US Fed fears inflation & shadow banks. US jobs expand fast. Canadian jobs expand fast. China sticks with zero-Covid. RBA fears real wage fall.
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.
Today we lead with news still driven out of the United States.
High and persistent inflation is the greatest near-term risk to the American economy and financial system, the US Federal Reserve said in its semi-annual Financial Stability Review. It also warned of rising instability in the trading of American government debt. An unexpected future shock could amplify existing vulnerabilities and shadow banks - leveraged financial firms other than regulated banks - are the main risk they see.
All this comes as the American prepare to vote in the mid-term elections. All the signs are that the Democrats will lose control of both houses of Congress, and making the Biden Administration's final two years very hard to govern effectively. Fortunately, they have used the first two years to install a very effective economic repair. The new Congress will focus on its culture wars.
Also over the weekend US non-farm payrolls rose more than the conservative forecasts, up +261,000 s.a. in the headline result and well above the expected +200,000.
But as regular readers will recall, we prefer to watch the 'actual' numbers and those rose +1,172,000 in October from September and taking their paid workforce to a massive 154.3 mln, and easily its largest ever. That is +1 mln more than the 'seasonally adjusted' numbers report. The pay for +1 mln extra people is likely to be highly stimulating and power American consumption for some time to come. That will also be adding to inflationary pressures, bolstering demand. They have a paid workforce +3.4% larger than this time last year.
By any measure these are strong numbers. Their participation rate rose to a modest 62.2%. As might be expected, less than 20% of their jobless are 'long term unemployed' which is consistent with a very strong labour market.
It is now a chicken-or-egg issue going forward. Will the new expanded employment drive an economic expansion? Or will a stuttering economic expansion make the higher employment unsustainable? Seemingly endless 'warnings' that the US economy is running out of steam have so far proven unfounded. But there is one cloud in today's US jobs numbers - the vast increase in paid workers were at hourly rates that rose slightly slower than inflation.
North of the border, Canada also reported a strong and strengthening jobs market. They expected a +10,000 rise in paid jobs but actually reported +108,300 new jobs - and even more for full-time positions, and a reduction in part-time jobs. Their participation rate is 64.9%.
Adding to the positive vibe, Japan's services sector is well on the mend, with it expanding at a faster rate in October. They reported faster growth in activity levels and employment and optimism in that sector is now at all-time highs.
In China, they said they are sticking to their zero-Covid policies, dashing hopes of some easing. China says it is still facing complex and severe pandemic outbreaks in the country and with winter approaching they are worrying about the current uptick gaining more momentum. All this is despite rising public and local government pressure to move on from the costly and disruptive policy.
China's seemingly endless promises of "reform and opening up' are just pointing out how closed and controlled their economy is, even if they know they do need those economic reforms. Their Party Congress focus on control and security indicates a deep distrust of their own people and market forces. It is hard to see how international companies can have much confidence in supply chains that rely on China after these recent shifts.
And in a detail confirming the sidelining and downgrading of the influence of their central bank, the Party has gone after a senior manager there, with a standardised accusation of corruption. Officials with economic experience are now suspect.
Singaporean retail sales rose more than expected in September and extending a new positive trend. They are now up +3.2% from August and up more than +11% from year-ago levels.
German factory orders fell in September and by more than expected. This extends a recent weakening trend. Export orders are holding these from being even worse.
In Australia, their residential rental market is in crisis with vacancy rates at 1% or below in most urban areas. There are reports that some renters were making up to 100 applications for a home unsuccessfully, sometimes after receiving a no-grounds eviction with a set end date. The conditions for widespread social unrest are brewing in these circumstances.
And the Australian central bank expects a couple of tough years for Australians, with real wages continuing to fall as inflation persists and unemployment starts to rise. These forecasts are part of their latest Monetary Policy Statement from the Reserve Bank of Australia. They echo their new Government's warnings. "Given the importance of avoiding a price–wage spiral, the board will continue to pay close attention to both the price-setting behaviour of firms and the evolution of labour costs in the period ahead," it warned. They are also concerned that recent jumps in rent, especially in Australia's two biggest cities, might further entrench inflation.
The UST 10yr yield started today at 4.16% and unchanged from Saturday.
The price of gold will open today at US$1683/oz. This is up +US$8 from this time Saturday.
And oil prices start today little-changed from this time Saturday at just over US$91.50/bbl in the US while the international Brent price is just on US$98/bbl.
The Kiwi dollar will open today at 59.3 and a +¼c higher than this time Saturday. For the week it is up +1¼c and a strongish revaluation. Against the Australian dollar we have stayed firm at 91.7 AUc and near our highest since April. Against the euro we are up slightly at 59.6 euro cents. That all means our TWI-5 starts today at 69.7 and our highest since mid September.
The bitcoin price is now at US$21,260 and up another +2.4% since Saturday. Volatility over the past 24 hours has been low however at just on +/- 0.5%.
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 tomorrow.