US inflation rise rocks the Fed; US jobless claims fall' US budget possibly in surplus; China goes on debt funding spree; Aussie inflation expectations up
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.
Today we lead with news that the Fed has not moved fast enough to keep raging inflation in check.
The headline news today is that US CPI inflation hit 7.5% in January, a 40 year high. Although that was only just over analysts were expecting (+7.3%), markets felt they hadn't priced in enough so benchmark interest rates rose sharply, the USD slipped, and Wall Street is lower. Core inflation came in slightly higher than expectations too at 6.0% from a year ago, although it should be noted that the January month-on-month rises were pretty much the same as the month-on-month rises in December - and lower than for both October and November.
Driving these January rises are energy prices, and supply chain disruptions. They are across the board and include food which was up +7.0% - the only major category not showing large pressures were medical care costs.
The chances of an outsized rate hike at the Fed's March 17 (MZT) meeting is now high - maybe as high as +1% and taking it to 1.25%.
Meanwhile, US jobless claims came in lower than expected and lower than the prior week. There are now 2.0 mln people on these benefits, back at pre-pandemic levels.
The US budget is expected to show a small surplus for January when the data is released later this morning. We will update this item then. Any time it shows a surplus is actually 'real news' even if it is small. In January 2021 there was a -US$163 bln deficit, so their budget repair progress is actually quite impressive.
Japanese producer prices are still rising at a fast clip. They rose +0.6% in January from December and +8.6% in the year.
Also rising at a fast clip is new lending at Chinese banks. The word has clearly gone out to get loans out the door quickly. Since these statistics started being reported in 2004, there has never been anything quite like this flood of new lending. Chinese banks lent almost ¥4 tln in new loans in January, a new all-time record and easily beating market forecasts of almost ¥3.7 tln, and more than three times the ¥1.1 tln in December. Their central bank is moving very quickly to boost lending to shore up their slowing growth. China lacks new ideas on now to maintain their expansion - it certainly isn't self-sustaining. "Stability" is now their watchword.
In Hong Kong, their pandemic situation is far from stable, with hospitals overwhelmed by Omicron cases.
And China's commitment to its environmental targets is wavering. In 2021 it announced it wanted its steel industry bring forward its steel industry's peak emissions to 2025. But now it is relaxing that to 2030 because it can't stand the economic pain. This in turn probably means it will be buying much more iron ore to pump up its "growth stabilisation measures". The iron ore price fell from US$225/tonne in May 2020 to just US$83 by mid November 2021, almost a -65% fall. But on the news of the relaxation of those environmental standards, it has risen back to US$142/tonne, a +70% gain in 12 weeks. Australian miners are in fat city any time the price is over US$100/tonne. They are profitable over US$40/tonne.
Around the world, very dodgy carbon credit schemes are popping up to game the system, and large companies are using these opaque exchanges to cover themselves at relatively cheap prices.
Aussie inflation expectations rose to 4.6% in their February survey (paywalled), up from 4.4% in January. But this just maintains the higher levels that have been reported in this survey from September 2021 onwards. Still, it will add fuel to the expectations that the RBA will be forced to move earlier in raising rates in 2022. New Zealand inflation expectations survey results are due out this afternoon.
The UST 10yr yield opens today at 2.03% and +12 bps higher and taking it to a level we last had in July 2019, 30 months ago.
The price of gold starts today at US$1842/oz and up another +US$9 from this time yesterday.
However oil prices are up +US$2.50 at just over US$90.5/bbl in the US, while the international Brent price is now just under US$92.50/bbl.
The Kiwi dollar will open today firmer again at 67.2 USc. Against the Australian dollar however we have slipped back to 92.9 AUc. Against the euro we are little-changed at 58.6 euro cents. That means our TWI-5 starts today just over 71.4.
The bitcoin price is +2.9% higher since this time yesterday and now at US$45,425. 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.
And get more news affecting the economy in New Zealand from interest.co.nz.
Kia ora. I'm David Chaston and we’ll do this again on Monday.