Mixed signals in the US


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Kia ora,

and 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 financial markets are eyeing some American confusion.

First up today, and surprising few market observers, the US Fed has trimmed its benchmark policy rate by -25 bps to 1.75%-2.00%.

They said that "although household spending has been rising at a strong pace, business fixed investment and exports have weakened" and both inflation and wage growth seem stuck below their targets.

It was quite a split decision, with two votes to make no change, seven for the -25 bps cut, and one vote to cut by -50 bps. Signals for the next move were quite mixed.

Market reactions are modest, mainly because it was the expected decision. The bond markets bid down yields in the hours before the release and have stayed there since. Equity markets were lower before, and dipped lower after. Currency markets had a little flurry at the time and the US dollar has firmed a little.

Financial markets are still being buffeted by pressures that test the Fed's upper bound and the NY Fed had to buy another $75 bln of securities to hold it within the policy range. In two days, that is an unexpected $125 bln of emergency market activity.

Meanwhile, US housing start data for August came in more than +6% higher than the same month a year ago in an unexpected gain. Building permits rose even faster, up at twice the year-on-year rate.

American mortgage applications were flat in the latest survey as they have been for more than two years, and revealing rising interest rates.

And icon airfreight company FedEx shares plunged the most in a decade after the company’s global Express business showed its vulnerability to global trade disruptions.

In Canada, CPI inflation level for August came in lower at 1.9%, and down marginally from the 2.0% in July.

And a new study shows that Canadian household wealth is now falling for the first time since the GFC.

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In China, new data shows that their fiscal spending fell in August, the first fall in a long time as central and local governments face funding strains amid a large-scale campaign to cut tax and fees. Still, they are still planning to ramp up major infrastructure projects, especially major rail network expansions.

In Australia, new data out today from Seek shows job ad levels dropping fast and substantially, down more than -8% year-on-year to August.

As the session moves into the afternoon, Wall Street has turning more negative, now down -0.6%. This follows European markets overnight that were modestly positive, and Asian markets yesterday that were modestly mixed.

The UST 10yr yield is lower, down -3 bps and now at 1.78%.

Gold is a little lower today, down -US$5 to US$1,497/oz.

US oil prices gave up another -US$1 of the weekend rise to be now just on US$58/bbl. The Brent benchmark is now just under US$63.50. The latest inventory levels of American crude stocks show them rising and well above expected levels.

The Kiwi dollar is softer on a rising greenback, now at 63.2 USc. On the cross rates we are softer too at 92.5 AUc. Against the euro we are down to 57.2 euro cents. That puts the TWI-5 down to 68.4.

You can find links to the articles mentioned today in our show notes.

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94 episodes