Fed delivers the expected rise and sets course for another. Markets turn negative. US data weighed by rates & sentiment. EU industrial production soft. Saudi scrambles.
Shutterstock Track 1219389
Monetization ID TFGEPGEI0LHEIJAI
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 the US is raising interest rates and the Middle East war is spreading.
First, as expected and in a very brief Warsh-style statement, the US Fed raised its key policy rate by +25 bps to 4.0% in a unanimous vote. It was its first rise since 2023. It did note that "inflation remains elevated" and they "will deliver price stability". However their forward looking interest rate 'projections' were raised although only to the new 4% levels. A strong majority of members thing another rate rise is possible this year.
Immediately after their decision was released, Wall Street held its small pre-decision gains. The UST 10 year yield dipped slightly but has since risen back over 5%. The US dollar rose. That USD rise has been maintained but Wall Street has changed direction sharply lower and the UST 10yr has jumped back over 5%.
Trump's reaction to the rate rise, and the prospect of another, has so far been conspicuous silence. He had demanded that rates be cut.
US mortgage applications fell last week, essentially driven by refinance applications. They say their 30 year benchmark home loan interest rate has risen to just under 7% and its highest since January 2025.
US retail sales rose in August and by more than expected, up the most month-on-month in five months following a fall in July. But the monthly +1.2% rise was essentially driven by higher fuel purchases, up +3.1% in the same period. From a year ago, these retail sales are up +5.3% of which fuel was up +20.5% at petrol stations,
US crude oil stocks took another fall last week and by more than the prior week although not as much as was expected. And their strategic reserves fall again, but only marginally this time.
The New York Fed's survey of the service sector activity in the New York region shows the July and August improvements have not continued into September, with a notable backslide in the latest survey.
Meanwhile the NAHB/Wells Fargo Housing Market Index of house builder sentiment has retreated to its lowest level since December 2022 with higher costs and higher interest rates getting the blame.
Canadian housing starts stayed low in August, almost the same as in July and well down on the unusually high year-ago Austr level
EU industrial production fell in July from June, but it is still up marginally from a year ago.
The UST 10yr yield is now just on 5.01%, unchanged from yesterday and its highest since 2007.
Wall Street was firmish ahead of the Fed decision today, up +0.3% in Wednesday trade on the S&P500, and up +0.8% on the Nasdaq. But then it retreated, now down -0.8% with the Nasdaq down -0.4%.
The price of gold was at US$4328/oz, and up +US$34 from yesterday just after the Fed decision. But now it is at US$4249 and a -US$79 reaction. Silver ws at just over US$64/oz and up +50 USc bu has subsequently dropped to US$62.50/oz.
Oil prices have eased -US$4 to US$102.50/bbl in the US, while the international Brent price is down -US$4.50 to just on US$104.50/bbl.
Saudi Arabia is scrambling to fix or bypass their war-damaged key oil pipeline, one that delivers as much as 4% of global oil supplies. And for Saudi Arabia this is a major economic threat, choking their revenues in a significant way.
The Kiwi dollar is little-changed from yesterday, now at 57.6 USc. Against the Aussie we are also holding at 80.8 AUc. Against the euro we are unchanged as well at just on 49.9 euro cents. That all means our TWI-5 starts today at just under 61, little-changed and still at a six-week low.
The bitcoin price starts today at US$75,518 and down -1.6% from yesterday. Volatility over the past 24 hours has been modest at just over +/-1.2%.
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 tomorrow.
Track 1219389
Monetization ID TFGEPGEI0LHEIJAI