Fed's rate rise gets market attention. US retail data positive. Canada inflation high. China signals new stimulus coming. Aussies unhappy.
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.
Today we lead with news Russia's bombardment of Ukraine continues and they are making small gains at a very high cost. But 'peace talks' continue despite the brutal fighting, and markets still expect some sort of resolution in the near term.
Separately, the US Fed announced the expected +25 bps rate hike the markets were expecting, but they steepened the future policy rate path via their dot plot estimates. Today's was their first rate rise since 2018.
The initial market reaction has been reasonably orderly, but bond yields have risen sharpish, and the USD has also risen, although not against the NZD. Equity markets gave up some earlier-in-the-day gains.
Meanwhile, American retail sales came in +17.7% higher in February, than the same month a year ago. That is actually better than our weekly Redbook indications. Still the month-on-month rise wasn't quite up to market expectations, generating some disappointment.
Business inventories rose but not by as much as sales, so the inventory:sales ratio was stable overall, but had a healthy decline for the retail sector. Despite the supply-chain stress, these networks are not getting overstocked.
And American mortgage applications fell last week, while the mortgage interest rates rose again. In fact this rate is high and volatile now and that will restrain residential real estate activity.
In Canada, consumer prices rose faster than expected, and while not topping estimates by much, the rise at 5.7% is now its fastest in 30 years there.
Japan's export growth is still rising at almost a +20% pa rate in February, faster than at any time since before the GFC apart from the pandemic recovery. But their January industrial production data was flat, although this wasn't the decline that was expected in the month.
Separately, there was a 7.3 earthquake near Fukushima yesterday. Buildings shook and power was disrupted in parts of Tokyo, and a tsunami advisory was triggered. But things have since settled.
In China, there has been a relatively subtle but important set of signals that major economic policy support is underway. That galvinised their equity markets. In a brief statement carried by state media, China’s top financial policy body vowed to "ensure stability in capital markets, support overseas stock listings, resolve risks around property developers and complete the crackdown on Big Tech as soon as possible.” Then the central bank followed with a statement saying the central bank would help implement the policies, as did their banking watchdog.
And there is growing evidence suggesting Beijing is not acting to undermine the global sanctions against Russia.
The latest data on house prices in the major cities in China shows that 40 or their 70 largest cities in their reporting sample declined in February from January.
The London Metals Exchange has been unable to restart proper nickel trading after further glitches. The Chinese-owned company, which earlier cancelled trades that had the effect of protecting a Chinese billionaire who was shorting the metal, is now in deep trouble with its market role gravely compromised. Traders basically don't trust the way it handles its affairs.
Meanwhile the lithium price rally continues. Some are calling it "insane".
In Australia, jobs growth is high and their jobless rate is at decade lows, but consumers are unhappy. ANZ suggests this can perhaps be explained by falling real wages. But even that is balanced by a much larger pool of household savings built up during the pandemic lockdowns so you might have thought this would back up consumption in Australia. In any event unhappy consumers present a downside risk to Aussie consumption.
The UST 10yr yield opens today at 2.24% and up +11 bps from this time yesterday after the Fed announcement.
The price of gold starts today at US$1898/oz and down another sharpish -US$31/oz from this time yesterday, falling faster after the Fed move.
And oil prices are again lower today, down -US$1/bbl. In the US they are now just under US$94.50/bbl. The international price is just on US$97/bbl.
The Kiwi dollar will open today firmer, now at just over 67.8 USc but the top of the gain has been cut after the Fed move. But against the Australian dollar we are now just under 94 AUc. Against the euro we are holding at 61.9 euro cents. That all means our TWI-5 starts today at just under 73.4 and +10 bps higher.
The bitcoin price was up +2.8% from this time yesterday to US$40,291. But post the Fed announcement is has fallen back to US$39,761. Volatility over the past 24 hours has been high at +/- 3.6%.
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 tomorrow.