US inflation surges. US household net worth swells. Japanese PPI jumps. China shovels out bank credit at record rate. ECB winds down asset purchases faster.
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 Russia's invasion of Ukraine deepens, as does the resistance. The IMF is bolstering Ukraine's finances. The US is proving substantial aide too. Talk is surfacing on how Russia will be expected to make reparations when the conflict is over. Damage tops US$100 bln so far. Peace talks are non-starters so far.
Elsewhere, US jobless claims rose last week to 218,000 claiming these benefits. That was marginally above what was expected even if these are back to pre-pandemic levels. There are now just over 1.9 mln people on jobless benefits and still close to 40 year lows.
Going the other way, American consumer inflation is at a 40 year high. In February, the headline rate rose to 7.9% which was what analysts were anticipating. Core inflation, without food or energy, was up to 6.4%, also as expected, but showing how embedded inflation has become in the US. Rents were up +4.7% in the February year, clothing up +6.6%. Food was up 7.9%. But of course the main driver is fuel costs. Again, it is medical costs that lag, up only 2.5%. Despite all this, the flow-though of the Ukraine war came after this data release. March data will be shocking, no doubt. Equity markets fell on this data, which is a bit surprising given it was what was expected. The ECB announcement might have also contributed. But all this cements in a substantial Fed response next week, which markets assume they won't like.
Later this morning we will get the US Federal Government budget out-turn for February and a small -$50 bln deficit is expected and at that level one of the smallest post-pandemic results. And perhaps an all-time low deficit for a February. The very much better management of the US economy is also showing up in their household balance sheets. Household net worth rose to more than US$150 tln in Q4-2021 with one of their biggest quarterly rises ever outside the pandemic recovery.
Better, American home ownership rates are rising according to a new report, especially for middle-class families. Housing assets now exceeds US$50 tln , but it is American households exposure to the equity and bond markets that dominate, now at US$118 tln.
Meanwhile in Japan, producer prices rose +9.3% year-on-year through to February 2022, the highest rise there in nearly 40 years.
China's economy might be in the doldrums, but that is not because they aren't shoveling out more bank debt. In fact new yuan loans rose at an astonishing rate in January, almost ¥4 tln in January alone and well higher than what was expected. It was an all-time record and three times the December rise. It is a pity for them that it isn't having more of an effect on economic activity - or perhaps it is, helping them to just tread water. You wouldn't think that they could just keep doing this however, just to stop going backwards. Beijing is in meeting mode at present, so bravado is high. But they seem in some trouble economically.
South Korea as a new president, a conservative who says he will be less conciliatory to China and North Korea (and presumably Japan with whom South Korea has many grievances).
At the overnight ECB policy review they surprisingly speed up their asset purchase schedule for the coming months and signaling their APP could end in Q3-2022 if the medium-term inflation outlook doesn't weaken. Monthly net purchases will now scale back to €20 bln in June, a sharpish and unexpected pace. Equity markets dived on this news.
The Turkish currency is falling again, weakened not only by the Ukraine war but by no change in their dopey monetary policies. And there is no respite for the Russian ruble still worth less than 1 NZc.
Globally, there have been widespread moves to ease up on border controls, and that is expected to benefit passenger air travel. Prior to this trend, there were 'good' signs that this industry was moving out of its extreme hibernation with January passenger activity rising strongly on a year-on-year basis. Domestic markets in China and India are the only ones anywhere that now show no sharp recovery.
The Ukraine war is making shipping costs more expensive, especially for bulk cargoes. But although is remains unusually expensive, at least the wheat price is off its highs. A pullback from unusual highs for rice, soybean and corn is underway too, even if it is small at this stage. The implications of these high grain prices on animal feed costs for non-pasture farmers is extreme.
RBA's Governor Lowe may be the only one thinking he can be 'patient' and not move against inflation yet. The latest Melbourne Institute survey of inflation expectations has them up to 4.9% in one year, the highest for this survey since 2013, a survey that goes back to 1995.
The UST 10yr yield opens today at 2.01% and another +9 bps rise from this time yesterday. It last touched 2.0% in July 2019 - on the way down.
The price of gold starts today at US$1997/oz and down -US$4/oz from this time yesterday.
And oil prices are sharply lower again today and down by -US$7.50/bbl. In the US they are now just under US$106.50/bbl. The international price is just under US$110.50/bbl.
The Kiwi dollar will open today a little firmer at just over 68.6 USc. Against the Australian dollar we are at 93.4 AUc which is slightly lower. Against the euro we +½c higher at 62.3 euro cents. That all means our TWI-5 starts today at just on 73.7 and +40 bps higher than this time yesterday.
The bitcoin price is down sharply today, down -7.8% from this time yesterday to US$38,981. Yesterday's relief rally didn't last long. Volatility over the past 24 hours has been very high at +/- 4.9%.
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.