US inflation slows more than expected. US jobless claims rise. China new loan growth slumps. Xi & Biden to meet. Aussie inflation expectations rise.
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 energised by some key American data.
First up today, there has been a surprise improvement in the US CPI inflation rate. And that has induced some sharp market reactions. Their rise in consumer prices slowed for a 4th month to 7.7% in October, the lowest since January, and below forecasts of 8%. It is down from 8.2% in September.
Equity markets took off higher. Bond yields dived. And the US dollar retreated as risk appetites swelled. Markets are signaling a landscape change on this data, which seems a bit of an over-reaction.
However, the change between September and October is below +5%, so that indicates that recent improvements are better than the year-on-year headline numbers. "Core inflation" was up even less. Markets are betting the Fed will be pleased, and that the next rate hike from them won't have to be as high a +75 bps. Markets have now priced in a +50 bps December hike.
Meanwhile, US jobless claims rose marginally last week to +205,000 and taking the number of people on these benefits to 1.26 mln. While that is still near historic lows, it is a noticeable rise and maybe an indication the heat is going out of their tight labour market. Certainly there is now a steady stream of daily job cut announcements coming out of the tech sector. They will probably spread from there. The question is, how fast and how hard. But there are no alarming signs just yet and clearly today Wall Street is betting it will be minor.
In Canada, a liquidity crunch has hit a large private mortgage investment fund. Real estate lender Romspen Investment has halted all withdrawals and redemptions as increasing numbers of borrowers fail to make scheduled payments. It is a C$2.8 bln fund. It might be a canary moment in the Canadian housing market.
China's banks extended ¥615 bln (NZ$142 bln) in new yuan loans in October, down from ¥2.47 tln (NZ$568 bln) in September and below market expectations of ¥800 bln. It was the lowest level in new bank loans since December 2017, as credit demand weakened and the economic outlook darkened further amid persistent pandemic curbs and a deepening property sector debt crisis. Their central bank has promised aggressive policy accommodative to support growth, but capital flight and a weakening yuan could limit its moves. Household loans, including mortgages, fell by -¥18 billion in October, from ¥650 bln in September, while corporate loans dropped to ¥462 bln from ¥1.92 tln.
Things may not get any better in China. Covid cases continue to surge in Guangzhou and the daily new case count is approaching the level at which Shanghai shut down earlier this year, when the daily new cases crossed 4000. Beijing cases are also increasing, as are cases in Chongqing. So three of the China's largest and most important cities are now dealing with their worst outbreaks in months. What would happen if all three were locked down hard like Shanghai was, at the same time?
In a somewhat confusing signal, overnight China’s top leaders reinforced the need to stick with the contentious Covid-Zero policy while urging officials to be more targeted with their restrictions so as to avoid damage to the economy. But the very fact they are thinking of the economic consequences will probably cheer local markets when they open later today.
The presidents of the US and China will meet at the G20 in Bali on Monday. The leaders of the world's two largest economies will discuss issues such as tensions surrounding Taiwan, nuclear war risks and "fair trade", as they seek to manage competition that has become more fierce than ever. Australia's prime minister is also likely to meet them both.
In Australia, consumer inflation expectations rose to 6% in November, up from 5.4% where they had been anchored for the prior two months.
Global container freight costs fell faster last week, down -9% in a week, to be -70% lower than year-ago levels. And it is now well below five year averages. Rates out of China fell even faster. However, bulk cargo rates eased higher over the past week.
The UST 10yr yield started today at 3.84% and down a massive -33 bps from this time yesterday.
The price of gold will open today at US$1750/oz. This is up +US$36 from this time yesterday and back near its early October levels.
And oil prices start today a marginal +50 USc firmer than this time yesterday at just on US$86.50/bbl in the US while the international Brent price is just over US$93.50/bbl.
The Kiwi dollar will open today at 60 USc and back up +1c since this time yesterday. Against the Australian dollar we have slipped slightly to 91.2 AUc. Against the euro we are a bit firmer at 59 euro cents. That all means our TWI-5 starts today at 69.5 and +30 bps higher than this time yesterday.
The bitcoin price is now at US$17,802 and has recovered a net +4.6% since this time yesterday. But in between it got down as low as US$15,554 before making something of a comeback. And volatility over the past 24 hours has been extreme again at just on +/- 7.7% with continuing instability.
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 on Monday.