US inflation expectations ease. US credit harder to access. Taiwan exports rise. Japan's service sector healthy. Eyes on Australian Budget
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.
And today we lead with news markets seem to be ignoring American debt default risks.
But first in the US, inflation expectations slipped lower to 4.4% at the one-year-ahead horizon but increased slightly to 2.9% and 2.6% respectively, at the three- and five-year-ahead horizons, according to the New York Fed's April Survey of Consumer Expectations. The one-year-ahead result was 4.7% in the March survey, so that is a meaningful easing. The Fed seem to be making progress with its messaging and policy settings that inflation will be beaten back to its target range. Remember, about a year ago, these inflation expectations peaked at 6.8% for one-year-ahead. We are now that year on and the picture is very much different. The April CPI data will be released on Thursday, and analysts are picking an unchanged 5.0% rate.
The Fed's senior loan officer survey reported tighter standards and weaker demand for business lending and for households it was the same tighter standards and weaker demand for both housing and consumer debt applications. Access to business funding for SMEs may become an issue. This will become a very major issue if the House Republicans continue to block a resolution to their debt-limit standoff. You can measure market nervousness by the spike in the short-long yield curves. This intransigence could go horribly wrong, although we have been here many times before, and the [artificial] limit always seems to get raised. It just that this time there are more isolationists in Congress who don't care if the financial system gets shut down.
American wholesale inventories were virtually unchanged in March from February but that masks a +8.6% rise from year-ago levels. And the inventory-to-sales ratio rose rather sharply in March after a decline in February. That rise was enough to put it at its highest since the pandemic and a ten-year high if you ignore tha pandemic spike. There is now an inventory-overhang problem at the wholesale level, one being caused by weakening demand.
In China's east, nearly 500,000 people across 43 counties in Jiangxi province have been hit by torrential rains that triggered floods and forced thousands to evacuate.
Taiwanese exports actually rose for a third month in April, and taking them back to November 2022 levels, although still well below year-ago levels. But at least they are on the move up, an encouraging sign for them that the Mainland grip isn't suffocating them.
The Japanese service sector is expanding at a good solid pace, and their best since this survey began in 2007. The growing expansion is underpinned by rising new orders.
Australia's business confidence improved marginally in April from March but remains well below its long term average. Despite that improvement, the economists behind the survey expect things to weaken as 2023 progresses. They see 'conditions' as resilient but the business community without conviction that will continue, which is why they are downbeat looking ahead.
In Australia, the first quarter of 2023 saw the lowest number of building approvals since 2012, just as their population growth reaches a record high. Workers there are going to need all their extra pay increases just for rent and mortgages. Higher pay across the ditch (than here) isn't everything for everyone.
It is Budget Day in Australia, and details will be released late in the day NZT. A strong labour market is expected to return their long-run deficits into a rare surplus.
We have noted this before, but it is worth repeating. The price of lithium has slumped from its November 2022 peak and now down -70% from then. The high price juiced up supply, and it made battery manufacturers look for alternatives.
The UST 10yr yield starts today at 3.52%, and up +8 bps from yesterday.
The price of gold will start today at US$2023/oz and up +US$5 from this time yesterday.
And oil prices have risen +US$2 from yesterday to be just over US$73/bbl in the US. The international Brent price is just under US$77/bbl.
The Kiwi dollar is up against all-comers. Against the USD we are now at 63.5 USc with more than a +½c rise. Against the Aussie we are up +¼c at 93.6 AUc. Against the euro we are firmer at 57.6 euro cents. That means the TWI-5 is now at 71.1 and up +50 bps from this time yesterday.
The bitcoin price is lower today, now at US$27,812 and down another -3.9% from this time yesterday. Binance halting withdrawals for a time yesterday isn't helping sentiment. Volatility over the past 24 hours has been moderate at +/- 2.4%.
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.