Financial markets signal risk-off until the US election

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.

Today we lead with news that investors seem to be having second thoughts about Q3 earnings prospects in light of the supposedly close US election race. Wall Street is retreating and US Treasury yields are rising.

But first, the US Conference Board said its Leading Economic Index fell by -0.5% in September following a -0.3% decline in August. Over the six-month period between March and September 2024, this leading indicator fell by -2.6% which was more than its -2.2% decline over the previous six-month period. Weakness in factory new orders continued to be the major drag, along with the yield spread.

Canada is getting ready for a -50 bps rate cut on Thursday. Sentiment about where their economy is headed seems to be fractured there depending on age. Older Canadians are increasingly optimistic. Younger Canadians remain pessimistic.

Across the Pacific, Malaysia said its economy grew +5.3% in Q3-2024 which is at the upper end of its quarterly growth rates since the start of 2023. A year ago it was expanding at a +3.1% rate.

Taiwanese export orders rose to their highest level in two year in September, even though the pace of that growth slowed to +4.6%. All this is happening while it large neighbour is trying the squeeze it into submission.

That large neighbour's central bank has pushed through cuts to its Loan Prime Rates by its big state-owned banks and by more than expected, cutting the 1 year by -25 bps to 3.10% and the five year by the same amount to 3.60%. These are record lows. The one year rate is the benchmark for most corporate and household loans, the five year rate the benchmark for mortgages.

All this is part of its stimulus plan to prevent a dangerous slowdown from occurring in their economy.

At the same time Chinese banks cut -25 bps from their deposit rates to prevent deterioration in their margins. This will impact huge amounts of Chinese household savings. This may become a factor in some shift of savings into their equity markets.

The UST 10yr yield is now at just on 4.18% and up +10 bps from this time yesterday.

The price of gold will start today at US$2720/oz and unchanged from yesterday.

Oil prices are +US$1.50 higher at just on US$70.50/bbl in the US while the international Brent price is now just over US$74/bbl.

The Kiwi dollar starts today at 60.3 USc and down -40 bps from this time yesterday. Against the Aussie we are unchanged at 90.6 AUc. Against the euro we are down -20 bps at 55.7 euro cents. That all means our TWI-5 starts today at just on 69, down -20 bps from yesterday at this time.

The bitcoin price starts today at US$67,130 and down -2.1% from this time yesterday. Volatility over the past 24 hours has been moderate at under +/- 2.0%.

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 tomorrow.