US labour market tight & stable. China uses debt as weapon. Investors withdrawing from China. EU data weak. Air travel booms again; freight rates fall.
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 we are ending the week waiting in a risk-off mood where commodity currencies like the NZD are being hit ahead of the key US jobs report and inflation-averse central bank officials.
Last week there were +167,000 new jobless claims in the US, a small rise, leaving 1.229 mln people on these benefits, and remaining near an all-time low level.
Separately, almost -30,000 job cuts were reported for September, and even though it is a three month high it is only a very small rise in the context of the size of their labour force (153 mln).
Labour market data is front-of-mind in markets today because we are awaiting the September non-farm payrolls report which will be released this time tomorrow. It is expected to report an expansion of +250,000 new jobs, and more for private-sector payrolls.
China may be on holiday, but they remain active in international bodies. They have successfully convinced the UN Human Rights Council ((UNHCR) to not debate (even talk about) Xinjiang abuses, and it is not the first time their views have prevailed. It reinforces the fact that most UN countries are not democracies, and are increasingly siding with anti-democratic forces. As the lender of choice for many countries over the past decade, Beijing now has the power to cut them off, lend more or forgive some of their debts. Debt is a powerful weapon.
It can cut both ways. Overseas money continues to flow out of Chinese stocks and bonds as a rapidly cooling economy and interest rate shifts drive investment to other destinations. Foreign investors' holdings of Chinese bonds fell for a seventh straight month in August, dropping by -US$150 bln to NZ$870 bln. This bond market outflow, the biggest in data going back to 2015, comes as the world's second-largest economy suffers a dramatic loss of momentum.
EU retail sales came in weak. These are reported on a volume basis, ignoring the effect of inflation, and they were down -1.3% from the same month a year ago. Germany led the fall; they held little-changed in many other larger countries in the bloc
German factory orders fell sharply in August in new data out overnight. They were down a troubling -2.4% from July, down -4.1% from the same month a year ago.
But neither data stopped Germans buying new cars. They rose +14% in September, driven by a rush to buy EVs. The move away from ICE to EV cars is a very fast-developing worldwide trend, a transition happening very much faster than anyone predicted.
Overall, the IMF is gloomy about the global economy's prospects in their October assessment.
Global passenger air travel seems to be recovering very strongly. August international travel volumes are more than double the level of a year ago and are now at 80% of their pre-pandemic levels. Asia-Pacific levels are lagging however because of Chinese restrictions. Elsewhere, it is in full recovery mode.
Global air cargo volumes dipped in August, but are being called 'resilient' because they are only -3% lower than pre-pandemic levels. Cargo volumes in Europe are the laggard here. In the circumstances, this is actually a positive report; trade is holding up.
There were more big falls in shipping freight rates for containers by sea last week, down another -8% in the week alone and putting the spotlight firmly on the struggling trade to and from China. Overall, these freight rates are now lower than the five-year average pre-pandemic. That is a very fast retreat, down -68% in a year.
Meanwhile freight rates for bulk cargoes are rising and at two month highs, and while they are far lower than year ago levels, they are running at about pre-pandemic levels.
The UST 10yr yield starts today at 3.81% and up another +5 bps from this time yesterday.
The price of gold will open today at US$1712/oz. This is down -US$3 from this time yesterday.
And oil prices start today unchanged from yesterday at just under US$87.50/bbl in the US while the international Brent price has risen to be just on US$93.50/bbl. The OPEC announcement of a sharp supply cut seems to have had little price impact so far - which is somewhat surprising. Analysts are still expecting that to happen, but it is interesting that markets aren't pricing it in.
The Kiwi dollar will open today at 56.6 USc and another -½c lower than this time yesterday. Against the Australian dollar we are unchanged at 88.2 AUc. Against the euro we are a tad softer at 57.7 euro cents. That all means our TWI-5 starts today at 66.9, and -30 bps lower than this time yesterday.
The bitcoin price is now at US$20,087 and down -0.9% from this time yesterday. Volatility over the past 24 hours has been modest again at just under +/- 1.4%.
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.