US jobs market stronger than expected; US consumers fear impending inflation; financial markets fear rate cut delays; insurers fear climate impacts; China fears bond pressures; UST 10yr at 4.76%; gold and oil up; NZ$1 = 55.6 USc; TWI = 66.6 (really)

Here's our summary of key economic events overnight that affect New Zealand with news of a series of unexpected 'good-news' economic data releases among our trading partners.

First, the US economy added +256,000 jobs in December, much more than the +212,000 in November, and way more than the market expectations of +160,000. Their jobless rate fell. These are the headline rates. The actual change was a tiny fall to 160.5 mln employed workers, but actually a much less reduction than seasonal factors would have indicated.

For all of 2024, they had a rise of +2.2 mln payroll jobs and for the four years of the Biden presidency a rise of +16.9 mln new jobs. In the prior four years, there was a loss of -2.6 mln jobs.

The wider employed labour force only grew by +11.7 mln in the past four years as many people transitioned from unincorporated self-employment back on to company payrolls. In the prior four years, the wider employed labour force shrank by -2.2 mln people. Any way you cut it, the past four years has been a golden period for American employment.

Average weekly earnings rose +3.5% in 2024, up +20.0% over the past four years. In the prior four years they rose +18.0%.

But Americans are increasingly fearful of the year ahead. The latest University of Michigan consumer sentiment survey in January dropped because of surging worries over the future path of inflation. Year-ahead inflation expectations jumped to 3.3%, the highest in eight months, from 2.8% in December. This is only the third time in the last four years that long-run expectations have shown such a large one-month rise. Consumers know they will be paying much more if tariffs are jerked higher soon.

The financial markets are also reacting to the jobs data and the impending impact of tariffs. Wall Street equities are sharply lower today, bond yields have jumped, and a risk-off defensive tone is spreading which saw the USD rise. That's all because the strong jobs data argues for a Fed rate cut pause. Their bar for rate cuts has risen has risen noticeably with this data. The Fed next meets on January 30 (NZT).

Prior to this data release, the latest Atlanta Fed Q4-2024 economic growth estimate was +2.7%. Today's strong labour market data may see some upside to that.

The January USDA World Agricultural Supply and Demand Estimates were released today showing lower-than-expected yield and production estimates for both corn and soybeans, and prices for both rose on the news. They reported lower beef production in the US and higher imports from South America and Oceania, but expect little-change in 2025. They also see lower US milk production and lower US dairy exports.

Canada also reported their December labour force data today and that was strong too. Employment there rose +90,900 with more than half that as full-time jobs. Their jobs growth was far higher than the +25,000 expected and the +50,700 in November. This surge also calls into question whether the Bank of Canada will actually cut rates when they next meet, also on January 30 (NZT).

The latest Japanese household spending survey indicated another fall in November, part of a pattern of monthly falls since early 2023. But this one was a little different because it was the smallest surveyed fall in the series and a much 'improved' result that from both prior months and from what was expected. Some see a turning point.

In China, in a surprise move, their central bank said it would suspend treasury bond purchases in the open market due to a supply shortage, effective immediately. They will "resume purchases at an appropriate time based on market conditions". The move comes amid repeated warnings from them about bubble risks in their overheated bond market, where long-term yields have plummeted to record lows. Over the past year, yields on key bonds, including the benchmark 10-year government bond, have reached unprecedented lows as investors flock to safe-haven assets. This shift is largely driven by ongoing economic uncertainties linked to a prolonged property market slump. In December, Chinese leaders signaled further rate cuts, fueling another surge in bond market activity. This pushed the 10-year treasury bond yield to an all-time low of 1.6% earlier this month, exacerbating concerns over market exuberance.

Their yields recovered after this move but the recovery didn't hold. But at least they arrested the decline and the day ended unchanged.

Chinese analysts are expecting bad news coming from the series of large zombie property developers that have been holding on with government funding support. But most of them seem to have reached the end of the line and a series of default-into-administration events are now anticipated, and investors will take a bath. None of this will help the economic mood.

In India, their industrial production showed a small improvement in November, up +5.2% from a year ago with manufacturing up +5.8%. Both results were better than October and better than expected.

In Australia, their Federal Government accounts for the five months to November show that tax receipts are surging. That is cutting into their budget deficit for the year quickly. At the current rate the full year budget deficit may halve. If the trend continues, they even have a chance of posting a surplus. The reason for the improved outlook is twofold: their jobs market is buoyant generating higher income tax deductions than expected, and their currency is falling vs the USD, and their mineral exports are sold in USD generating an unexpected rise in royalty receipts (and higher corporate income tax receipts).

And we should note that the Los Angeles fire disaster could have a strong echo in insurance markets everywhere, including here. It will likely be an event where many insurers reassess and re-rate their exposure to climate change risks. And if you can get insurance, it will be a step-change more expensive in the future. It is not just "fires in Southern California", it is the full climate risks that are being reassessed. The Los Angeles event is an industry turning point.

The UST 10yr yield is now at just on 4.76%, and up +7 bps from yesterday in a jobs-data reaction. A week ago it was at 4.59% so a +16 bps rise from then. The key 2-10 yield curve is still positive by +39 bps. Their 1-5 curve is more positive at +33 bps. And their 3 mth-10yr curve is also much more positive, now by +45 bps. The Australian 10 year bond yield starts today at 4.64% and up +10 bps. The China 10 year bond rate is now at 1.63% and unchanged. The NZ Government 10 year bond rate is now at 4.65% and also unchanged.

Wall Street is down a sharp -1.2% on the S&P500 in Friday trade in reaction to the good jobs numbers. If that holds, the weekly change is a -0.8% fall. Overnight, European markets closed about -0.7% lower. And Tokyo fell another -1.1% yesterday for a -1.9% weekly retreat. Hong Kong was down -0.9% for a weekly retreat of -4.0%. Shanghai was down -1.3% in Friday trade to cap a weekly loss of -1.3%. Singapore also ended down -1.6%. The ASX200 closed its Friday trade down -0.4% but managed a +0.5% weekly gain. The NZX50 also fell -0.4% yesterday for a weekly -1.3% reversal.

The Fear & Greed Index ends the week hard over in the 'fear' zone, and but actually little-changed from last week.

The price of gold will start today at US$2689/oz and up +US$20 from this time yesterday and up +US$49 from a week ago.

Oil prices are up +US$2.50 from this time yesterday at just on US$76.50/bbl in the US while the international Brent price is now just under US$79.50. That is the same as the weekly gain. The jump today came from fear of the effect of new sanctions activity.

The Kiwi dollar starts today just under 55.6 USc and down -40 bps from this time yesterday and down -50 bps for the week. Against the Aussie we are up +10 bps at 90.4 AUc. Against the euro we are little-changed at 54.3 euro cents. That all means our TWI-5 starts today at just under 66.6 and down -30 bps and down the same from a week ago.

The bitcoin price starts today at US$93,589 and down -0.7% from this time on yesterday. A week ago it was at US$97,969 so a -4.5% fall since then. Volatility over the past 24 hours has been moderate at +/- 2.2%.

The easiest place to stay up with event risk is by following our Economic Calendar here ».