Markets trade cautiously ahead of US NFPs

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.

Today we lead with global economic attention should have shifted to tomorrow's labour market report for September, but the US waterfront strike, and the Middle East tensions has sidelined it.

However first in the US, there was a minor dip in the actual number of initial jobless claims last week, but a lesser dip than expected. There are now 1.62 mln people on these benefits, the lowest level since November 2023.

And as you would expect, the level of job cuts in the US has remained very low.

Tomorrow's non-farm payrolls labour market reports is expected to show a rise in payroll jobs of +130,000.

Perhaps in something of surprise after the wavering factory PMI, the ISM services PMI came in much better than expected. It revealed the strongest growth in this sector since February 2023, amid faster increases in business activity and new orders. And that was mirrored by the internationally benchmarked version.

US factory orders in August weren't as strong, little changed from the prior month to be -0.6% lower than the same month a year ago.

The US East Coast & Gulf port strike is entering its third day, unresolved. But there are signs of progress in negotiations. The Canadian port strike has ended now.

With China closed for holidays, all the equity market signals are being squeezed into Hong Kong which remains open. And that is not good for their property stocks which have had a heady run-up based on the stimulus signals. Now those property stocks are falling just as sharply as investors realise the fundamentals are just not there. And the expected ¥10 tln fiscal 'bazooka' has still be be launched. It is still being talked about and is still expected, but it won't happen till after the holiday week at the earliest.

In the EU, there are signs that producer prices are rising again, up +0.4% in the bloc in August from July, but down -2.3% for the year to August which was a lesser rate of decline from the prior month.

And later today, the EU is expected to approve an increase in tariffs to as much as 45% on electric cars imported from China, a move that officials said would help protect European carmakers from a glut of cheaper vehicles directly subsidised by Beijing.

Those same subsidies have caused Toyota to pull back on developing EVs, because they are no longer commercial to produce.

In China, price cuts along with those government subsidies helped the likes of BYD to boost monthly deliveries to all-time highs in September.

Australian exports retreated slightly in August, but their imports retreated more, so their monthly merchandise trade surplus stayed at about AU$5.6 bln. But that was only because gold exports stayed strong boosted by sharply rising gold prices. Without those, their surplus would have halved.

The latest IMF review of Australia isn't entirely convinced they have a sustainable disinflation trend underway and they warn them to prepare to do more to get price stability. They also say Australia needs to build many more houses in its efforts to tackle unaffordable housing and its pressures.

Container freight rates fell another -5% last week as weak demand overcame the costs of the security issues in the Middle East. But that only dipped prices to 146% of pre-pandemic levels. Last week's weakness was mainly outbound China to Europe. The transpacific rate levels were unchanged. (Backhaul prices are now very low.) Bulk cargo freight rates slipped -2% last week after a long runup. They are now about +13% higher than year-ago levels, the same from the pre-pandemic period.

The UST 10yr yield is now at just on 3.84% and up another +6 bps from yesterday. 

The price of gold will start today at US$2655/oz and up +US$5 from yesterday.

Oil prices are up +US$3.50 at just on US$73.50/bbl in the US while the international Brent price is still just under US$77.50/bbl. Middle-East tensions are now starting to affect these prices as the never-ending 'retaliation' cycle shows no sign of ending.

The Kiwi dollar starts today at 62.2 USc and down -½c from this time yesterday. Against the Aussie we are -20 bps lower at 90.8 AUc. Against the euro we are down -40 bps to 56.4 euro cents. That all means our TWI-5 starts today at just under 70, and down -30 bps from yesterday.

The bitcoin price starts today at US$61,134 and down another -2.9% from this time yesterday. Volatility over the past 24 hours has stayed modest at just on +/- 1.8%.

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.