Global PMIs stay weakish; US PMIs weak with inflation fading; China can't sustain factory expansion; India rises; EU contracts, eyes on RBA
Kia ora,
Welcome to Tuesday’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.
And today we lead with news central bank interest rates decisions, which are upon us this week, have a new challenge.
OPEC's unexpected decision to cut supply has changed the calculus on how to deal with inflation, which has been on a downward trend as central-bank-induced slower growth has eased price pressures despite the war by Russia. But this supply cut is again raising oil prices. It looks like we will generally keep the lower growth but the benefit of lower inflation has been pushed away.
Globally, there were many manufacturing PMI's out overnight and they paid a picture of a sector that is nether expanding nor contracting. Output is rising as new order intakes are still weakish but show signs of stabilising. Supply chain pressures ease as does inflationary pressure with both input cost and selling price inflation both pulling back. But all this was before the OPEC announcement.
In the US, there were two PMI reports out overnight and both recorded contractions and greater than the overall global rate. The widely-watched local ISM one reported a fifth consecutive monthly decline, although only marginally more than for February. New orders and production are contracting. Prices are now decreasing and export demand is lower. The internationally benchmarked Markit one is less negative seeing a small uptick in new orders and cost burdens easing noticeably.
Canada's factories slipped back into contraction in March, to about the same level as its southern neighbour,
The Bank of Canada's business outlook survey has found weakening business conditions ahead of next week’s rate decision. Price pressures are easing but most firms think it will stay well above 2% until at least 2025.
In China in a telling release, the private Caixin PMI for March revealed that the February factory expansion wasn't sustained into March. And it does call into question the official factory PMI released late last week which was quite upbeat. We don't get the Caixin services PMI until the end of this week. The official survey painted a picture of a booming economy.
India reported a good expansion in their manufacturing sector. They posted growth of factory orders and production quickening to the strongest in three months. With pressure on supply chains subsiding and raw material availability improving, input cost inflation retreated to its second-lowest mark in two-and-a-half years.
The EU PMI is still contracting but factory output rose slightly and input prices fell in March amid a survey-record improvement in suppliers’ delivery times. But there are shrinking manufacturing order books across the bloc with the volume of incoming new work falling for an eleventh month running. Greece, Italy and Spain led as the countries with expansions, but it was Germany, the Netherlands, and France who weighed on the overall result.
Later today the RBA will review its official policy rate, currently at 3.60%. Australian inflation is running at 6.8% but falling. Until the end of last week, mots analysts were expecting another +25 bps rate hike even if it was to be the last in this cycle. But those analysts havde flipped this week and most now expect no-change. Of course, the RBNZ will review our OCR tomorrow, and most analysts still expect a +25 bps hike here taking our rate to 5%.
The UST 10yr yield starts today at 3.43%, and down -4 bps from yesterday.
The price of gold will open today at US$1984/oz and up +US$14 from yesterday.
And oil prices up +US$4.50 at just over US$80/bbl in the US. The international Brent price is now just under US$84.50/bbl. These rises flow from the OPEC supply squeeze coming.
The Kiwi dollar is firmer against the USD and now at 62.8 USc. Against the Aussie we are a full -1c lower at 92.7 AUc. Against the euro we are unchanged at 57.7 euro cents. That means the TWI-5 is now at 70.5 and only -10 bps lower than this time yesterday.
The bitcoin price is little-changed again today, now at US$27,987 and down a minor -0.8% from yesterday. Volatility over the past 24 hours has remained modest at +/-1.7%.
You can find links to the articles mentioned today in our show notes.
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.