Risks from wobbly banks not over yet

Economy Watch

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.

And today we lead with news banking rescue efforts are underway in both the US and Europe.

But first up, the US labour market never stops signaling its strength. Last week's jobless claims came in way below estimates, in fact their lowest in months at +217,000. That is almost back to the low year-ago levels. There are now 1.9 mln people on these benefits

American building consents and housing starts took an unexpected jump in February, is a moderately bullish sign that few saw coming.

But the Philly Fed factory survey stayed as weak in March as it was in February, and did not get the expected improvement analysts were looking for. In fact, new order levels fell to their lowest since May 2020.

There is a private rescue underway for First Republic Bank, a regional bank based in California. Banking majors, led by JPMorgan Chase, are working to ensure it doesn't fail, separate from public regulatory oversight.

And Branson's space adventure Virgin Orbit said it will "pause operations" in an attempt to shore up its shaky finances. Almost all employees at the satellite launch company will be furloughed.

Across the Pacific, Japan's core machinery orders, which exclude those for ships and electric power companies, jumped +9.5% month-on-month in January, accelerating from a downwardly revised +0.3% rise in December and far exceeding market expectations for a +1.8% gain. Non-manufacturing orders increased by +19%, with sharpest gains in construction where orders doubled.

Japan and South Korea are making up, trying to put their fraught relationship back on a more normal basis. This is actually a big deal for the region.

In China, average new home prices in their 70 major cities dropped by -1.2% year-on-year in February, slowing from a -1.5% drop in the previous month. This was the tenth straight month of decrease in new home prices but the softest pace of decline since July 2022, as Beijing ramped up policy support for the ailing property sector. Many more cities saw small rises month-on-month for both new and existing housing units.

Separately, President Xi said global market turbulence caused by the Ukraine war has shown that agriculture is a “national security issue of extreme importance”, while making a strong call for food self-sufficiency in a newly published speech.

As widely expected and signaled, the ECB raised its policy rate +50 bps to 3.5% ignoring the stress on banks from the Credit Suisse issues and staying focused on fighting inflation. It is maintaining its tightening bias.

The crisis for Credit Suisse isn't improving. It CDS levels are ballooning (over +3100 bps) and that is despite a SwF50 bln lifeline given them by the Swiss central bank. Markets fear that just isn't enough.

In Australia, their labour market came in stronger in February than expected with +64,600 extra jobs or which +75,000 were full-time positions, and part-time roles fell more than -10,000. Their jobless rate fell to 3.5% while their participation rate was unchanged at 66.6%. (NZ is 3.4% and 71.7% respectively.)

Meanwhile inflation expectations are holding at 5%. That is similar to January and similar to February a year ago. The lack of progress shows how sticky inflation is in Australia.

Globally, freight rates for containerised cargoes slipped again last week, but by less than previously. They are now running at a third lower than their 10-year average, an average that includes the pandemic spike. Bulk cargo rates were up strongly again this week and recovering almost all of the weakness of the past six months.

The UST 10yr yield starts today at 3.57% and up +10 bps from this time yesterday.

The price of gold will open today at US$1914/oz and back down -US$14 from this time yesterday.

And oil prices start today recovering +US$3 at just on US$67/bbl in the US. The international Brent price is now just on US$75/bbl. That's back up half of yesterday's fall.

The Kiwi dollar is little-changed against the USD, now at 61.7 USc. Against the Aussie we are softer at 92.8 AUc. Against the euro we are softer at 58.1 euro cents. That puts the TWI-5 at down to 70.1 with a -40 bps retreat.

The bitcoin price is a little firmer today, now at US$24,812 and down +2.4% from this time yesterday. And volatility over the past 24 hours has been moderate at +/-2.5%.

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.