US Fed minutes unsurprising. Japanese machine tool orders rise. Korea raises rates +50 bps. Indian factories stumble. UK turmoil intensifies.
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 markets remain glued to the car-crash that is happening in UK financial markets, even if the global implications are limited.
Separately, US mortgage applications fell -2.1% last week in an extended downward trend. They are a massive -40% lower than the same week a year ago. That is largely because mortgage interest rates keep on rising, topping 6.8% last week and the highest since 2006.
The American producer price index went up +0.4%in September from August, the first increase in three months. Year-on-year it is up +8.5% which is a lesser rise than for August.
The release of the US Fed minutes, always keenly awaited, has brought no ructions in financial markets today, so far at least. The document itself reveals that their policy makers have judged that the cost of too little action outweighs costs of too much - the American version of a 'least regrets' policy.
Japan's machinery orders had their biggest single-month fall in six months in August, falling almost -10% from July even though they are up almost +3% from the same month in 2021. The global economic slowdown and a weaker yen both are weighing on local corporate spending now.
Japanese machine tool orders rose again in September however, up +4.3% from a year ago and up +8.2% from August. Export demand remains quite positive for this leading sector.
The Korean central bank raised its base rate by +50 bps to 3.0% yesterday, matching market estimates. High inflation and a weakening currency are burdening their economy. This was the 8th increase in borrowing costs since the Bank of Korea lifted the base rate for the first time in August 2021.
China is solely fixated on their Party Congress this week. One good thing is that air quality has improved in Beijing as steelmakers shut down to ensure blue skies for the event.
In Hong Kong, they are straining to maintain its local currency peg to the US dollar. The city’s de facto central bank has intervened dozens of times since May as the Hong Kong dollar hit the weak end of its HK$7.75 to HK$7.85 trading band on an increasingly hawkish US Fed..
In India, August industrial production data delivered an unwelcome surprise. It fell -0.8% when a +1.7% rise was expected. This is a very large miss.
Indian CPI inflation rates rose in September, according to official data, and are now running at 7.4%. It is the third month where it has risen and is back to levels they had in 2020.
In the UK, turmoil in their financial markets has intensified after the Bank of England insisted its emergency bond-buying scheme would come to an end this week. The cost of their government borrowing over 10 years briefly surged to its highest level since 2008, as investors demanded enhanced returns to lend to a country now in a bad financial and trust crisis.
The UST 10yr yield starts today at 3.90% and up +1 bp since this time yesterday.
The price of gold will open today at US$1671/oz. This is down -US$10 from this time yesterday.
And oil prices start today down another -US$2.50 from this time yesterday at just under US$86.50/bbl in the US while the international Brent price has fallen a bit more to be just over US$91/bbl.
The Kiwi dollar will open today at 56 USc and -½c lower than this time yesterday. Against the Australian dollar we are another +¼c higher at 89.3 AUc. Against the euro we are little-changed at 57.8 euro cents. That all means our TWI-5 starts today at 66.9 and down about -20 bps.
The bitcoin price is now at US$19,099 and only -0.4% lower than this time yesterday. Volatility over the past 24 hours has been low at just +/- 0.7%.
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 tomorrow.