Central bank rates fall, but financial market rates rise

Kia ora,

Welcome to Thursday’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 while officials cut policy interest rates, markets are bidding up benchmark bond rates.

But first, there was another aggressive fall in the level of American mortgage applications last week, down almost -7% from the prior week, and extending the -17% plunge from that earlier period. But they are +3% higher than year-ago levels. Mortgage interest rates have been rising although they held last week at 6.73%. But they are still well down on the year-ago 7.16% level.

Perhaps the fall in mortgage applications is due to the weak state of their housing demand. Existing-home sales fell -1.0% in September from August to an annual rate of 3.84 mln. That is a -3.5% dip from one year ago. And they are on track for their worst year since 1995. American money isn't 'invested' in housing, it is in financial markets.

There was a well-supported US Treasury 20 year bond auction earlier today which delivered a median yield of 4.53%. But that was an outsized hike from the 3.97% at the prior equivalent event only one month ago.

The US Fed released its October Beige Book review of the surveys in all its districts and it was unremarkable, only finding modest improvements.

American petrol prices keep on easing at the pump, now -11.1% lower than year-ago levels.

And as widely anticipated, Canada cut its official interest rate by -50 bps to 3.75% overnight. They signaled that they will continue to chop the rate should their economy develop as expected. The decision increased the pace of rate cuts following three -25 bps reductions, and this aligns with their recent sharp slowdown in Canadian inflation. Some expect another -50 bps cut at their December meeting.

Singapore's core inflation rate rose again but only to 2.8%. This central bank version is different to the normal CPI because it is the one most influential on their rate settings.

Taiwanese retail sales were up +3.2% in the year to September. And their industrial production was up +12.1% on the same basis.

In China, it is still a long way off, but the retail event known as "Singles Day, or "11-11" (November 11) has kicked off early promotions and by some [official] reports is building momentum. It is a world-scale retail event, probably larger than "Black Friday" in the US and elsewhere.

And staying in China, they are raising petrol prices again, their ninth rise of 2024. They blame "rising crude oil prices" which is a bit of a reach given they have fallen -13.3% over the past year.

Consumer confidence in the Euro Area improved in October to its highest since February 2022. This was as expected. However, it remains negative but has now risen back to its long-term average for the first time in 32 months.

The UST 10yr yield is now at just on 4.25% and up +5 bps from this time yesterday.

The price of gold will start today at US$2720/oz and down -US$22 from yesterday.

Oil prices are -US$1.50 lower at just on US$70.50/bbl in the US while the international Brent price is now just over US$74.50/bbl.

The Kiwi dollar starts today at 60 USc and down -40 bps from this time yesterday. Against the Aussie we are unchanged at 90.5 AUc. Against the euro we are back down -20 bps at 55.7 euro cents. That all means our TWI-5 starts today at just on 69, down -10 bps from yesterday at this time.

The bitcoin price starts today at US$65,928 and down -1.5% from this time yesterday. Volatility over the past 24 hours has been modest at just under +/- 1.5%.

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.