibiting traditional safe-haven attributes.Oil prices have risen +US$2 from yesterday at just on US$62/bbl in the US and the international Brent price is now just on US$65/bbl.The Kiwi dollar is now at 56.2 USc, up +70 bps from yesterday at this time. Against the Aussie we are down -80 bps at 92.1 AUc. Against the euro we up +30 bps from yesterday at just on 51.1 euro cents. That all means our TWI-5 starts today now just on 65.8 and up +20 bps from yesterday.The bitcoin price starts today at US$81,930 and rising, and up +6.1% from this time yesterday. Volatility over the past 24 hours has been very high at +/- 4.2%.You can find links to the articles mentioned today in our show notes.You can get more news affecting the economy in New Zealand from interest.co.nz.Kia ora. I'm David Chaston. And we will do this again tomorrow.

"America is lost"

Play Episode Listen Later Apr 8, 2025 5:49

Kia ora,Welcome to Wednesday's Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.I'm David Chaston and this is the international edition from Interest.co.nz.And today we lead with news the Wall Street and business titans who supported the 2024 Trump campaign are starting to turn on him, one calling the current situation "a clown show".The show has gotten even more extreme overnight. The US has added another 50% to tariffs on its imports from China, taking the total to 104%.But first up today, the overnight GDT Pulse dairy auction saw SMP prices fall a bit more than expected, down -2.6% from last week's full auction. But the WMP price slipped much less than expected, down just -1.8% on the same basis. The falling currency over the past week means there is no net change in NZD. The floating exchange rate is doing its job as a stabiliser.In the US, nominal retail sales surged last week, up +7.2% from the same week a year ago as consumers rushed to stock up on goods ahead of the tariff-induced hikes. That was its fastest rise since late-2022. Some of that 'gain' will have been from early price hikes, of course.Going the other way, the NFIB Small Business Optimism Index fell sharply in March, by its most since June 2022 and to its lowest level since October 2024. This was a much larger fall than anyone saw coming. They anticipated a fall but not like this. The component 'uncertainty index' stayed at record high levels.Americans' appetite for consumer debt actually fell in February by -US$810 mln, the first drop since November. This followed a downwardly revised increase of +US$8.9 bln in January and came in well below the +US$15 bln rise expected. There were sharp and notable drops in demand for credit card debt, and car loan debt.The latest UST 3 year bond auction was well supported. But there was a notable -8.5% drop in total bids this time, the largest easing of support we have seen. It delivered a median yield of 3.70%, down from 3.85% at the prior equivalent event a month ago.In China, there is a notable fall in the price of iron ore, down -12.5% from the start of April. That has yet to show up in the cash USD price of Australian iron ore, but it will soon. For reference the price of copper is down -18% in the same eight days.In China, the 'home team' is stepping up to buy equities to prevent them crashing further. State funds were reported to be very active yesterday. Separately, China is letting its currency weaken as a counterweight to the American tariffs. The yuan (CNY) isn't moving much but trending from the target 7.2:USD, but this official set rate is moving in the same direction as the offshore yuan (CNH) and heading to 7.35:USD. It is now at a 17 year low to the USD. China said it will "fight to the end" opposing the new US tariffs.Australia's NAB business confidence index ticked lower in March 2025 from a revised negative level in February, and it is now at its lowest level since November 2024.Staying in Australia, the Westpac Melbourne Institute consumer sentiment survey is seeing fear rising after the Trump tariff actions. Sentiment is -10% lower among those surveyed after the earlier April US tariff announcements. Aussies are now less confident on prospect of interest rate cuts by the RBA.Internationally, the IAEA says that while there is enough uranium being mined to support nuclear energy demand for the next 25 years, more will be needed if the current high-growth plans for capacity expansion continue, and the world could run out by 2080.The UST 10yr yield is now at 4.25%, up +10 bps from this time yesterday. Risk premiums are still rising.The price of gold will start today at just under US$2980/oz, and up +US$14 from yesterday.Oil prices have dropped -US$1.50 from yesterday at just over US$60/bbl in the US and the international Brent price is now just under US$63.50/bbl.The Kiwi dollar is now at 55.5 USc, unchanged from yesterday at this time. Against the Aussie we are up +40 bps at 92.9 AUc and that's a ten month high. Against the euro we up +10 bps from yesterday at just on 50.8 euro cents. That all means our TWI-5 starts today now just on 65.6 and up +10 bps from yesterday.The bitcoin price starts today at US$77,213 and falling, and down another -2.1% from this time yesterday. Volatility over the past 24 hours has been moderate at +/- 2.6%.Join us at 2pm later today for the Official Cash Rate review, the first by newly appointed interim Governor Christian Hawkesby. A -25 bps cut to 3.50% is widely anticipated, but given the global turmoil, most of the focus will be on how they see those pressures playing out in New Zealand and how they will respond to them.You can find links to the articles mentioned today in our show notes.You can get more news affecting the economy in New Zealand from interest.co.nz.Kia ora. I'm David Chaston. And we will do this again tomorrow.

Stagflation chances jump to almost a certainty

Play Episode Listen Later Apr 7, 2025 5:54

Kia ora,Welcome to Tuesday's Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.I'm David Chaston and this is the international edition from Interest.co.nz.And today we lead with news US Treasury yields are rising today on growing American recession fears may prompt investors to question the safety of US Treasuries as a haven asset. The risk premium jumped after a weekend to think about last week's yield falls.But Wall Street equities have stopped falling. They are not rising either as investors ponder what to do. But last week's sell-off is baked in. They rose after reports of a tariff pause, but fell when this was denied.Then Trump threatened China with 50% tariffs because they retaliated. Gloom returned.And EU ministers are meeting to coordinate their response, and 25% retaliatory tariffs are likely on "some goods".Everyone, except Trump (and his acolytes), can see that this mob-boss theatre will just produce a combination of recession and inflation. And the US won't be immune. The situation is an "urgent problem" for policymakers worldwide, including central banks. Ours meets tomorrow but because this is a fast developing situation, maybe it is too soon to expect a comprehensive response. It is a situation that will play out over years, but we will still want to see our fiscal and monetary policymakers working to contain the impending fallout as best they can.In Canada, their central bank's Business Outlook Survey is reporting widespread concern. Business conditions have deteriorated due to the trade conflict with the United States. Sales outlooks have softened, particularly for exporters. Firms reported having sufficient capacity, and many are delaying investment and hiring decisions amid uncertainty. Firms expect the widespread tariffs will raise costs and lead to higher selling prices. In this context, expectations for inflation are higher.China' FX reserves rose in March, but their overall reserves rose more mostly because they purchased a little more gold and that took their holdings to just under 2300 tonnes. The March gold price zoomed higher, bolstering other reserves. This may reverse sharply in April if the gold price keeps on tracking down.Away from the economic news, we probably should note that while China's overall population is in decline, not all regions are. The Pearl River Guangdong region in from Hong Kong grew by 740,000 to 127.8 million (+0.6%), and births rose by +100,000 to 1.13 mln (+0.8%) in the 2024 year. If this region was its own country, these demographic changes would be impressive. But it does highlight how fast some other parts of China are shrinking.Overall, the recent Qingming Festival (Tomb Sweeping) holiday saw 790 million cross-regional trips in China, an increase of +7.1, a record high for this holiday period.European retail sales rose +2.3% in February in the euro area on a volume (real) basis, quite a bit better than expected and its best rose since September 2024. In the wider EU it was up +2.0% and still a quite positive shift.German industrial production however was down a sharpish -4.0% in February from the same month a year ago, although to be fair the year-ago benchmark was unusually high. On a seasonally adjusted basis the decline was "only" -1.3%. German export growth is rising however.In Australia yesterday, their pre-election Budget update was released. The underlying cash deficit in the 12 months ending June 30 will be -AU$28 bln, swelling to -AU$42 bln through June 2026, they now say. That's going from -1.0% of GDP to -1.5% of GDP. "[The] escalation in trade hostilities has created significant economic uncertainty and exacerbates the risks to the economic and fiscal outlook", they say.The UST 10yr yield is now at 4.15%, up +15 bps from this time yesterday. Risk premiums are jumping. The price of gold will start today at just on US$2966/oz, and down -US$71 from yesterday, down -2.3% and "just another commodity". Holders are selling to cover margin calls now.Oil prices have dropped another +50 USc from yesterday at just on US$61.50/bbl in the US and the international Brent price is now just under US$65/bbl.The Kiwi dollar is now at 55.5 USc, down -40 bps from yesterday. Against the Aussie we are unchanged at 92.5 AUc. Against the euro we down -40 bps from yesterday at just on 50.7 euro cents. That all means our TWI-5 starts today now just on 65.5 and down -30 bps from yesterday.The bitcoin price starts today at US$78,846 and down -2.8% from this time yesterday. Volatility over the past 24 hours has been very high at +/- 4.1%.You can find links to the articles mentioned today in our show notes.You can get more news affecting the economy in New Zealand from interest.co.nz.Kia ora. I'm David Chaston. And we will do this again tomorrow.

Sophomoric stupidity threatens global tailspin

Play Episode Listen Later Apr 6, 2025 7:49

Kia ora,Welcome to Monday's Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.I'm David Chaston and this is the international edition from Interest.co.nz.And today we lead with news we are now in a 'new world economy' and it will take some getting used to. The roll-out and consequences will develop over days, weeks, months, and years.The immediate past is irrelevant today. Tomorrow will be quite disconnected from the recent past.But first up, we have a busy week ahead. On Wednesday, the RBNZ will release the results of its OCR review, and a -25 bps cut is anticipated, taking it to 3.50%. It has been clearly signaled by the central bank, although we should note that much has happened to change the immediate economic outlook over the rest of 2025 and beyond.The Indian central bank will also review its policy rate, also on Wednesday, and a -25 bps cut is also anticipated there from the current 6.25%.Elsewhere both the US and China will release CPI and PPI inflation data. EU retail sales data and German industrial production data will also come this week.But nothing will be as influential as the tariff war hostilities, punch and counterpunch. Over the weekend China has responded to the US tariffs with its own sweeping restrictions on trade with the US, with more to come. In all, we count eight major announcements on restriction of trade with the US.China placed export restrictions on rare earth elements squeezing supply to the West of minerals. These materials are used in optical lasers, radar devices, high-powered magnets for wind turbines, jet engine coatings, communications and other advanced technologies. That leaves many manufacturers scrambling for fresh supplies of the critical minerals they have relied upon for decades.Late last week we reported that Canada retaliated. But so far, we haven't heard of EU retaliation, although they are huddling to plan a united response. (And oddly, no US tariffs were applied to Cuba, Iran, North Korea or Russia - even though the US runs a large -US$4 bln trade deficit with Russia.)Fed boss Powell was speaking over the weekend and he said the economic impact of new tariffs is likely to be significantly larger than expected, and the central bank must make sure that doesn't lead to a growing inflation problem. "The same is likely to be true of the economic effects, which will include higher inflation and slower growth."All this will have very large secondary effects on New Zealand, and our currency dived sharply on the news at the end of last week. It was an even larger negative reaction for Australia.Commodity prices have taken outsized hits, all consistent with pricing for a deep recession. Copper is down -16.5% since its late-March peak. It is far from the only one, and the adjusting is still underway. Gold wasn't immune. Nickel, zinc, and aluminium are all also down sharply. So far, food prices haven't really moved much, and the FAO report for March confirmed that.Those secondary reactions will be widespread however. The airfreight market is expected to be thrown into turmoil, up in the immediate scramble to get ordered goods, then a deep drought, as it will be for shipping. Collapses will further hinder the reduced trade expected.The key takeaway from all this is unsettling - this isn't the bottom. It may only be the start of a steep decline. It certainly is a 'Black Swan' event. That tariffs were coming, no surprise. But the size and comprehensiveness were very much larger than anyone, friend or foe, expected. Everyone should be worried, especially savers. Stagflation is the most likely future we face.For the record, there was economic data out over the weekend. The US non-farm March payrolls came in better than anticipated with a +228,000 seasonally adjusted rise in the month. The monthly average gain in 2025 is now the lowest since the 2020 year (and also lower than any year 2016-2019.) Canada reported a -33,000 drop in March employment. Deeper rate cuts are the likely Bank of Canada response, and soon - on April 17, NZT.And across the Pacific, Japanese household income rose more than expected in February from the steep drop in January. But it wasn't enough to show a gain year-on-year.German factory orders remained low in February, and unchanged from January in an under-shoot.But none of this recent-history data really means much anymore.The following changes are outsized, and still moving. But this is what we see now.The UST 10yr yield is now at 4.00%, down -25 bps from a week ago. The VIX volatility index has jumped suddenly, moving up towards an extreme level.Wall Street fell hard in its Friday trade with the S&P500 down -6.0% on the day and the Nasdaq was down -5.8%. The S&P500 futures trade suggests a small part of that (maybe +0.7%) could be recovered when Monday trade resumes.The price of gold will start today at just on US$3037/oz, up +US$17 from Saturday but down a net -US$71 from Friday, a huge move as gold is just being classed as "another commodity". Also, even before the latest tariff chaos, the Germans were worried about a Trump America, and talking about relocating its gold reserves out of New York. Those voices are louder now.Oil prices have dropped another huge -US$4.50 from Friday at just on US$62/bbl in the US and the international Brent price is now just on US$65.50/bbl. This market faces steep demand drops just as it wants to increase production.The Kiwi dollar is now at 55.9 USc, up +30 bps from Saturday but an enormous -220 bps dump from this time Friday, down -4.3%. Against the Aussie we are down -10 bps at 92.5 AUc and the Aussie dollar took an even larger hit on Friday. Against the euro we up +20 bps but down -150 bps from Friday at just under 51.1 euro cents. That all means our TWI-5 starts today now just on 65.8 and down -120 bps from Friday to its lowest since the brief pandemic dive on March 20, 2020, and before that in March 2011 as the GFC bit hard..The bitcoin price starts today at US$81,097 and down -3.2% from this time Saturday. Volatility over the past 24 hours has been modest at +/- 1.5%.You can find links to the articles mentioned today in our show notes.You can get more news affecting the economy in New Zealand from interest.co.nz.Kia ora. I'm David Chaston. And we will do this again tomorrow.

Markets recoil on tariff stupidity

Play Episode Listen Later Apr 3, 2025 6:00

Kia ora,Welcome to Friday's Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.I'm David Chaston and this is the international edition from Interest.co.nz.And today we lead with news the all bets are probably off on how 2025 will turn out as the cascading impacts from the Trump tariffs surge around the world.We were anticipating we would be reporting some tariff retaliation news today, and there is some. But the most significant retaliation is from financial markets. It is comprehensive.So far there are no substantive retaliations announced, only threats to do so from China, Japan, South Korea, and the EU. But Canada has hit some US cars with a matching 25% tariff. Some countries - like New Zealand and Australia - have said they won't retaliate, but they tend to be the ones who only got slapped with a 10% rate on their exports. For them it is wise to see how much will be effectively paid by US consumers, and in NZ's case it will likely be most of it. Most of the impact on us will come from second-effect reactions in other trading partners.Perhaps most galling were the 32% tariffs Trump slapped on Taiwan.Back to the economic data releases, US jobless claims were unchanged last week from the week before and only marginally higher than year-ago levels. There are now 2.07 mln people on these benefits, about +7% above year-ago levels. But that is their highest since November 2021.There was a surge in job cuts reported in March, by far the highest since the early pandemic reaction. Although most are public service cuts, it seems unlikely they will be the only ones in the months ahead.The employment component of today's ISM services PMI was unusually weak, and the overall index tumbled to its weakest since July 2024. It was barely expanding in March. The internationally-benchmarked S&P Global/Markit version had its big drop in February, and the latest March version records a small bump up from then. But it reported cost inflation up to an 18-month high.Attention now turns to tomorrow's March non-farm payrolls where a most rise of +135,000 is anticipated.US exports rose in March as part of the repositioning in anticipation of tariffs and retaliation. But an interesting detail is that of the +US$8.3 bln rise to US$278.5 bln for the month, US$3.2 bln of that was the export on gold. US imports held very high for a second month at record levels. (Imports of gold decreased -US$1.3 bln. The market chatter was that gold was flowing into the US, especially from London. Apparently that was just rumour.)Across the Pacific in China, the Caixin services PMI rose in March and to its best level of the year. This was notably stronger than the official services PMI. New orders rose the most in three months, driven by increases in domestic demand, supported by a broad improvement in demand conditions. We see that in improved Chinese buying in the dairy auction.Australia is reporting sharp drops in job vacancies. The latest data is for February, and the levels reported are almost -10% lower than year ago levels, down for that -5% in the prior 90 days alone. Almost all the decreases are in the private sector.Container freight rates slipped -2% last week from the week before, to be -26% lower than year ago levels. However they are still +55% higher than pre-pandemic levels.Bulk freight rates fell -2.5% from last week to be -8% below year-ago levels. Basically, these rates are back to pre-pandemic levels.The UST 10yr yield is now at 4.04%, down -17 bps from yesterday at this time. The VIX volatility index has jumped suddenly, although not yet to an extreme level.Wall Street is in its Thursday session down -4.3% on the S&P500 after the tariff announcements and showing no signs of improving. The price of gold will start today at just on US$3108/oz and down a net -US$24 from yesterday.Oil prices have dropped -US$5 from yesterday at just on US$66.50/bbl in the US and the international Brent price is now just under US$69/bbl. Not only is demand expected to soften as tariffs take their toll, eight OPEC+ countries unexpectedly announced a +411,000-barrel-per-day production increase for May, far exceeding the planned +135,000 bpd. It seems an incredibly naive announcement from their self-interest point of viewThe Kiwi dollar is now at 58.1 USc and up +80 bps from this time yesterday. That is a +1.8% appreciation since the start of the week and a +3.8% appreciation since the start of March. Against the Aussie we are up +40 bps at 91.5 AUc. Against the euro we are down -20 bps at just over 52.6 euro cents. That all means our TWI-5 starts today now just on 67 and up +20 bps.The bitcoin price starts today at US$82,172 and down a sharpish -5.8% from this time yesterday. Volatility over the past 24 hours has been very high at +/- 4.1%.You can find links to the articles mentioned today in our show notes.You can get more news affecting the economy in New Zealand from interest.co.nz.Kia ora. I'm David Chaston. And we will do this again on Monday.

Sweeping tariffs impending, along with retaliation

Play Episode Listen Later Apr 2, 2025 4:21

Kia ora,Welcome to Thursday's Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.I'm David Chaston and this is the international edition from Interest.co.nz.And today we lead with news the Trump tariff announcement will be just after 4pm New York time today when Wall Street closes. That is 9am New Zealand time. After that, it will be all about the size and nature of the retaliation from its former allies.In the meantime we should note that American vehicle sales surged in March as buyers rushed to get pre-tariff-cost vehicles. March's sales ran at a 17.7 mln annualised rate, the highest since October 2017 (if we ignore a pandemic-affected spike). Bringing forward purchases like this doesn't augur well for subsequent months. Not included in this surge were Tesla sales which fell -13% in the quarter, largely attributed to the anti-Musk factor. Production far exceeded sales which were at their lowest since 2022, and that was after "model changeover" production cutbacks. (Also not doing so well are the shares in Truth Social, which are down -44% so far this year.)US mortgage applications decreased last week from the prior week but are now +9% higher than the low year-ago levels. Refinance activity fell and purchase activity rose. This is the third straight week of overall declines. Benchmark mortgage interest rates changed little over the past week.US factory orders rose in February from January - marginally, but remain -0.5% lower than year-ago levels.This weekend we get the American non-farm payrolls data for March and a modest rise of +128,000 jobs is anticipated. In advance of that, the ADP Employment Report out today said private payrolls rose +155,000 in March which was better than expected. Although low by historical standards, this is a 'good' result.After two strong months, the US Logistics index fell back and quite sharply to a level they last had in August 2024. Every aspect except warehouse capacity slowed.In India, they recorded a notable rise in their factory PMI. New order growth strengthened despite softer a softer rise in exports. This PMI result was their best since June 2024.In the ASEAN countries, their March PMIs together painted a picture of a modest expansion even if it did slip in March from February. Price pressures eased, and sentiment remains solid. Malaysia was perhaps one of the weaker performers in this group.The UST 10yr yield is now at 4.21%, up +5 bps from yesterday at this time.The price of gold will start today at just on US$3132/oz and up a net +US$25 from yesterday and still just off its all-time high.Oil prices are little-changed from yesterday at just under US$71.50/bbl in the US and the international Brent price is now just under US$75/bbl.The Kiwi dollar is now at 57.3 USc and up +40 bps from this time yesterday. Against the Aussie we are up +30 bps at 91.1 AUc. Against the euro we are up +10 bps at just over 52.8 euro cents. That all means our TWI-5 starts today now just under 66.8 and up +30 bps.The bitcoin price starts today at US$87,214 and up another +2.5% from this time yesterday. Volatility over the past 24 hours has been rising but still modest at +/- 1.9%.You can find links to the articles mentioned today in our show notes.You can get more news affecting the economy in New Zealand from interest.co.nz.Kia ora. I'm David Chaston. And we will do this again tomorrow.

Bracing for Trump tariffs

Play Episode Listen Later Apr 1, 2025 5:48

Kia ora,Welcome to Wednesday's Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.I'm David Chaston and this is the international edition from Interest.co.nz.And today we lead with news the world is bracing for the US to start a US$1.4 tln trade war. Tomorrow. The US says it is ready to start hostilities, supposedly with 20% across-the-board levies. Other governments have their retaliation plans ready. Americans are rushing to buy cars they can afford.But first, the overnight dairy auction came in better than the derivatives market had signaled, with an overall rose of +1.1% in USD terms, up +3.2% in NZD terms. WMP prices held steady and avoided the expected dip. SMP prices rose more than expected. But volumes were light, as expected in this part of the dairy season, but actually lower than this time last year. Keeping demand up was bidding from China, while the recent new interest from Europe basically held. Nothing today will change current farmgate milk price forecasts.In the US, retail demand is softening, with their Redbook survey off its peaks and back to average levels since October 2023. That is a notable drop from the November expansion.There were two American factory PMI surveys out overnight. The widely-watched ISM one contracted. This is a turn from an expansion and is not unexpected, but the size of the shift was. New order flows were weak, and the mood is turning even weaker.The internationally benchmarked S&P Global/Markit one fell too, and quite sharply, but not yet into contraction territory. But this one reported a big jump - an outsized jump - in input prices, surely a sign of what is to come. Firms were only able to pass on some of that, but even so it was at a two-year high.American job openings in February fell by -194,000 to 7.57 mln from an upwardly revised 7.76 mln in January and below market expectations of 7.63 mln. Quits fell too as Americans prioritised holding on to the jobs they have.The Dallas Fed services survey reported a notable contraction, with perceptions of broader business conditions worsening in March.And that downshift was also picked up in the RCM/TIPP economic optimism survey which was expected to rise, but in fact fell in April, and to a six month low.In China, although still modest, the Caixin China General Manufacturing PMI rose in March from February's small positive, with a result that was better than market expectations. This marked the highest reading since last November, with output growth accelerating on the back of a sustained rise in new orders amid better demand conditions.The EU March CPI inflation rate eased slightly to 2.2%, to a marginally lower level than expected. Lower energy costs are restraining this indicator.In Australia, February retail sales were ho-hum, up +0.2% from January. That puts them essentially unchanged from the same month in 2024. So after inflation, that means they are -2.4% lower on a volume basis.And as expected, the RBA sat pat with its cash rate target at 4.1%. But once the Federal election is out of the way, markets expect them to cut the policy rate by -25 bps on May 20, 2025.Global air cargo demand is now coming off the boil as trade uncertainties build. The dip at that point wasn't large and it is still ahead year-on-year but with both US and European demand now negative on the year-ago basis, and the Asia expansion slipping rather quickly, it won't be long before we are reporting air cargo activity shrinking.Global air passenger demand held up in February, with the impetus slowed notably. International demand is holding up better than domestic, and the Asia/Pacific region is the best of these. The main weaknesses are in North American air travel.The UST 10yr yield is now at 4.15%, down -10 bps from yesterday at this time. The price of gold will start today at just on US$3106/oz and down a net -US$12 from yesterday and off its all-time high.Oil prices are little-changed from yesterday at just under US$71.50/bbl in the US and the international Brent price is now just on US$74.50/bbl.The Kiwi dollar is now at 56.9 USc and up +20 bps from this time yesterday. Against the Aussie we are unchanged at 90.8 AUc. Against the euro we are up +20 bps at just over 52.7 euro cents. That all means our TWI-5 starts today now just under 66.5 and up +20 bps.The bitcoin price starts today at US$85,116 and up +2.1% from this time yesterday. Volatility over the past 24 hours has been modest at +/- 1.8%.You can find links to the articles mentioned today in our show notes.You can get more news affecting the economy in New Zealand from interest.co.nz.Kia ora. I'm David Chaston. And we will do this again tomorrow.

Tariffs bring destabilising pressures

Play Episode Listen Later Mar 31, 2025 5:45

Kia ora,Welcome to Tuesday's Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.I'm David Chaston and this is the international edition from Interest.co.nz.And today we lead with news the NZD is falling again and sharply, now back to one-month lows as commodity prices suggested shifts to our disadvantage, and global trade flows became more uncertain.The global risk-off trend is building. Wall Street opened weak, although it has pared back some of the losses in its afternoon trade.Elsewhere in the US, a key MidWest factory survey, the Chicago PMI, contracted less in March than expected. The shift itself wasn't large, but it was unexpected because a worsening was expected. So it has gained attention. But more than a third of respondents to this survey said they would respond to tariff pressures by raising prices. Only 18% said they would on-shore supplies. New order growth only got also-ran mentions. Overall, this report is of a slower downturn.The Dallas Fed factory survey was mixed. New order levels improved marginally but remained weak. Production levels rose more. But perceptions of broader business conditions continued to worsen in March. The general business activity index fell to its lowest reading since July 2024.US factories are not gearing up for the 'benefits' of tariffs, yet anyway. And there are no significant signs of plans to do that.In Canada, one party is advancing an election strategy to push back on the tariff impacts on their trade with the US, ramping up home-building sharply to a level that reminds them of the post WWII surge. This campaign pledge is likely to find a receptive audience, because by all accounts Canadians are really, really pissed-off at the US.They will need something significant because all indications are that the impending tariff levels from the US are not being worked lower but in fact are more likely now to be at the upper end of earlier signals when they are announced on Thursday NZT.Across the Pacific in Japan there was a good jump in industrial production reported for February, from January.In South Korea, industrial production there was a rise on the same basis, although smaller.In China, they reported official PMIs for March and the factory one rose marginally as expected to a small expansion. Their services PMI for March rose marginally more. Importantly, in both cases new order levels came in better than the overall indexes.In India, they are moving into summer and all the indications are for extreme temperatures. So high are they being forecast that they could be at a level that causes parts of their economy to shut down, or at least stumble. Heatwaves are being normalised, with more energy consumption the only way to battle it on an individual level, and that means burning more coal.In Germany, retail sales rose more than expected in February (in real terms), which was much better than expected. Meanwhile they said the CPI inflation was running at 2.2% and slightly lower than the February level, and a four month low.Like Canada, Australia is also in an election campaign. US tariff impacts haven't really become an issue there yet although being anti-Trump is helping. But more of an issue is that China has another spy ship circling while at the same time its diplomats are calling for 'trade unity'. It is such an obvious carrot-and-stick play that it is winning China no friends. The trade fallout if Australia doesn't buckle, could be more serious for them than US tariffs.Australian property prices continued to recover from a short-lived dip to hit fresh highs in March as borrowers and prospective home buyers await a decision on interest rates today. Data from CoreLogic showed house prices rose in all cities except Hobart last month, with the national median value of a home now over AU$820,000.The UST 10yr yield is now at 4.25%, unchanged from yesterday at this time.The price of gold will start today at just on US$3118/oz and up another net +US$34 from yesterday and easily a new all-time high.Oil prices are up +US$2 from yesterday at just over US$71.50/bbl in the US and the international Brent price is now just under US$75/bbl.The Kiwi dollar is now at 56.7 USc and and down -½c from this time yesterday. Against the Aussie we are down -10 bps at 90.8 AUc. Against the euro we are also down -½c at just under 52.5 euro cents. That all means our TWI-5 starts today now just on 66.3 and down -40 bps.The bitcoin price starts today at US$83,350 and up +1.3% from this time yesterday. Volatility over the past 24 hours has been modest at +/- 1.5%You can find links to the articles mentioned today in our show notes.You can get more news affecting the economy in New Zealand from interest.co.nz.Kia ora. I'm David Chaston. And we will do this again tomorrow.

As the US enters stagflation, the USD is being sidelined

Play Episode Listen Later Mar 30, 2025 6:27

Kia ora,Welcome to Monday's Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.I'm David Chaston and this is the international edition from Interest.co.nz.And today we lead with news commodity prices are falling away across the board, along with crypto, as a risk-off mood builds in financial markets.In the week ahead, the most interesting developments will be close to home. There will be the usual monthly dump of February data from the RBNZ later today, and the real estate industry will start reporting its March results and listing levels. And in Australia, their central bank will be reviewing its monetary policy settings. But because they are in an election campaign it would be surprising indeed if they may any moves either way that might influence voters.The week will end with American labour market data for March. But because the impacts of DOGE cuts or tariff hikes are yet to be felt, little-change is anticipated here either. But more PMI reports will start to reveal new order levels, which will give important early warning signals.There will be PMIs out for China too, Japan business sentiment, EU inflation, and German factory orders, which will all help paint a picture of how the global economy is coping.But first up today, there will be a lot of interest on tomorrow's Wall Street open. It ended its Friday session with the S&P500 down -2.0% and no signs of recovery late in the session. The Nasdaq fell -2.7% on the day. Weekend futures trading has the S&P500 recovering +0.8%, but that basically embeds the Friday retreat. Risk-off sentiment is strong with major investors selling, seeing this as a time to hold cash.The core reason Wall Street is risk-off is that American consumers are increasingly anxious about their jobs, and the inflation pressures ahead. And both of those worries are over what higher tariffs will do to them. Town-hall meetings across the country are giving the message to Congresspeople that they aren't too happy about the self-serving government- by-billionaires either.The final University of Michigan March sentiment survey was revised lower from its already low 'flash' result. Consumers are in full defensive mode, expecting inflation to jump, and job security to worsen. Wall Street can't ignore these signals.Other data out over the weekend didn't help. The core US PCE inflation indicator for February rose its most since January 2024, and of course this doesn't include the effect of the recent policy missteps. This data is a little signal magnified by current policy settings.US consumer spending came in lower than expected. Consumer savings rates rose. This is consistent with consumers shifting to a defensive mood ahead of their expected rough economic weather.It isn't any better in Canada where their monthly GDP indicator for February revealed no net expansion, following a positive January expansion.In China, talk about rate cuts that officials don't like brings prosecution. They say "the local public security organs" have dealt with two such people.In Australia, they are off and running for their May 3, 2025 federal election. Like most elections, it will be fought on "cost of living" issues. The campaign starts with the incumbents in a strong and rising position on their two-party-preferred basis. Expect a sledge-a-thon for the next five weeks.And for the record, when we are thinking of drought and rainfall in Australia, this resource is useful to keep perspective.Commodity prices are under pressure. Worth watching is the price of copper. It is very high at present, but lower economic activity in both China and the US could bring about 'a collapse'. It would not be the only commodity to suffer.We should also possibly note that the US Fed balance sheet shrunk again last week to be -US$745 bln lower than this time last year. So far we haven't seen any slacking in the pace of their tightening.We should also note that in this current risk-off phase, the US dollar has not risen. This is very unusual and may portent a diminished role for the greenback in the global economy.So far, the world has kept buying US Treasury paper, but the more the Federal finances are twisted by Trump, the less likely that demand will hold. But remember less than 24% of total US federal debt is held by foreigners (US$8.512 tln of US$36.218 tln in gross terms), so the impact from foreign demand will be muted. However, markets will notice any substantial pullback by this group, and that will colour its market status and price. The big impacts will come from the locals' willingness to absorb this debt.The UST 10yr yield is now at 4.25%, unchanged from yesterday at this time. The price of gold will start today at just on US$3085/oz and up another net +US$5 from Saturday. Although off it at the moment, gold keeps challenging it's all-time high levels.Oil prices are little-changed from Saturday at just under US$69.50/bbl in the US and the international Brent price is now just over US$73.50/bbl.The Kiwi dollar is now at 57.2 USc and unchanged from this time Saturday. Against the Aussie we are unchanged at 90.9 AUc. Against the euro we are also unchanged at just under 53 euro cents. That all means our TWI-5 starts today still just over 66.7.The bitcoin price starts today at US$82,272 and down -1.9% from this time Saturday. Volatility over the past 24 hours has been modest at +/- 1.1%.You can find links to the articles mentioned today in our show notes.You can get more news affecting the economy in New Zealand from interest.co.nz.Kia ora. I'm David Chaston. And we will do this again tomorrow.

Tariff impacts start to show up

Play Episode Listen Later Mar 27, 2025 6:21

Kia ora,Welcome to Friday's Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.I'm David Chaston and this is the international edition from Interest.co.nz.And today we lead with news behind the tariff headlines that shows impacts of recent policy changes are starting to show up in some places, but not everywhere yet.US jobless claims fell slightly last week and about at the level seasonal factors would have expected. There are now 2.08 mln people on these benefits, about the same level as a year ago.That was the first of some marginally better data out overnight. The US merchandise trade balance pulled back in February from its record January deficit but it still came in far higher than what was expected. US exports stagnated but imports were +19% higher than year-ago levels.US wholesale and retail inventories rose with wholesale inventories up +1.2% from a year ago, and retail inventories up +4.6% on the same basis. Supply chain inefficiencies from the new tariff policies are starting to show up nowUS pending home sales came in -3.6% lower in February than year-ago levels, although the industry emphasised the +2% rise from January.The Kansas City Fed factory survey was a touch more positive than expected and better than in some other regions. But they too had lower new order levels, so this positivity probably won't last.In the Washington swamp, overshadowed perhaps by obvious lying by their unqualified Defence Secretary, the Administration has hit carmakers with new 25% tariffs. This will likely have a significant global impact on manufacturing as well as destabilising local supply chains. It is a move that may not play out as they want and will almost certainly mean US-produced cars will cost a lot more. GM's share price is down -7% today which accounts for most of the YTD drop. Ford is down -3.2%. Stellantis is down -4.3% today. The big local producers are expected by investors to do well out of this change.And they are not the only ones being hit. The recoiling of international tourists going to the US has seen substantial drops in the values of major US airlines. Delta is down -21% so far this year, United is down -22%. And American Airlines is down -35%. The whole industry is down -16% since the start of the year with those with extensive international routes worst hit. And this is despite global air travel being up about +10%.The final review of the Q4-2024 economic growth rate came in at +2.4%, which means that for all of 2024 they recorded an economic expansion of +2.5%. Both outcomes were marginally better than expected. 2025 has gotten off to a rocky start for them.In China, after the January -3.3% retreat, industrial profits were expected to be reported up +4.0% in February. But in fact they came in -0.3% lower again, so a market surprise. The SOE group saw profits rise +2.1%, public listed companies saw their profits down -2.0%, Hong Kong/Macao companies reported a +4.9% rise, and other private enterprises suffered a -9.0% drop.In Europe, the Norwegian central bank kept its key policy rate unchanged at 4.5% for the tenth consecutive meeting in its overnight March review, as widely expected.In Australia, household wealth was up +0.9% or +AU$144 bln in the December quarter, the lowest growth since September quarter of 2022. Year-on-year this was up +6.6% at a time inflation accounted for +2.4%. On that annual before-inflation basis their dwelling values only rose +4.4%. Their Super was up +9.3% however, and the value of their bank accounts were up +8.5%.Post their 2025/26 Budget, the Australian Treasury (AOFM) said it has raised its target bond fundraising from AU$100 bln in the coming year to AU$150 bln. Swap spreads then dived, indicating that demand for this debt paper could be hard to find. Expect Aussie Govt bond yields to rise sharply. It is widely expected that there will be an election date announcement later this morning, and most are expecting May 3 to be when the Aussies next go to the polls. Their recent Budget seems to have gone down well with the electorate so they want to capitalise on that.Globally, container freight rates fell -4% last week and are now -31% lower than year ago levels but +53% above pre-pandemic levels. Freight rates for bulk cargoes were essentially unchanged last week from the prior one, to be -19% lower than year-ago levels.The UST 10yr yield is now at 4.36%, up +2 bps from yesterday at this time.The price of gold will start today at just on US$3049/oz and up a net +US$32 from yesterday.Oil prices are down -50 USc from yesterday at just over US$69.50/bbl in the US and the international Brent price is now just over US$73.50/bbl.The Kiwi dollar is now at 57.3 USc and down -10 bps from this time yesterday. Against the Aussie we are also down -10 bps at 91.1 AUc. Against the euro we are up +10 bps at just on 53.3 euro cents. That all means our TWI-5 starts today just on 66.9, and down -10 bps.The bitcoin price starts today at US$86,905 very little-changed (+US$39) from this time yesterday. Volatility over the past 24 hours has again been modest at +/- 1.0%.You can find links to the articles mentioned today in our show notes.You can get more news affecting the economy in New Zealand from interest.co.nz.Kia ora. I'm David Chaston. And we will do this again on Monday.

US policy mistakes pushes everyone onto the defensive

Play Episode Listen Later Mar 26, 2025 4:24

Kia ora,Welcome to Thursday's Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.I'm David Chaston and this is the international edition from Interest.co.nz.And today we lead with news financial markets are sensing a turn lower in the giant US economy and a risk-off tone is spreading. Impending new tariff announcements there are casting a pall over everything.First, despite another fall in long term mortgage interest rates, US mortgage applications were weak last week. They fell by -2% in the week following a -6.2% drop in the previous week. Applications to refinance a home loan decreased -5% to the lowest level in a month. But applications for a mortgage to purchase a new home rose +1%.New American durable goods orders in February unexpectedly rose +0.9% from January, following an upwardly revised +3.3% jump that prior month. This February result was much better that the anticipated -1% fall. But year-on-year the gain was just +0.5% and the result was largely ignored by financial markets, partly because it isn't expected to signal any longer improvement. On-off defence aircraft orders (+9.3%) accounted for most of the gains. Non-defence, non-aircraft orders for capital goods were -1.2% lower in February than a year ago. Markets noticed that.They probably also noticed the latest update of the Atlanta Fed's GDPNow tracking showing a current estimate of Q1-2025 economic activity shrinking at a -1.8% rate. This updated real-time estimate is unchanged from last week. It is also worth noting that the benchmark "Blue Chip Consensus" forecasts are starting to waver now too as the quarter comes to an end.Across the Pacific, Singapore's industrial production took quite a tumble in February from January, enough to turn its year-on-year change from a +8% rise in January into a -1.3% decline in February. The month-on-month reversal was a very sharp -7.5%.In Europe, the UK said their inflation rate dipped to 2.8% in February from 3.0% in January, marginally below market expectations of 2.9%, though in line with the Bank of England's forecast.In the EU, facing security threats from Russia, and a US 'ally' that is pulling back and effectively encouraging Moscow, is saying every citizen should stockpile enough food to be self-sufficient for at least 72 hours in case of crisis. Most EU states are sharply raising defence preparedness.Australia is in its post-budget debate period. No announcement yet on an election date but it is widely expected over the next few days.The UST 10yr yield is now at 4.34%, up +4 bps from yesterday at this time. Wall Street has started its Wednesday session and dipping further by -1.2% on the S&P500 on a tech sell-off. The Nasdaq is down -2.1%. The price of gold will start today at just on US$3016/oz and down a net -US$10 from yesterday.Oil prices are up +US$1.50 from yesterday at just und US$70/bbl in the US and the international Brent price is now just on US$74/bbl. The new American tariff threats on using Venezuelan oil are disrupting supply.The Kiwi dollar is now at 57.4 USc and unchanged from this time yesterday. Against the Aussie we are back up +10 bps at 91.1 AUc. Against the euro we are up +10 bps at just over 53.2 euro cents. That all means our TWI-5 starts today just on 67, and up +20 bps.The bitcoin price starts today at US$86,866 and down -1.1% from this time yesterday. Volatility over the past 24 hours has again been modest at +/- 1.1%.You can find links to the articles mentioned today in our show notes.You can get more news affecting the economy in New Zealand from interest.co.nz.Kia ora. I'm David Chaston. And we will do this again tomorrow.

The US keeps on scoring own goals

Play Episode Listen Later Mar 25, 2025 5:20

Kia ora,Welcome to Wednesday's Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.I'm David Chaston and this is the international edition from Interest.co.nz.And today we lead with news the own goals keep coming for the US.But first, the overnight dairy Pulse auction came in with the opposite results signaled by the derivatives market. The SMP price was expected to bounce back after the weakish full auction event the week before, but basically it didn't. And the WMP price was expected to fall sharply. It did fall, but it was minor in the end. So these Pulse signals ended up changing little.Last night's 2025/26 Australian Budget didn't deliver any real surprises in the end, although it is clearly an election budget. But it is one where the dominant challenge has shifted from battling inflation's effects to preparing for global trade instability, and great power rivalry. Australia is facing being abandoned by the US while it also faces rising security challenges from China.Although they are facing budget deficits that could be -1.5% of GDP next year, and probably ongoing deficits for the next ten years, they are accepting that as they announced new spending of about AU$35 bln with much of it focused on cost of living support, some modest tax cuts, and defense. There is a rise in off-budget spending as well. So their funding program there will be growing fast.In the US, last week's Redbook retail survey showed sales held up to be +5.6% higher than year-ago levels. However with inflation rising, and quite quickly now, this isn't as impressive as it was in 2024 when inflation was basically under control.Those fears of returning inflation (from tariffs) are behind a tumble in American consumer sentiment, reversing to lows not seen since the last Trump presidency. The Conference Board survey's expectations index was particularly hard hit, and now sits at a level they say indicates recession ahead. This survey back up the earlier University of Michigan one.And ratings agency Moody's is warning that even in the best scenario, the US's situation is likely to get worse under the current policy direction.But not all sectors are drooping. New dwelling sales are holding at average levels, up +1.8% in February from a year ago, and up +5.1% from year-ago levels. But inflation might be behind this recent small demand rise - buyers getting in before inflation hits existing stock, and before interest rates rise again.But the next regional Fed district to report is saying things in their Mid-Atlantic region are slowing. The Richmond Fed's factory survey has yawed from a small expansion to a moderate contraction in their March survey. Observers had expected the measure to rise to a faster expansion, so the variance is notable. New order levels fell, prices paid for inputs rose faster than expected. The clearest example is the new record-high rise for copper.An interesting phenonium is developing in US equity markets. Retail investors are turning bullish, driven partly by their political bias. At the same time, professional investors are taking advantage of them and are net sellers.Their northern neighbour is talking about retaliatory export taxes as a way to get Trump to talk to them seriously. Their combination with American tariffs isn't going to help anyone.In Indonesia, their currency crisis is deepening, with the rupiah now at its lowest since the GFC.In China, their central bank has adjusted how it raises funds via its Medium Term Lending process. This may be an important change.The UST 10yr yield is now at 4.30%, down -2 bps from yesterday at this time.The price of gold will start today at just on US$3026/oz and up a net +US$17 from yesterday.Oil prices are down -50 USc from yesterday at just over US$68.50/bbl in the US and the international Brent price is still just over US$72.50/bbl.The Kiwi dollar is now at 57.4 USc and up +20 bps from this time yesterday. Against the Aussie we are down -10 bps at 91 AUc. Against the euro we are up +10 bps at just under 53.1 euro cents. That all means our TWI-5 starts today just under 66.8, and little-changed.The bitcoin price starts today at US$87,803 and down -0.3% from this time yesterday. Volatility over the past 24 hours has been modest at +/- 1.2%.You can find links to the articles mentioned today in our show notes.You can get more news affecting the economy in New Zealand from interest.co.nz.Kia ora. I'm David Chaston. And we will do this again tomorrow.

Tariffs sap the US expansion

Play Episode Listen Later Mar 24, 2025 5:13

Kia ora,Welcome to Tuesday's Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.I'm David Chaston and this is the international edition from Interest.co.nz.And today we lead with newsthe prospect of tariffs already seem to be sapping the rising expansion of the American manufacturing sector over the past few years.The first look at PMIs for March are starting to come through with early 'flash' results. In the US, the S&P Global composite PMI rose in March from February's 10-month low. The service sector led the upturn with a better than expected gain. But the factory sector fell into contraction as a tariff-driven boost earlier in the year ran out of puff. Employment grew only marginally. New order growth for factories evaporated in March, but rose for services.They are facing significant cost challenges. For example, with the new Administration calling 'copper' a national security issue, prices for this key metal have now hit a record all-time high there, and rising. This type of policy mistake is going to make US factories far less competitive on the global stage.The Chicago Fed's National Activity Index rose in February, consistent with the PMIs, and the hesitation in new orders showed up here too with this category dropping below its long term average and one of the weaker components although better than in prior months.In Japan, their March 'flash' PMI wasn't great for them. The factory PMI contracted in March and by more than expected, the ninth consecutive month of contraction. It was a reversal in factory activity since March 2024, with sharper declines in both production and new orders, despite foreign sales growing. In the services sector there was an even larger decline, but only to just below a steady state from February's solid expansion.In India, their PMIs continued to register a strong expansion, consistent with what they have had. Even though the services expansion was slightly less, it is still strong. Factory activity is still very strong and rising new orders suggest real capacity problems, but also that the gains will continue.In China, there are official central bank indications that they are getting ready to cut their policy rates and banks' reserve requirements, at the “right time.”And staying in China, they are starting to deploy robot police.Singapore's inflation rate rose in February from January, but due to base effects, fell from a year ago and is now only up +0.9%. That is the first time it has been under 1% in four years. Since September 2022 when it hit 7.5%, it has steadily fallen from there.In the EU, their March 'flash' PMIs record expansions in both their services and factory sectors. True, they are both minor, but because they are rising from contractions they are notable. New order growth is behind the rise.The latest internationally-benchmarked factory PMI for Australia for March is recording a strong gain and an expansion that is its strongest since late 2022. Their 'flash' services PMI also rose but it is recording a more modest expansion.We are standing by for a May election in Australia. Probably May 3, or May 10, both Thursdays. We won't know what they actually decide until after their 2025/26 Federal Budget is released later today. Because it is an election Budget, its forecasts will be looked at dubiously. Current polling has the opposition parties ahead, but now falling rather sharply in support. Here is a recent outlier poll. It's basically too close to call.The UST 10yr yield is now at 4.33%, up +7 bps from yesterday at this time.The price of gold will start today at just on US$3009/oz and down a net -US$14 from yesterday.Oil prices are up +50 USc from yesterday at just on US$69/bbl in the US and the international Brent price is still just under US$73/bbl.The Kiwi dollar is now at 57.2 USc and down another -10 bps from this time yesterday. Against the Aussie we are down -30 bps at 91.1 AUc. Against the euro we are holding at just under 53 euro cents. That all means our TWI-5 starts today just under 66.8, and down -10 bps.The bitcoin price starts today at US$88,026 and up +3.2% from this time yesterday. Volatility over the past 24 hours has been moderate at +/- 2.2%.You can find links to the articles mentioned today in our show notes.You can get more news affecting the economy in New Zealand from interest.co.nz.Kia ora. I'm David Chaston. And we will do this again tomorrow.

Tables turn with China rising as the US fades

Play Episode Listen Later Mar 23, 2025 6:05

Kia ora,Welcome to Monday's Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.I'm David Chaston and this is the international edition from Interest.co.nz.And today we lead with news we are heading into a week where the data won't be as important as the policy decisions made and about to be made. And we do seem to be seeing a shift in great-power economic fortunes; the US fading while China get up off its knees.Although there are only a few key data releases in New Zealand, Australia will release its monthly inflation indicator for February this week on Wednesday and its monthly household spending indicator on Thursday. These will both feed into their election campaign narratives. And later today we will get a first look at their March PMI tracking.There will be similar 'flash' PMIs from Japan, India, the EU and the US out this week too. South Korea will release business and consumer confidence data while Singapore will release its February inflation rate.And in the US it will be all about personal income and spending, consumer sentiment, durable goods orders, pending home sales, and the final estimate of Q4-2024 GDP.In the US this week all eyes will be on how the threatened 'reciprocal tariffs' play out. Those around Trump seem to be starting to realise that tariffs are a tax on yourself, so are growing less certain they are a good idea. The talk now is a scaling back of the 'promised' action threatened to take effect on April 1 (US time), just nine days from now.No doubt they are very aware of the signals the widely-respected Atlanta Fed's GDPNow is giving.In Canada, retreating car sales, especially of American brands, has seen their February retail sales take an unexpected dip. They fell by -0.4% from the previous month and January was revised lower, so that is back-to-back falls in retail sales for the first time since June 2024. A +0.3% rise was anticipated in February. Year on year, February retail sales were up +4.2%.And in Canada, the Liberal government has called an election on April 28 (Saturday NZT). The race is set to revolve around who is best placed to fend off Trump. Trump pettiness is sure to be an issue.The Japanese inflation rate dipped to 3.7% in February from a 2-year high of 4.0% in January. Helping was a sharp pullback in price of electricity, up +9.0% in February from a year ago, back from +18.0% in January on the same basis. New utility bill subsidies are behind that shift. So this isn't likely to shift the Bank of Japan from its rate rising path.As expected, Malaysia's CPI inflation rate came in at +1.5%, but that was its lowest since February 2021. Their food prices were stable, housing costs fell.In China, they are piling on the pressure to try and stop the Hong Kong company who owns the Panama port facilities from completing the deal to sell it to America's Blackrock. CK Hutchison is in an impossible situation now, a pawn between great powers. How this one falls will likely tell us a lot.Meanwhile, their retail sales activity is on the rise. (At +4.0% year on year and rising from +3.7% in December, and that now bests the US's +3.1% and a fall from +4.4% in December, on the same basis.)In a bit of a surprise to many analysts, EU consumer sentiment did not improve in March as it has done previously in 2025, rather it dipped lower. To be fair, it has been deeply negative since mid-2021 and running below its long term average for the past two years.Here's something you don't see every day. A ratings agency putting a whole sector on 'watch' - in advance of failures. This is from Australia's SQM Research who now say the private credit sector (aka, the private debt sector, or 'private equity') is facing a wave of bad loans. It has a list of 14 issues that the sector is deficient with. Companies owned/funded by this sector are at heightened risk of short-term cut-and-run strategies, making matters worse.The UST 10yr yield is now at 4.25%, unchanged from yesterday at this time.The price of gold will start today at just on US$3023/oz and up a net +US$9 from Saturday.Oil prices are stable from Saturday at just under US$68.50/bbl in the US and the international Brent price is still just over US$72/bbl.The Kiwi dollar is now at 57.3 USc and down -10 bps from this time Saturday. A week ago, it was at 57.5 USc. Against the Aussie we are holding at 91.4 AUc. Against the euro we are also holding at 53 euro cents. That all means our TWI-5 starts today just on 66.9, and unchanged. A week ago it was at 66.7.The bitcoin price starts today at US$85,264 and up +1.6% from this time Saturday. A week ago it was at US$84,261. Volatility over the past 24 hours has again been low at +/- 0.9%.You can find links to the articles mentioned today in our show notes.You can get more news affecting the economy in New Zealand from interest.co.nz.Kia ora. I'm David Chaston. And we will do this again tomorrow.

Not so happy

Play Episode Listen Later Mar 20, 2025 6:18

Kia ora,Welcome to Friday's Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.I'm David Chaston and this is the international edition from Interest.co.nz.And today we lead with news we are slipping in the Happiness rankings, and slipping fast in the inequality measures within it.But first, last week's American initial jobless claims report brought no surprises, coming it at a similar level to the prior week and exactly as anticipated. But they season factors suggested they should have decreased a bit more than they did. There are now 2.13 mln people on these benefits, +6 more than year-ago levels.There were a lot more existing homes sold in the US (excludes new-built homes) in February that either in January or than were expected. But they were still at a lower level that a year ago, and the volume of listings rose +5.1% from a year ago.The latest regional Fed factory survey was from the Philly Fed and its rust-belt region, and while it remained positive, most markers declines in March. New order level declines were part of that.And that is consistent with the Conference Board's latest update of American leading indicators, which declined in February.Across the border in Canada, and perhaps somewhat surprisingly, producer prices rose +4.9% in February from a year ago, an easing of the price pressure from January. But it is still the second fasted rise on this basis since the end of 2022. Raw material cost increases are keeping this measure up.And staying in Canada, their central bank boss signaled a policy change overnight in light of the economic impacts from US tariff threats; rather than setting policy on a median term outlook, the ime may have come for faster, more nimble responses to short-term pressures, he suggested.China kept its Loan Prime Rates unchanged at today's review with the one-year rate, a benchmark for most corporate and household loans, steady at 3.1%, while the five-year, a reference for property mortgages, holding at 3.6%. Both rates are record lows.Taiwanese export orders starred again in February. They soared by +31% from a year ago to US$49.5 bln, easily beating market expectations of +22% growth and rebounding sharply from a small January slip. You can see why the mainland government covets the independent offshore island.German producer prices rose only modestly again, a trend they have been in for four months now after exiting deflation over the past 17 months.The English central bank left its policy rate unchanged at 4.5% at their overnight meeting. This was as expected.In Australia, their February labour market data was a surprise disappointment - for the ruling Labor Party at least. The number of people in paid employment fell by -53,000 when a +30,000 rise was widely expected. This is not a small miss, and 'unwelcome' ahead of their upcoming election campaign. But the number of people jobless also fell, and by -11,300, which managed to keep their jobless rate unchanged at 4.1%. The reason both fell is because their participation rate fell to a nine-month low of 66.8%, down sharply from January's 67.2%. People are leaving their workforce faster than usual, many of them boomers. Monthly hours worked in all jobs shrank. Financial markets didn't react badly because it probably will shift the RBA away from worrying about 'tight labour markets' and open up the possibility of rate cuts.Global container freight rates fell another -4% last week to be -31% lower than year-ago levels. But they are still +59% higher than pre-pandemic levels, even though the down trend is gathering pace. Again it is lower rates on outbound cargoes from China to the US that is driving the decline. Bulk cargo rates however were +3.6% higher than week-ago levels, -17% lower than year-ago levels, but still +60% above pre-pandemic levels (which were unusually low, it must be said).In another global report, New Zealand is virtually tied with Australia as the 12th happiest country in the 2024 edition of the World happiness Report released overnight. The usual Scandinavian set is at the top, with Costa Rica, but oddly, both Israel and Mexico now rank higher than us, which seems a little odd. Neither Australia nor New Zealand rank well on the inequality measures.The UST 10yr yield is now at 4.24%, down -4 bps from yesterday at this time. The price of gold will start today at just on US$3038/oz and up a net +US$5 from yesterday.Oil prices are up another +50 USc from yesterday at just on US$68/bbl in the US and the international Brent price is at just on US$72/bbl.The Kiwi dollar is now at 57.5 USc and down -40 bps from this time yesterday in a continuing retreat. Against the Aussie we are down -10 bps at 91.3 AUc. Against the euro we are down -20 bps at 53 euro cents. That all means our TWI-5 starts today just on 66.8, and -40 bps lower.The bitcoin price starts today at US$83,747 and down -1.0% from this time yesterday. Volatility over the past 24 hours has again been moderate at +/- 2.2%.You can find links to the articles mentioned today in our show notes.You can get more news affecting the economy in New Zealand from interest.co.nz.Kia ora. I'm David Chaston. And we will do this again on Monday.

Central banks stand back on looming trade chaos

Play Episode Listen Later Mar 19, 2025 6:00

Kia ora,Welcome to Thursday's Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.I'm David Chaston and this is the international edition from Interest.co.nz.And today we lead with news it's a big day of data locally with our Q4-2024 GDP result out later this morning, preceded by the Fonterra half year result. Either may have market-moving implications.But a few minutes ago, the US Fed released its latest monetary policy review and projections, the dot plot indications and forecasts, which suggest they see higher inflation in the year ahead (now 2.7% from 2.5% and a smaller economic expansion (1.7% from 2.1%). They also expect a higher jobless rate.They see two rate cuts this year. Nine of the 19 policymakers expect it to be in the 3.75%-4.00% range by the end of 2025.But at this meeting there was no policy rate change.In contrast, the AtlantaFed's GDPNow tracking suggests the US economy is now contracting at a -1.8% rate. Apart from the pandemic period, that would be their worst since the GFC.After two strong weeks of mortgage application growth, but mostly driven by refinance activity, last week there was a pull back with volumes falling -6.2%. But with the rise in US benchmark interest rates, and the consequent rise in the 30 year home loan rates (their first rise in nine weeks), perhaps this isn't much of a surprise. Still, overall activity is now +6% higher than year-ago levels.Tariffs and tariff threats are raising prices for basic commodities. For example, American steel is up +27% just from February 7, 2025. There is no way that won't have an inflationary impact there. Thinks cars. Interestingly with international steel diverted, these costs will be lower elsewhere, so the core competitiveness of American-made products are probably going to weaken noticeably. Chinese steel prices are back to where they were in 2017.Across the Pacific, Japanese exports rose +11.7% in February from the same month a year ago and this was the second best rise since December 2022 and much better than the +7.8% rise in February 2024. Still it wasn't quite as strong as expected.Japanese machinery orders rose +19.8% in January from the same month a year ago (up to ¥3.27 bln from ¥2.73 bln in January 2024.)The Bank of Japan kept its key short-term interest rate at around 0.5% during its March meeting, maintaining it at its highest level since 2008 and in line with market expectations. It was a unanimous decision and a cautious stance, focusing on assessing the impact of rising global economic risks on Japan's fragile recovery. They noted ongoing uncertainties in the domestic economic outlook, including trade policies and global conditions.The central bank of Indonesia held its benchmark interest rate at 5.75% during its March 2025 meeting, as expected. They have had only one -25 bps rate cut in 2025 which took their policy rate back to where it was for most of 2023. Recently their inflation rate fell to only +0.8%. And there was a sell-off on their stock exchange earlier in the week. So this 'hold' may be their last. The financial instability in Indonesia is a bit of a worry, especially for its neighbour, Australia.In Turkey, their autocratic president is feeling increasingly vulnerable. He has moved against his main rival with trumped-up charges and the instability has caused the Turkish currency to dive - again. Inflation is running at 39% still but it is falling. And their central bank keeps cutting their policy rate, now down to 42.5%.The World Meteorological Organisation's latest report, for 2024, is a sobering read. New Zealand may be situated in a climate sweet-spot but that isn't the case for almost all our trading partners. CO2 levels in the planet's atmosphere are now at an 800,000 year high. The future won't be like the past. The main way it will hit our pockets is through insurance costs.The UST 10yr yield is now at 4.28%, up +1 bp from yesterday at this time.The price of gold will start today at just on US$3034/oz and down a net -US$2 from yesterday.Oil prices are up +50 USc from yesterday at just on US$67.50/bbl in the US and the international Brent price is at just over US$71/bbl.The Kiwi dollar is now at 57.9 USc and down -30 bps from this time yesterday. Against the Aussie we are unchanged at 91.4 AUc. Against the euro we are also unchanged at 53.2 euro cents. That all means our TWI-5 starts today just on 67.2, and -10 bps softer.The bitcoin price starts today at US$84,613 and up +3.3% from this time yesterday. Volatility over the past 24 hours has again been moderate at +/- 2.1%.Join us for the Q4-2024 GDP result at 10:45 am this morning. And before that, we will have the Fonterra half year update.You can find links to the articles mentioned today in our show notes.You can get more news affecting the economy in New Zealand from interest.co.nz.Kia ora. I'm David Chaston. And we will do this again tomorrow.

Bigger bumps in the road

Play Episode Listen Later Mar 18, 2025 5:32

Kia ora,Welcome to Wednesday's Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.I'm David Chaston and this is the international edition from Interest.co.nz.And today we lead with news there are plenty of bumps in the economic road to note today.But first up today, there was another full dairy auction overnight, one that analysts had been nervous about and the derivatives market saw downside risks (on the uncertainties of how dairy product distortions would fare in the growing tariff disputes). In the end overall prices were unchanged - so no bump here - which the industry will take as a 'win'. But that is in USD terms. In NZD terms it certainly wasn't with prices down -3.3% overall as the USD weakened. Butter inched higher, and to a new record level. So did cheese. But WMP was little-changed, and SMP fell -0.4%. China was in there buying although not with notable enthusiasm.All eyes now turn to Fonterra's interim report on Friday, and the expectations are for only minor tweaks to their payout levels over that they have already announced at record highs.In the US, the retail impulse tracking though the Redbook index still shows a strong year-on-year +5.2% gain compared to the same week a year ago, but the advantage is fading and has done so each week in March so far. We don't get a week-on-week reading but for that year-on-year gain to fall from +6.6% three week ago, there must be a sharpish recent fall away.American housing starts unexpectedly jumped +11.2% in February from January, but that was just making back the -11.5% fall the prior month. The February 2025 build rate was at 1.501 mln units whereas the February buodl date was at 1,546 mln units so a -2.9% retreat on that basis.It was a similar story for US industrial production - up more in February from January (+0.7%) than expected (+0.3%), but the gains were less (+1.4%) than year-ago levels (+1.7%).There was a US Treasury 20 year bond auction earlier today and it brought less support, and at a median yield of 4.60%. The better supported prior equivalent event a month ago was at a median yield of 4.77%.Canada reported its CPI inflation rate at 2.6%, which was a notable rise from their January level of 1.9% and an expectation of 2.2%. It is probably only going to get worse from here due to the snarky tariff war the Americans started and the Canadians collective reactions. Their monetary policy decisions are based on "trimmed mean" rates, and they only moved up slightly.Across the Atlantic in Germany, and by a two thirds majority, their parliament has approved a massive €1 tln funding increase to allow it to build its defence capability and support Ukraine. It is a massive change in attitude to their fiscal policy direction.In the Pacific, Indonesia's stock market halted trading yesterday for the first time since 2020 after their market plunged more than -7% from Monday's close. Substantial concerns over economic stability and consumer sentiment are behind the move.In China the property sector woes are far from over. Another major developer, Sunac, has issued a major 'profit warning', actually a major warning about huge losses. Demand for its projects is very weak.In Australia, a superannuation fund has been convicted of greenwashing and ordered to pay a fine of more than AU$10 mln for making false claims about how it invested funds.The UST 10yr yield is now at 4.27%, down -3 bps from yesterday at this time. And we should probably note that the Tesla share price is down another -6% so far today.The price of gold will start today at just on US$3036/oz and up a net +US$42 from yesterday, and another all-time high.Oil prices are down -50 USc from yesterday at just under US$67/bbl in the US and the international Brent price is at just under US$70.50/bbl.The Kiwi dollar is now at 58.2 USc and unchanged from this time yesterday and maintaining its recent gains. Against the Aussie we are up +20 bps at 91.4 AUc and a new three-month high. Against the euro we are unchanged at 53.2 euro cents. That all means our TWI-5 starts today just over 67.3, and marginally firmer.The bitcoin price starts today at US$81,895 and down -1.9% from this time yesterday. Volatility over the past 24 hours has again been moderate at +/- 2.1%.You can find links to the articles mentioned today in our show notes.You can get more news affecting the economy in New Zealand from interest.co.nz.Kia ora. I'm David Chaston. And we will do this again tomorrow.

Eyes on China & American economic policymakers

Play Episode Listen Later Mar 17, 2025 6:44

Kia ora,Welcome to Tuesday's Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.I'm David Chaston and this is the international edition from Interest.co.nz.And today we lead with news the US Federal Reserve is meeting to review its monetary policy settings and uncertainty levels are high and rising, both on the growth and inflation fronts.But first, as we noted yesterday, China's State Council has launched 'a special action plan' to boost domestic consumption, including increasing residents' income and establishing a childcare subsidy scheme. The plan came a week after the Premier's work report to the National People's Congress, which focused on boosting household spending to cushion the impact of weak external demand.This had a notable impact on many, mainly Asian, financial markets.Meanwhile, China released an important set of recent data overnight. Their new home prices in 70 cities dropped by -4.8% year-on-year in February, easing from a -5.0% decline in January. This marked the 20th consecutive month of decreases but represented the softest pace since last June. For second hand home prices, they are down -7.5% year-on-year.China's retail sales were up +4.0% in the January/February period, a better rise than for any month, other than for October.China's industrial production was said to be up a strong +5.9% in the same period. However that doesn't quite square with their electricity production data in the same period which was -1.3% lower.Singapore's exports recovered in February after the disappointing January data. There were up +7.6% after falling -2.1% in January. However, that bounce back was weaker than analysts had expected (+8.7%).Indian exports were unremarkable in February, coming in just under US$37 bln and still low for an economy of this size, certainly one that is 'booming'. In India, it is all about internal demand. For reference, India's exports were US$41.4 bln in February 2024, so a shrinkage of -11% on that basis. They may be looking for new markets to shore up this weak performance.Legendary investor Warren Buffett once said his strategy is to be fearful when others are greedy, and greedy when others are fearful. Right now, market fears are high, in fact 'extreme'. So what is he doing? He is raising his stakes in Japanese trading houses.US retail sales in February were a disappointment. They fell -0.2% from January when a rise was anticipated and are now -0.9% lower than year ago levels. On an inflation-adjusted basis it will be worse than that. January data was soft too, and revised lower. Seven of the report's 13 categories recorded declines, including car sales on a year-on-year basis. This data is consistent with earlier data indicating defensive consumer attitudes.A 'fear' retreat by American consumers will likely have more of a global impact on trade and consumption than tariffs by themselves.That same hesitancy also shows up in the NAHB/Wells Fargo Housing Market Index which fell in March to its lowest level in seven months, and below what was expected. Current sales conditions fell sharply, sales expectations in the next six months held steady, while traffic of prospective buyers dropped sharply too. And not helping the builders is cost uncertainty.It is even tougher in the latest update of the Empire State factory survey by the New York Fed. This is often a volatile survey, but the March results record the largest pullback since May 2023. New order intake levels were particularly weak. Capital spending was very weak too. The New York Fed called the retreat "significant".But at least national business inventories in relation to sales activity are still within range, even if they did rise in February.In Canada, housing starts fell -4% in February to an annual rate of 229,030 units, down from a revised 239,322 units in January and below market expectations of 250,000.Less trade has seen the OECD trim its 2025 and 2026 forecasts for economic expansion. Annual GDP growth in the United States is projected to slow from its +2.8% 2024 pace, to be +2.2% in 2025 and +1.6% in 2026. China's growth rates are slowing too. But they do expect improvements in Australia. (See page 5.) They see inflation rising to above policy target levels. New Zealand gets no mention in this update.The UST 10yr yield is now at 4.30%, down -2 bps from yesterday at this time. The price of gold will start today at just on US$2994/oz and up another net +US$9 from yesterday.Oil prices are up +50 USc from yesterday at just on US$67.50/bbl in the US and the international Brent price is at just on US$71/bbl.The Kiwi dollar is now at 58.2 USc and up +70 bps from this time yesterday. That is its highest level since December 10, 2024. Against the Aussie we are up +30 bps at 91.2 AUc and a similar three-month high. Against the euro we are up +40 bps at 53.2 euro cents. That all means our TWI-5 starts today just under 67.3, and up +50 bps to a two month high.The bitcoin price starts today at US$83,439 and down just -0.2% from this time yesterday. Volatility over the past 24 hours has again been modest at +/- 1.2%.You can find links to the articles mentioned today in our show notes.You can get more news affecting the economy in New Zealand from interest.co.nz.Kia ora. I'm David Chaston. And we will do this again tomorrow.

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