Here's our summary of key economic events overnight affecting New Zealand, with news that although active talk of a coming recession in 2023 is growing, there are still no real signs of it in global labour markets.
We are less than ten days away from the next US Fed rate review. Markets are pricing in a full +75 bps (and a bit more) for that meeting, plus another +125 bps and taking their official rate to 5.0% by March 2023 and assumed it will level out at that point for the rest of the year. That is a rapid-fire set of increases expected and already priced in. The big question now is, when to slow down? (Markets have priced in a New Zealand OCR at 5.5% by August 2023.)
The US Federal Government booked a -US$1.78 tln deficit in their full fiscal year to September, a huge improvement on the -US$2.78 tln in the prior 2021 year. Still, this deficit is still -5.4% of US GDP. That is back to the average levels of the past 35 years, and a steep and fast recovery from the disastrous Trump years.
We should also note that the US Fed's balance sheet has retreated to US$8.7 tln (34% of GDP) and back to levels first reached in December 2021. That is a reduction of --US$220 bln from the peak in mid April 2022.
Canadian retail sales didn't slip away as much as expected; in fact they rose in August after a slip in the prior month.
As widely expected, Japan's government and central bank intervened in the currency market earlier today to support a falling yen, The yen soared the most against the US dollar since March 2020 on the intervention, rising +2.7% in just a few hours. It was an intervention timed for the final few hours of trading in the US, so it should hold things until Tuesday NZ time, at least.
Japanese inflation came in at 3.0% in September, unchanged from August and holding near an 8 year high. Food prices were up +4.2%. Electricity costs were up 21%. Without food and energy costs, 'core' inflation there was only 1.8% however.
In China, the exhortations of the Party in Beijing this week are exposing a serious generation gap. The "last generation" movement among China's under 35s is becoming quite embedded with a suspicious and cynical generation emerging. The political theater in Beijing means little to increasing numbers of younger Chinese expected to carry the weight of Xi's "modernisation" dreams despite increasingly dire career prospects in a sputtering economy. At Xi's coronation, the signs of rot should not be dismissed. In the end demographics are destiny, and Chinese demographics tell a story of decline that is already underway. Xi is also expecting a country with deeply embedded values of hard work resulting in financial security to set them aside 'for the greater good'. It is likely to just build frustrations.
Buyers are shunning residential real estate 'investment' in most Chinese cities now. Local authorities are raising emergency funding to complete stalled projects, but buyers remain suspicious of what they will get. Some cities are trying to entice them back with sub 4% mortgage interest rates. In fact one city is now offering 3.7% mortgages.
Prices for iron ore and copper are falling, mostly based on weaker prospects in the Chinese economy. And despite war disruptions from Russian supply, neither aluminium nor nickel prices are going anywhere either. Sanctions should have raised prices for these key commodities, but it isn't happening. The reason is weak demand, especially from China.
Next week (Wednesday) Australia releases its September CPI data. It is expected to rise to 6.9% from 6.1% in August. But analysts like CBA reckon it will be over 7%. At that level, the RBA may not be as sanguine about how they have handled monetary policy so far.
For the long weekend, if you want to read a genuinely serious assessment of where the world stands in its struggles to transition to a sustainable energy and climate future, this review is worth your time.
In freight news, the backup of container ships off Southern California’s coast that was at the heart of American supply chain congestion during the pandemic has effectively disappeared. The queue of ships waiting to unload at the ports of Los Angeles and Long Beach fell from a peak of 109 ships in January to just four vessels this past week. This doesn't mean all American logistics pressure is over, but it is an early sign that it is fading, and fading fast. And after peaking in early January this year, the share price of global shipping giant Maersk has fallen -35%. Super profits from logistics stress are no longer there.
The UST 10yr yield starts today at 4.22% and unchanged from this time yesterday. But it is up +20 bps from this time last week. The UST 2-10 rate curve is much less inverted at -27 bps. And their 1-5 curve is also less inverted at -23 bps. But their 30 day-10yr curve is flatter at +75 bps. The Australian ten year bond is up +21 bps at 4.22%. The China Govt ten year bond is little-changed at 2.74%. And the New Zealand Govt ten year will start today also unchanged at 4.69% but up +17 bps from this time last week.
Wall Street is much higher today with the S&P500 up +2.5% and enabling a respectable +3.0% rise for the week. Overnight, European markets fell about -0.5% on average except London which rose +0.4% on the day for a +1.6% weekly gain. Frankfurt ended its week up +2.1% for the week and Paris ended up +1.4%. Yesterday, Tokyo ended down -0.4% but rose +0.4% for the week, Hong Kong was also down -0.4% yesterday but it fell -1.6% for the week. Shanghai slipped -0.1% in its Friday session to be -0.7% lower for the week. The ASX200 ended its Friday session down -0.8% on the day, and down -1.2% for the week. And the NZX50 was down -0.5% yesterday to be -0.8% lower for the week.
The price of gold will open today at US$1654/oz. This is up +US$18 from this time yesterday and up +US$11 from this time last week.
And oil prices start today down -50 USc from this time yesterday at just over US$84.50/bbl in the US while the international Brent price is just over US$91.50/bbl. A week ago these prices were exactly the same.
The Kiwi dollar will open today at 57.6 USc and about +½c firmer than this time yesterday. And it is almost +2c higher than this time last week. Against the Australian dollar we are little-changed at 90.3 AUc. Against the euro we are slightly firmer at 58.4 euro cents. That all means our TWI-5 starts today at 68.1, and up +20 bps from yesterday but +160 bps higher than a week ago.
The bitcoin price is now at US$19,220 and a mere +0.3% higher than this time yesterday - but -1.1% lower than this time last week. Volatility over the past 24 hours has however been modest at just +/- 1.5%.
Finally, please note that Monday is a public holiday in New Zealand. Banks and financial markets will be closed. Most businesses outside the retail sector and hospitality will be closed.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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