US markets take fright. US data weaker. Other central banks follow the Fed in inflation fight focus. China's house prices fall; Aussie jobs expand.
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 global markets are shuddering today as the Fed's rate hike has been followed by other central banks, and investors worry that the very sharp rises in interest rates will bring recession. Most benchmarks are falling.
But first, initial American jobless claims rose last week from the prior week but the rise was minor - and it was less than expected. There are now 1.27 mln people on these benefits, also a weekly rise, but in turn also near their all-time lows.
However both housing starts and new residential building consents fell sharply in May, even as completions jumped to an all-time high. Now both consents and starts are below year-ago levels.
US mortgage rates are rising fast again, and their benchmark 30yr rate is threatening 6% all of a sudden. These rates are now at their highest since just before the GFC in 2008.
And the Philly Fed factory survey has turned negative in June. The indicators for current activity and new orders dived, and the shipments index also fell but remained positive. However, firms reported continued increases in employment. Both price indexes declined but remained elevated. Expectations for growth over the next six months deteriorated, as the future general activity, new orders, and shipment indexes fell sharply.
Meanwhile a heatwave is baking the middle part of the US and thousands of beef cattle have died in parts of Illinois, Indiana, Missouri and Kentucky.
In Canada, wholesale sales fell in April when a rise was anticipated, so the change from March has been rather sharp on this front.
In South Korea, manufacturing giant Samsung Electronics has moved to reduce its ballooning inventories, cutting orders from suppliers.
In China, house prices fell the most in almost seven years. Average new home prices in China's 70 major cities fell -0.1% year-on-year in May 2022, reversing from a 0.7 percent gain a month earlier. The latest figure represented the first drop in new home prices since September 2015, as tighter COVID-19 restrictions dented buyer confidence in their property market. Only 25 of those 70 cities recorded any gain from the prior month, only two over +½%. Existing home sales prices fell much faster than new construction.
The demise of freedoms in Hong Kong is seeing an exodus, and a major move of Chinese entrepreneurs, professionals and their families moving to Singapore is underway. It is not minor.
Meanwhile, the Hong Kong Monetary Authority raised its benchmark rate by +75 bps to 2.0%, matching the US Fed as it usually does on a formula basis.
Taiwan also moved its policy rate higher, up to 1.5% as expected, a small rise from 1.375%.
But in an unexpected move, the Swiss National Bank hiked its policy rate by +50 bps to -0.25% at its June 2022 meeting, surprising markets that expected the interest rate to be held constant. They did not rule out further rate increases in coming meetings. It was their first rate hike since 2007.
In Britain, the Bank of England raised its policy rate by +25 bps to 1.25% at its June 2022 meeting, a fifth consecutive rate hike and pushing borrowing costs to their highest in 13 years as it tries to control soaring inflation. There was dissent. Three policymakers voted for a larger +50 bps rise. That is because English inflation is now over 9% and is expected to rise above 11% in October. Further, they forecast economic activity to slow sharply over the first half of their forecast period.
In Australia, in May their labour market expanded by more than +60,000 jobs, all of them full-time. Their participation rate blipped up with a small but impressive rise to 66.7%, and their jobless rate held at 3.9%. Analysts were impressed. (The NZ, out participation rate is 70.9% and our jobless rate is 3.2%, just saying.)
Aussie inflation expectations jumped markedly in June, now running at 6.7% and up from 5.0% in May. This is a very sharp shift. But this same survey recorded that consumers thought their pay would rise a measly +1.2% in the next 12 months. Despite this, Australians are still planning to spend like it is 2021. They might have to change their tune at some point; some of these survey results will have to change.
The decline in container shipping rates out of China continues, but it remains small. But rates for bulk cargoes have stopped falling.
The UST 10yr yield will start today down -6 bps from this time yesterday at 3.33% in a further settling after the Fed moves.
On Wall Street, the S&P500 is has resumed its selloff, down -3.5% in Thursday afternoon trade and down -6.1% for the week so far.
The price of gold is up US$16 in New York, now at US$1850/oz.
And oil prices have risen back some today from this time yesterday and are now up +US$2 at just on US$115/bbl in the US, while the international Brent price is now just on US$118/bbl.
The Kiwi dollar will open today very firmer at just on 63.9 USc and more than +1c higher. Against the Australian dollar we are more than +½c higher at 90.5 AUc. Against the euro we are up at 60.4 euro cents. That all means our TWI-5 starts today at just under 71.3, and up +70 bps since this time yesterday.
The bitcoin price has firmed from this time yesterday and is now at US$21,016 but up only +0.9%. Volatility over the past 24 hours has been extreme again at +/- 6.7%.
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.