US data remarkably resilient again. US growth forecasts to rise. Canada holds rate. China party elders not happy with Xi. Global air travel rises.
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 the world's largest economy keeps on throwing up unexpected positive surprises.
First up today, there was a very strong August services ISM PMI out for the giant American economy. It is a widely-watched and influential metric and it rose unexpectedly with its strongest growth in six months. Faster increases were seen in business activity, and both new orders and employment especially. It's a confirmation of the resilience we have been pointing out recently, and might even change the mind of some Fed waverers. Markets think so, and equities recoiled somewhat on the prospects of a rate hike again.
A widely-watched GDP-Now tracker is suggesting that most analysts are significantly underestimating American economic growth for Q3-2023.
Unnoticed, small business optimism rose sharply too in its independent August survey.
Meanwhile, the yo-yoing of mortgage application levels continued last week with them falling -2.9% from the prior week after an earlier lift. But the outsized fall took them down to their lowest level since the end of 1996 - and that was despite mortgage interest rates easing slightly in the same period.
The Redbook survey of American bricks & mortar retail activity is again reporting a year-on-year sales increase higher than inflation, a situation that has only turned positive in the past couple of weeks.
US exports rose +1.6% in August to a four month high but the US merchandise trade deficit widened marginally , even if -US$3 bln less than expected. Exports were boosted by vehicles, airplanes and pharma.
The US Fed's September Beige Book update reported that economic growth was modest during July and August. Consumer spending on tourism was stronger than expected, surging during what most considered the last stage of pent-up demand for leisure travel from the pandemic era. The found that labour market pressures are easing but many employers still see shortages. Price rises are easing they said, but they did find sharp increases in property insurance costs during the past few months.
Of course, not everything is positive, and the threats to regional banks who loaded up on commercial real estate remain large.
The Bank of Canada held its policy rate unchanged at 5% in its September meeting overnight, as largely expected by financial markets and marks an extended pause in its tightening cycle. But it is still selling down its bond holdings.
In China, reports are emerging that President XI was "reprimanded" by Communist Party elders at the Party's secretive summer enclave. And that he wasn't happy about the supposed dressing-down. In turn the elders aren't happy about China's recent off-track trajectory. To be fair, high-level policy making is very opaque in China, but someone is leaking these private discussions.
Their downward turn is affecting the world. And the opacity is extending.
Taiwanese inflation rose to 2.5% in August and while that may not seem high, it is the highest for them since January
Global air travel is now back to 95% of its pre-pandemic levels. Domestic air traffic has fully recovered almost everywhere. but international travel is more than -10% lower still. In the Asian/Pacific region it is lagging significantly, still -25% below pre-pandemic levels as Chinese travellers remain more reluctant to venture abroad. But they are making that up with a huge +22% surge on pre-pandemic levels.
In Australia, they released their Q2 GDP result and their economy expanded +0.4% from the March quarter, the same pace as an upwardly revised figure in Q1 but above market forecasts of a +0.3% growth. This was the seventh straight period of economic growth for them and came from better exports, business investment and public spending. Household consumption however contributed very little. For the year, their overall expansion was +2.1%. New Zealand's Q2-GDP will be released on Thursday, September 21, 2023. It will probably be marginally positive too.
The UST 10yr yield starts today up +3 bps at 4.30% and getting back to the highs of three weeks ago.
The price of gold will start today at just under US$1918/oz and down another -US$6 from yesterday.
And oil prices are up +US$1.50 at just over US$87.50/bbl in the US. The international Brent price is up +US$1 at just over US$90.50/bbl as markets react to the Saudi production curbs.
The Kiwi dollar starts today little-changed from yesterday at 58.7 USc. Against the Aussie we are almost -¼c softer at 92 AUc. Against the euro we are little-changed at 54.7 euro cents. That all means the TWI-5 has slipped ever-so-slightly to 68.2.
The bitcoin price is up +0.7% from this time yesterday, and is now at US$25,916. Volatility over the past 24 hours has been modest at just on +/-1.2%.
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.