Bessent moves off to a rocky start. US data positive. Japan, Taiwan and Malaysia exports strong. Australian inflation expectations rise, jobs market eases.
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Kia ora.
Welcome to Friday’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 we may be seeing the end of markets regarding US Treasuries as safe-haven assets – although to be fair it isn’t clear what would replace it.
Long-maturity US Treasury yields rose today to reverse the drop we noted yesterday. The yield on the US 10-year bond rose back towards the earlier 20-month high this week before the Bessent action, and the yield on the 30-year bond rose back too.
A couple of points are worth making first before we review today's data updates. The first is that it has been the role of the Fed to do QE activity. Maybe Warsh isn't keen now because he is committed to shrinking the Fed's balance sheet. It grew because the Fed wanted to push down rates, and that came with the consequence of massive bond buying. In fact, they moved the needle with "whatever it takes" to the tune of US$3.5 tln in the GFC and the subsequent stabilisation. And then another US$4.5 tln for the pandemic response that started in 2020. They have only paid down US$2.5 tln since. Warsh wants to get that significatly lower.
Now Bessent wants to do his own QE, in his case to avoid the political consequence his boss will face - at least push it off "till later'. But his announcement talks of a 'doubling', and that is only an extra of +$2 bln. The Fed was effective with trillions. But Bessent wants to do the same thing with billions. Wall Street hedge funds will be looking for a Bessent put, and unless he delivers his objective the hole thing might collapse rather quickly. Bessent should know - he was a billionaire hedge fund manager on Wall Street who made his fortune gaming the system. The Bessent initiative hardly lasted one day.
And this comes as the US Treasury's latest daily cash and debt balances statement shows public debt now exceeds US$40 tln (Table IIIC).
Why is this important for us? Well, the world's economy is still being driven by US middle-class consumer demand, the only economic engine large enough to shift the global needle. And we rely on a healthy upbeat global economy. China says it is making an attempt to duplicate this internal consumer demand, but by all accounts it is not succeeding, in part because Chinese consumers are still very risk averse and prioritising savings over consumption, and more so recently.
Meanwhile, initial jobless claims in the US fell to 172,000 last week, a slightly larger dip than seasonal factors would have indicated. There are now 1.8 mln people on these benefits, also marginally lower than the week before.
The August Philly Fed factory survey came in much stronger than expected, building on an outsized July expansion. This is all about current activity. Oddly, new order levels fell. But price pressures did moderate this month.
The Conference Board said its Leading Index for the US ticked up in July, marking the fourth increase over the past six months. Most components were positive in July except consumer expectations, which continued to be a notable drag.
In Canada, their July producer prices index rose from the prior month to be -12.4% higher than year ago levels. Their raw materials index is up more than +18% on the same basis.
Across the Pacific, Japan said its exports swelled +23% in July from a year ago and to an all-time record high, boosted by AI-related semiconductors and data center equipment. Meanwhile, imports were up almost +28%, boosted by fuel imports which were up more than +53% in value. and total imports also hit a new record high. The net was a small trade deficit on merchandise.
China held its key lending rates at ultra low levels in the regular monthly update. But these very low rates aren't exactly generating a boom, more just holding things together. The People's Bank of China kept its key lending rates at these record lows for a 15th straight month. And that is what analysts were expecting.
And remember Evergrande? Well yesterday a Chinese court sentenced its founder and boss to life imprisonment for "massive fraud".
Orders for Taiwanese exports soared +62% in July from a year ago to a new record high of US$98 bln. That follows an outstanding +59% jump in June. Booming global demand for AI-related and technology products continued to fuel overseas sales. This is on top of a July 2025 increase of +21% which at the time seemed like an outstanding achievement.
Malaysian exportsjumped an outstanding +38% in July from a year ago to a record high. This was led my electronic exports to the US. Meanwhile, their imports rose +36%, with the fastest rises from India, South Korea, and then China.
In Europe, German producer prices rose in July too, only at a +3.0% year-on-year rate but that was their fastest since April 2023.
Australian inflation expectations rose by 0.2 percentage points in August to 4.9%. This follows a three-month period of moderating inflation expectations. Wage expectations also rose in August, after remaining static for a prolonged period.
Staying in Australia, full-time jobs rose +16,300 in July but part-time jobs fell -32,200 in the month for a new decrease in employment levels. So instead of the expected +15,000 rise in jobs, they had a -15,800 net fall. While this may seem like a big movement, in fact the June positive result was quite elevated so a leveling out is probably to be expected.
Global container freight rates were up +4% last week from the prior week to be double what they were a year ago. Outbound rates from China to the US drove the increase with those up +9% for the week, up +180% from a year ago. Meanwhile bulk cargo rates fell -7.5% this past week to be +40% higher than year-ago levels.
The UST 10yr yield is now just on 4.70%, up +5 bps from this time yesterday. The 30 year yield is at 5.24% and up +4 bps.
The price of gold is up sharply, now at US$4520/oz, up +US$17 from yesterday at this time. Silver has risen another +US$2 to just over US$68.
Oil prices are up US$1 from yesterday at just over US$86.50/bbl in the US, while the international Brent price is now just over US$93.50/bbl and up +US$2.
The Kiwi dollar is up +10 bps from yesterday at just over 59.4 USc. Against the Aussie we have risen +30 bps to 83.6 AUc. Against the euro we are up +10 bps at 50.9 euro cents. That all means our TWI-5 starts today at just over 62.9, up +10 bps from this time yesterday.
The bitcoin price starts today at US$72,813 and up another large +6.8% from yesterday. Volatility over the past 24 hours has also been high at just on +/-3.5%.
You can 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 on Monday.
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