Xi in US. Tame US data as inflation impulse eases. US shutdown threat fades. Weaker data from Japan, China and the EU. Aussie wages up less than inflation.
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.
And today we lead with news American data points to the soft landing the US Fed has been looking for as it seems to have successfully navigated the inflation transition.
But first we should note that President Xi has arrived in San Francisco for the APEC meeting, his first visit to the US in five years. The last time he was there, China's economy was in the ascendency and Trump was the US president. This time those factors have reversed. The Biden-Xi meetings have started but there are low expectations for immediate progress on the thorny issues facing them. Progress, if it comes, will come slowly in small steps.
Meanwhile, US mortgage applications had a rare rise last week, and mortgage interest rates were unchanged. But the rise was as much about the year-ago base as any strength this year.
American producer prices fell in October in something of a surprise retreat. But it was driven lower fuel prices so that is a definite upside. Their PPI fell -0.5% in October from September to be +1.3% higher than a year ago. Good prices went down -1.4% in the month, the first decrease since May mainly due to a -15% drop in petrol prices. Services prices were unchanged from the prior month. It is a good result that indicates the American inflationary impulse has probably passed.
Retail sales decreased by -0.1% in October from September, putting an end to a six-month streak of increases, but at least it was much less than the market expectation of a -0.3% decline, so they have held up better than analysts expected. Year-on-year they are up +2.7%.
Going the other way, they was a very large, and unexpected, rise in factory activity in New York State, in the Fed survey for that region. It was most impressive, up +9.1% but it was driven by a surge in inventories, so it is unlikely to last. New order levels were little-changed, but there was a major catch-up in unfilled orders.
In the US Congress, the Republicans recently installed a new leader in the House of Representatives and his first big test was shepherding a budget funding bill through that body. He succeeded, but only with overwhelming Democrat support. 93 Republicans voted against his measure! Don't bother learning his name (Mike Johnson), he may not be around long. But the net impact of yesterday's vote is that shutdown pressures have evaporated - till the next time, probably in early February 2024.
In Japan, their economy shrank -0.5% in Q3-2023 from Q2, worse than market forecasts of a -0.1% decline and after a +1.1% growth in Q2, a flash figure showed. This was the first quarterly GDP contraction since Q4-2022. It was sluggish private consumption that caused the pullback and that was a surprise because intervening data didn't signal such a drop.
China's October industrial production came in +4.6% higher than year ago levels. These increases have been very even each month since March, looking like they will meet national targets in a steady, planned way.
China's October electricity production was up +5.2% from a year ago, but in fact down -8.6% from September and down -16.7% from August. These recent declines just points out how low the year-ago base was. Unfortunately much of the year-on-year rise was from coal-fired generation.
Retail sales in China were little-changed in October from September (+0.07%), but were up an impressive +7.6% from a year ago, which says more about the weak year-ago base than anything else.
In Europe, September data for industrial production looks kind of awful, no matter which way you look at it. Declines everywhere.
In Argentine, we should note that they are now close to the final round of voting in their presidential election. It is a Peronist vs a libertarian contest. Hyperinflation is the key backdrop.
In Australia, wages rose +4.0% in September from a year ago, the highest rate since 2008. A large part of this was because their Fair Work Commission annual wage review decision of +5.75%, rises in their aged care sector affecting about ¼ mln workers, and ratchet clauses in many wage and salary contracts. There were some chunky public wage settlements as well. In the same year, Australia had 5.4% CPI inflation. (For reference, NZ CPI was 5.6% in the same period and the QES reported weekly gross wages up +5.5% - so holding their own in New Zealand).
Optus has confirmed the software upgrade that triggered its nationwide meltdown last week was from the network of its parent company, Singtel.
The UST 10yr yield is up +8 bps from yesterday, now at 4.55% in a bounce of yesterday's dump.
The price of gold will start today at US$1961/oz and down -US$2/oz from yesterday.
Oil prices have softened about -US$1.50 overnight, to be just under US$77.50/bbl in the US. The international Brent price is down to US$81.50/bbl.
The Kiwi dollar starts today at 60.3 USc and up almost +½c from yesterday. Against the Aussie we are up to 92.5 AUc. Against the euro we are also up at 55.5 euro cents. That all means our TWI-5 starts today at just on at 69.6, and a net +40 bps higher.
The bitcoin price starts today at US$36,365 and down another -1.4% from this time yesterday. Volatility over the past 24 hours has also been moderate at just on +/- 2.3%.
You can find links to the articles mentioned today in our show notes.
You can get more news affecting the economy in New Zealand from interest.co.nz.
Kia ora. I'm David Chaston. And we will do this again tomorrow.