IMF downbeat. US inflation expectations rise. China's property rescue official. South Korea has liquidity crisis. India inflation eases. Aussie floods extreme.
Kia ora,
Welcome to Tuesday’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 is generally down-beat today.
The global economic outlook is even gloomier than projected last month, the IMF told G-20 leaders, citing a steady worsening in PMI surveys in recent months. It blamed the darker outlook on tightening monetary policy triggered by persistently high and broad-based inflation, weak growth momentum in China, and ongoing supply disruptions, and food insecurity caused by Russia’s invasion of Ukraine.
In the US, consumer inflation expectations for the year ahead increased to 5.9% in October from 5.4% in September. This comes after three consecutive months of a slowdown. Driving the rise was the expectation that petrol prices would rise further. But expectations about year-ahead price changes rose for food and for rent both remained very high. The RBNZ will release the results of its own survey of consumer expectations later today.
Also later today, the REINZ will release its October house price data and it is expected to be deflationary.
In China, the 16-point rescue of their property sector we noted yesterday is now official. It will be a costly affair, and there is no evidence it will actually stop falling house prices there. However, the currency markets liked the intervention, and the yuan has stopped falling.
In South Korea, we should keep an eye on a growing bond crisis there. Even AAA rated companies are having trouble raising debt financing. And an SOE tried to renege on a debt repayment, triggering a focus on the issue. Seoul's national government has stepped in to bring some order, but damage to these markets is impacting them as well, with CDS (credit default swap) premiums for sovereign South Korean debt now well over 60 bps and doubling in two months. (NZ CDS spreads are just over 20 bps.)
India's retail price inflation eased to 6.8% year-on-year in October, down from September's five-month high of 7.4%, helped by slower rises in food prices and a strong base effect. Still, the reading came in slightly above market expectations, and remained above the central bank's unusually wide 2%-6% target range
The latest data for EU industrial production is for September and that overnight data came in very much better than anyone expected, up +4.9% from a year ago and nearly double what was expected and the annual expansion in the prior month. The rise from August was also strong.
In Australia, flash flooding is causing extreme stress in rural NSW, with evacuations ordered in a number of centers. The impacts on the Australian east coast rural economy will be huge.
Perhaps there is somewhere in here we can note that since April 2022, the US central bank has reduced the size of its balance sheet by more than -US$¼ tln.
The UST 10yr yield starts today at 3.87% and up +6 bps in Wall Street's Monday trade.
The price of gold will open today at US$1769/oz. This is down -US$2 from this time yesterday.
And oil prices start today -US$2 lower than this time yesterday at just on US$86/bbl in the US while the international Brent price is just over US$93/bbl. OPEC has trimmed its forecast for demand growth in their product, the fifth time in a row they have done that in 2022. It says supply is in surplus.
The Kiwi dollar will open today at 61 USc and marginally softer. Against the Australian dollar we are also softer at 91 AUc. Against the euro we are still at 59 euro cents. That all means our TWI-5 starts today at 70 and unchanged.
The bitcoin price is now at US$16,438 and a mere -0.7% lower than this time yesterday. Volatility over the past 24 hours has been low at under +/- 1.0%.
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 tomorrow.