Benchmark bond yields rise. China faces property rout. Singapore core inflation eases. Australian livestock prices retreat.
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 asset values are under threat as the cost of money rises.
All the focus in financial markets is on bond yields. They rose overnight as investors concluded that the world's major central banks would need to keep the interest rates higher for longer to keep inflation in check. The yield on the benchmark US 10-year Treasury note rose well above 4.5%, topping 2007 highs while Germany's 10-year bund yield surged towards 2.8%, its highest since July 2011.
The ECB warned that it will be holding its policy rates higher "for as long as is necessary" to get inflation down. That could be quite a while.
And in Washington, Moody's warned that any Government shutdown over its inability to pass a funding resolution would be negative for its rating, adding further yield pressure on the benchmark.
Meanwhile in the US, the National Activity Index compiled by the Chicago Fed slipped in August after its July rise. Activity is still expanding, but now below trend.
The September Dallas Fed factory survey reports growth returning to factory production and the level of new orders not falling away as fast. But future uncertainty levels rose, despite these near term improvements.
In China, it is crunch time for a growing number of very large property developers. More are being liquidated, others are stuck in legal limbo and unable to make bond payments, while others are are watching their equity value dive as investors flee trying to limit huge losses. It is a full-on rout. Officials are at a loss about what to do next.
And separately we should note that it is kiwifruit harvest time - in China - where 67,500 ha of crop is about to come to market.
Singapore's CPI inflation rate held at 4%, as expected. Their core inflation rate, the one their central bank watches, fell to 3.4% from 3.8% in July.
In Germany, the Ifo Business Climate indicator was little-changed, which was a pleasant surprise for them because it was widely expected to fall further.
In Australia, the excellent agriculture conditions over the past two years has seen their cattle herd and sheep flock rise sharply. Now, with the prospect of El Nino hot conditions, farmers are flooding meatworks with stock, and prices are collapsing. Industry data shows cattle prices broadly down almost -50% on last year and sheep prices down -37%. The flood of meat on offer will inevitably affect what our farmers can achieve in international markets.
The UST 10yr yield starts today up a notable +9 bps from yesterday at 4.53% and another recent high.
The price of gold will start today at just on US$1916/oz and down -US$9 from yesterday.
And oil prices are -50 USc softer at just under US$89.50/bbl in the US. The international Brent price is just under US$92/bbl.
The Kiwi dollar starts today at 59.6 USc, unchanged from this time yesterday. Against the Aussie we are up +¼c at 92.9 AUc. Against the euro we at 56.3 euro cents and also up +¼c. That all means our TWI-5 starts today at 69.5 and a new 45 day high.
The bitcoin price has moved lower from this time yesterday, and it is now at US$26,335 and is down -0.9% from then. Volatility over the past 24 hours has been modest at just under +/-1.3%.
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.