Powell targets a +25 bps rise. US payrolls expand. Canada raises by +25 bps. China aims for CPTPP standards. Commodity prices zoom.
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 'events' are compounding to push commodity prices to unprecedented levels. At the same time, investors found their risk appetite again.
In Ukraine, the Russian army is still advancing on key population centers but none have fallen yet, which is amazing. Russian troop losses are hard to know with any accuracy, but they seem to be about 2500 deaths per day (which interesting exceeds the total number of American lives lost over the whole 20 year Afghanistan war).
In Congressional testimony, the head of the Federal Reserve came out in support of a +25 bps rise at their meeting in mid March.
US mortgage applications fell again last week, and their key benchmark mortgage interest rates rose. Their benchmark 30year fixed is now 4.15% plus points.
The February non-farm payrolls report is due out on Saturday (NZT) and a gain of +400,000 jobs is anticipated which is slightly less than for January. Today we got the pre-cursor ADP employment report and they revised up their January data and said the February gain was +475,000 new jobs. Gains were reported across the board in all industries, and in both the service and manufacturing sectors. But the one group that is missing out is SMEs where employment shrank, especially for micro-firms.
The Canadian central bank reviewed its policy rate today and raised it +25 bps to 0.50%, and that was as the market expected. It was well signaled. It is their first rise since the emergency pandemic cut.
China has now explicitly said that it is working to meet the high standards of the Trans Pacific Partnership. It expects to join when it qualifies. An even bigger clash with Australia looms on that, and that may separate them from most of the other CPTPP members.
For a third quarter in a row, Japanese companies increased capital spending and the Q4-2021 levels came in above expectations, up +4.3%, up from +1.2% in Q3.
Korean industrial production however rose less than expected in January, but their February PMI suggests this may have been only a temporary slowdown.
The annual inflation rate in the EU rose to a fresh record high of 5.8% in February from 5.1% in January, and above market expectations of 5.4%. France's +4.1% is the only major lower than the average.
Prices for all the key items sensitive to the current eastern European crisis are all rising sharply. Hard commodity prices like oil, natural gas, lithium, aluminium, tin, nickel, coal, and potash are all up very sharply. Soft commodity prices like wheat, corn and other animal feed products are rising fast too. Most of these are now either at record highs or decade highs. Unless there is a sharp retreat soon - and that looks unlikely at present - a new commodity super-cycle had gotten an outsized start and will drive inflation and economic instability for years.
In Australia, the populated east coast in suffering from a major rain event, grinding economic activity to a halt until it passes.
Earlier, their economic activity expanded by +3.4% in Q4-2021 from the prior quarter on the reopening from delta lockdowns (which were centred in NSW, Victoria and the ACT). This follows a -1.9% contraction in Q3-2021.
The UST 10yr yield opens today at 1.84% and recovering a sharp +14 bps of the -16 bps it lost yesterday.
The price of gold starts today at US$1920/oz and down -US$14/oz from this time yesterday.
And oil prices are higher again today and by +US$2.50/bbl level. In the US they are now just over US$106.50/bbl. The international price is just over US$109.50/bbl.
The Kiwi dollar will open today at 67.7 USc and a marginal rise. Against the Australian dollar we are at 93.1 AUc and a marginal slip. Against the euro we at 61 euro cents and also a marginal rise from its recent higher level. That means our TWI-5 starts today at just on 72.6 and a new five week high.
The bitcoin price has risen again today, up +2.4% from this time yesterday to US$44,314. Volatility over the past 24 hours has been moderate at +/- 2.4%.
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.