China & EU make dovish moves, US data positive

Of Interest

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 central banks in both China in the EU have been active overnight, both dovishly.

But first up, initial American US jobless claims last week came in little-changed at +220,000 so there are now 1.69 mln people on these benefits, also very little-changed. Their long-awaited labour market stress still hasn't arrived. It surely will, but has defied the gloomsters for nearly two years now. They may have a long time to wait yet before their stopped-clock position is achieved.

American retail sales rose +0.6% in August from July and easily beating forecasts of a +0.2% rise. Year-on-year these sales are up only +2.9% however which is less than inflation. But the recent rises point to good consumer spending despite high prices and borrowing costs. But part of the recent increase is due to higher fuel costs. Excluding those fuel costs, retail sales only rose +0.2% in August from July, but they were +4.3% higher than year-ago levels which bests inflation by +1.0%.

On the factory floor, producer prices rose by +0.7% in August from July, the highest level since June 2022, and higher that analysts expected of a +0.4% rise. On an annual basis however, producer price inflation reached a four-month high of +1.6%, while the core rate actually eased and to +2.2%, which interestingly was its lowest level since January 2021.

Meanwhile, neither wholesale nor retail inventories are rising, so there is no inventory stress building in this economy.

In Japan they recorded a drop in new machinery orders in July. This series does not include orders for ships or electric power systems. Including them, orders rose sharply. The decline in core orders was driven mainly by a -5.3% decrease in the manufacturing sector, while the non-manufacturing sector posted a +1.3% increase. Industries in the manufacturing sector with the sharpest falls include for petroleum & coal products where orders fell a startling -57%.

Overnight, the People's Bank of China has announced a -25 bps cut in their reserve requirement ratio for all banks, taking it to a weighted average deposit reserve ratio of 7.4%. The banks already on 5% however got no change. At the same time they doubled down on defending the yuan and the managed rate they want to see.

The ECB hiked its policy interest rates for the 10th consecutive time overnight. But it also signaled that it is likely done with its tightening policy, as inflation has started to decline. After this change, their main refinancing operations rate reached a 22-year high of 4.5%, and the deposit facility rate set a new record at 4%. According to the projections released with this policy change, average inflation is forecasted to be at 5.6% in 2023 and 3.2% in 2024, both higher than previous estimates, primarily due to higher energy costs.

In Australia, there was a bigger than expected surge in employment in August but most of it was for part-time jobs. Full time jobs grew by a tiny +2,800 while part-time jobs grew by +62,100. Their jobless rate stayed at 3.7% in August as expected but that remains a 3 month high matching July's rate. There are now 540,500 people without jobs, up +42,600 from a year ago. (For comparison, Australia has 69.5% of their employed workforce in full time jobs, its lowest level in 10 months; New Zealand has 80.0%, a level we have been at for five years and the best since the 1990s.)

And a new report out from the Australian Productivity Commission shows that almost all (95%) of workers got pay increases equal or better than productivity increases.

Internationally, last week there was a sharp drop of more than -7% in global container freight rates. It was particularly noticeable in outbound rates from China to the EU. Meanwhile bulk cargo freight rates are on the move up.

The UST 10yr yield starts today up +5 bps at 4.29%.

The price of gold will start today at just on US$1909/oz and down -US$1 from yesterday.

And oil prices are +$1.50 higher from yesterday at just over US$89.50/bbl in the US and back at its ten month high. The international Brent price is now over US$93/bbl.

And perhaps we should note that the price of uranium is rising fast now, approaching a decade high on rising demand.

The Kiwi dollar starts today little-changed from this time yesterday at 59.1 USc, still settled in its tight range. Against the Aussie we are softer at 91.9 AUc. Against the euro we are +½c higher at 55.6 euro cents. That all means our TWI-5 is actually little-changed at 68.7.

The bitcoin price has moved higher from this time yesterday, and is now at US$26,627, a net rise of +1.9%. Volatility over the past 24 hours has been modest at just over +/-1.3%.

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 will do this again on Monday.