US inflation sticks high. US jobless claims at record low. Japan's PPI very high. China struggles. container freight rates fall sharply again.
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 the fight against inflation is making little progress in the US.
First up, the American inflation rate fell less than expected in September although the shifts were minor. It came in at 8.3% in August and was expected to fall to 8.1% last month. But in the end it came in at 8.2%. The key takeaway is that they aren't making any progress yet getting it down. Their 'core' rate was unchanged at 6.2% from a year ago. Month-on-month, the rate actually rose.
Clearly the Fed has more work to do to change the trajectory, and markets are assuming it will continue to fight inflation as its #1 threat. The next Fed hike is now expected to be another +75 bps. The US Treasury 10yr bond yield roared above 4% on the news, but it has settled back under since.
Their benchmark 30 year fixed rate mortgage rose to 6.92% pa, plus points of +0.8%, hitting the 7% mark for the first time in more than 20 years.
New US jobless claims rose last week to just under +200,000, a six week high even if historically still very low. But the number of people on these benefits fell to just on 1.2 mln, a new records low. Their insured unemployment rate is now down to under 0.8% of their 155 mln employed workforce, the lowest ever in a record that goes back more than 50 years.
The US Congressional Budget Office says the American federal budget deficit was -US$1.377 tln in fiscal year 2022, about half of prior year’s deficit of -US$2.776 tln. They say tax revenues were +21% higher and outlays were -8% lower than they were in the 2021 fiscal year. That means the 2022 deficit came in at -5.6% of US GDP, far lower than the prior two disastrous Trump years of -14.9% and -11.9% of GDP. They expect the much better economic management will continue.
One direct echo of the high US CPI data was heard in Japan. Their currency fell to a 32 year low, and markets are assuming their central bank will act again to restrict the devaluation.
In Japan, producer prices rose to a five month high, rising +9.7% in September from a year ago, and blowing past the market consensus of +8.8%. This was the 19th straight month of producer inflation and the highest since April. Elevated commodity prices made worse by the yen’s rapid decline drove the rise. Given that Japan is the world's third largest economy, on a global scale this data is pretty significant.
Later today we are expecting both consumer and producer price data from China. There the changes are expected to be modest and low, primarily because their economy is in a stall, held back by pandemic lockdowns that seem to be spreading.
Just how hard the domestic economy is suffering can be seen from Chinese excavator sales data for September. They were down almost -25% from a year ago, but export sales rose almost +75% over the same period.
China's lockdowns, as grim as they are, might have more public-health sense than we give them credit for. Bloomberg is pointing out that since emerging in late 2021, the highly transmissible Omicron strain of SARS-CoV-2 has splintered into a dazzling array of subvariants that are now driving fresh waves of cases around the world. The proliferation of such a diversity of variants is unprecedented, and pits numerous hyper-mutated iterations against each other in a race for global dominance. That’s turbo-charged Covid, making it one of the fastest-spreading diseases known to humanity, and further challenging pandemic-mitigation efforts in a global population already weary of frequent booster shots, testing and masking. An un-locked-down China would face an enormous public health threat.
In Australia, their October inflation expectation rate came in at 5.4%, unchanged from September. It been moderating since June, so "consumer expectations therefore appear to be responding to significantly tighter monetary policy", they say.
One place you can see a sharp response is in the sales of new homes. They home building lobby group says new home sales declined by 15.7% in the three months to September, compared to the previous quarter. That is quite a pullback.
Globally, freight rates for containerised cargoes are still falling fast, especially in the China trade (Shanghai to Los Angeles was down -13% in a week). They were down another -6% last week alone and are now much lower than five-year average rates. Bulk cargo rates slipped as well.
And we should note that in Victoria, people in several towns have been told to leave immediately as swollen rivers threaten communities in what authorities have called a “significant flood emergency”.
The UST 10yr yield starts today at 3.94% and up +4 bps since this time yesterday. (At one brief point earlier it hit 4.06%).
The price of gold will open today at US$1665/oz. This is down another -US$6 from this time yesterday.
And oil prices start today +US$1.50 firmer than this time yesterday at just on US$88/bbl in the US while the international Brent price is just over US$93.50/bbl.
The Kiwi dollar will open today at 56.3 USc and a +¼c higher than this time yesterday. Against the Australian dollar we are firmer too at 89.5 AUc. Against the euro we are a little softer at 57.5 euro cents. That all means our TWI-5 starts today at 66.9 and unchanged.
The bitcoin price is now at US$19,149 and a mere +0.3% firmer than this time yesterday. Volatility over the past 24 hours has however been moderate at just +/- 2.8%.
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.