The US Fed signals imminent tapering, and rate rises. US faces credit rating downgrade. EU sentiment high. Evergrande moment of truth arrives. Taiwan wants in to TPP.
Kia ora,
Welcome to Thursday's Economy Watch where we follow the economic events and trends that affect New Zealand.
I'm David Chaston and this is the International edition from Interest.co.nz.
Today we lead with news the Fed has pulled the trigger on tapering.
The US Federal Reserve said this morning that the US economy has made progress toward employment and inflation goals and that if progress continues broadly as expected, a reduction in the pace of asset purchases may soon be warranted. The Fed also signaled interest rate may need to rise faster than initially expected, with 9 of 18 policymakers projecting borrowing costs to rise in their dot plot for 2022. Their signals for the move higher from there is even stronger.
Meanwhile, the partisan standoff on the US debt ceiling continues. Congress achieved the easy part - getting the House to approve. The hard part looms, Senate approval. Janet Yellen is frustrated, as are most former Treasury Secretaries. If it continues, a credit rating downgrade is entirely possible for the US. It is not unprecedented.
US existing home sales slipped in August by -2%, dampened by high prices and low choice. There is 11 weeks supply at current sales levels which is low for them. But there is a stirring in their mortgage market with application levels turning higher recently while mortgage interest rates are flat. With recent data showing consumers expect quite high inflation to keep hitting them, perhaps they sense interest rates are as low as they will go in this current business cycle.
European consumer sentiment is holding on to its strong levels in September, far above their long term average. This has been the case for three months now, taking it back to pre-pandemic levels.
The Chinese central bank left its key interest rates unchanged again, but it has pushed NZ$25 bln in liquidity into markets to underpin the Evergrande confidence crisis. There are reports the home team is coming to the rescue of Evergrande with a "negotiated" coupon arrangement with bondholders. It will be very interesting to see if that deal applies to foreign holders or not. That interest payment to foreign bondholders is due later today.
In the rough-and-tumble world of trade negotiations, it seems that Taiwan has now formally applied to join the TPP. It is a move sure to anger China, which made its own quixotic application recently.
The pandemic pressures and uncertainties are driving Australians to save. According to official data, household had AU$162 bln in savings as at June 2021, double the previous peak of $80.5 billion saved by households in 2015. And separate estimates show that the surge is only just starting, rising to AU$230 bln by the end of this year. A level like that is expected to prop-up consumer spending and bolster their economy, once it emerges fully from lockdowns.
The UST 10yr yield opens today at just over 1.31% and -2 bps lower from this time yesterday.
The price of gold will start today little-changed at US$1776/oz.
But oil prices have bounced higher overnight and compared to yesterday's levels are up +$1.50 to just under US$72/bbl in the US, while the international Brent price is now just over US$75/bbl.
The Kiwi dollar opens today at just on 70.2 USc and firmer since this time yesterday. Against the Australian dollar we are little-changed at just under 96.8 AUc. Against the euro we are firm at 59.9 euro cents. That means our TWI-5 starts today at 73.6 and moving back towards the top of the 72-74 range of the past ten months.
The bitcoin price has bounced back a little today, and is up at US$43,240 and a +3.4% rise from this time yesterday. Volatility in the past 24 hours has remained extreme at just under +/- 4.8%.
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.