Eyes on US Fed. US retail weakens. Canadian housing starts jump. China retail sales weaken, electricity production growth stalls. EU-Russia tensions higher.
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.
Today we lead with news of some caution ahead of the US Fed announcements.
All eyes are on the US Fed this morning, awaiting their expected tapering decision, and wanting to see their forward track data. This will be released at 8am NZT and we will update the decision on our website. It has the potential to move markets, especially on divergences from the expected signals that are priced in which is heading for a 2.50% official interest rate in about three years from 0.25% now, and with a sharp tapering of new bond purchases in early 2022. The end of QE makes interest rate rises possible.
Meanwhile, US retail sales came in slightly weaker than expected, up +0.3% from a month earlier in November after surging +1.8% in October and well below market expectations of +0.8%. This is a sign of slowing domestic demand because it is not price-adjusted and does not reflect the fastest inflation in decades. The so-called core retail sales, which correspond most closely with the consumer spending component of GDP, edged down -0.1% in November. However, we should also note that the November retail sales were +18% higher than year-ago levels. Inflation may now be hurting retail sales volumes.
More than this, US business inventories jumped +1.2% in October from September and to be almost +8% higher than a year ago - their largest rise in a decade and clear evidence of the costs of the supply-chain changes. This sort of change embeds higher inflation.
The retreat in confidence expected from the NY Fed's regional factory survey didn't eventuate in their December survey however. Growth at good levels continues for these firms, who remain far more optimistic that the long run average, while price increases remain substantial.
Canadian housing starts rose more than expected, adding more than +300,000 dwelling units when +234,000 were expected in November.
And Canadian CPI rose to its highest since 1991 at just over 4.7% in November.
China's house prices slipped according to official Chinese statistics. They say in first-tier cities like Beijing and Shanghai, they fell -0.2% in November from October. In second-tier cities they were down -0.4% on the prior month, and in third-tier cities they were also -0.4% lower. Year-on-year all these prices are still sowing gains, but they are narrowing. (Prices for new housing were reported as being higher.)
China retail sales lost some momentum in November, ending up just +3.9% compared to a year ago, in officially released data and that was lower than analysts were expecting.
Chinese industrial production rose +3.8% from a year ago and that was marginally better than expected. Electricity production showed virtually no growth from year-ago levels (+0.2%) which may be a more telling indicator of the slowdown.
In the EU, tensions with Russia are rising, and they were already high. Germany has convicted a Russian assassin working in the country. And the EU is ending long term contracts for natural gas, at the expense of Russia, as they drive for less reliance on fossil fuels, quicker. Moscow is not impressed. China is paying 50% less for their natural gas as well, but at least they are still buying. Russia is all about fossil fuels and is feeling under pressure on all fronts.
The EU carbon price is off its all-time high of a week ago, but still up at €80.20/tonne or NZ$135/tonne of carbon equivalent and that is almost exactly double the New Zealand price which is currently NZ$68.15/tonne.
The UST 10yr yield opens today at 1.44% and unchanged from this time yesterday, awaiting the US Fed signals.
The price of gold will start today at US$1767/oz and down -US$7 from this time yesterday.
And oil prices start today +50 USc firmer at just over US$70/bbl in the US, while the international Brent price is now just under US$73.50/bbl.
The Kiwi dollar opens today softer yet again at 67.3 USc and now a 13 month low. Against the Australian dollar we are -40 bps weaker at 94.6 AUc. Against the euro we are little-changed at 59.8 euro cents. That means our TWI-5 starts the today essentially down -20 bps at 72 and its lowest in four months.
The bitcoin price is little-changed at US$46,933 and up a mere +0.4% from this time yesterday. Volatility over the past 24 hours has been moderate at just on +/- 2.4%.
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.