US momentum continues, China strives to regain theirs

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 China is trying to get back on track to keep up with the US economically.

First in the US, the number of initial claims for unemployment benefits fell again last week and by more than expected to 181,000. In fact there has been a consistent reduction each week since the end of July. There are now only 1.63 mln people on these benefits.

American durable goods orders came in better than expected too in August. After an unexpected jump in July, they were expected to fall back sharpish. They did but not by anything like what was expected. In actual terms they rose +7.5% from July to be level-pegging with a year ago. The embedded year-on-year negative has now been extinguished. Capital good orders rose in August to be +2.5% higher than a year ago. This too is a bright recovery.

There were no surprises in the US Q2 final GDP result, with their economic activity growing +3.0% 'real' and almost double the +1.6% expansion in Q1. For the full year to June, there was US$29 tln in economic activity recorded, a fast pace of expansion for the world's largest economy. By some estimates, that +3% pace has continued into Q3.

It is not all good, or even even. The Kansas City Fed's factory survey retreated in its September review, even if expectations for future activity stayed positive.

Again, there was good support for today's US Treasury 7 year bond auction. It went for a median yield of 3.61%, down from 3.71% at the equivalent event a month ago. And that is despite secondary benchmark yields rising slightly today.

And as expected, the Swiss National Bank cut its key policy rate by -25 bps to 1% at their overnight meeting, a third consecutive reduction and pushing borrowing costs to the lowest since early 2023.

Aussie job vacancies continue to fall. There were 330,000 job vacancies in August, down by 18,000 from May, and well down from the peak of 473,000 in May 2022. Their labour market stats shows there were 623,200 unemployed people in the same month, of which 418,500 were supposedly looking for full-time work.

The OECD said the global economy is turning the corner as growth remained resilient through the first half of 2024, with declining inflation, though significant risks remain, according to the OECD’s latest Interim Economic Outlook. With robust growth in trade, improvements in real incomes and a more accommodative monetary policy in many economies, the Outlook projects global growth persevering at 3.2% in 2024 and 2025, after 3.1% in 2023. Global inflation is projected to be back to central bank targets in most G20 economies by the end of 2025. Headline inflation in the G20 economies is projected to ease to 5.4% in 2024 and 3.3% in 2025, down from 6.1% in 2023, with core inflation in the G20 advanced economies easing to 2.7% in 2024 and 2.1% in 2025.

Container freight rates fell -7% last week from the prior week, to be +160% higher than the pre-pandemic levels and back to levels we last saw at the start of 2024. All the latest reductions were on routes outbound from China. Bulk cargo rates were up +6.6% last week to be +25% higher than a year ago.

In China, Beijing has asked its four top state-owned banks to cover for it with lending that may not make a lot of commercial sense. Now Bloomberg is reporting that they are moving to bolster the capital in these key institutions. The amount of added capital required is enormous.

And we are starting to see some movement in some commodity prices, responding to the Chinese stimulus program. For example the copper price is back above US$10,000/tonne which is approaching the upper limits of where it has been since its first rise in 2011. Iron ore or rebar steel aren't moving, but zinc is.

The UST 10yr yield is now at just on 3.79% and unchanged from yesterday. 

The price of gold will start today at US$2670/oz and up +US$9 from yesterday to yet another new all-time high.

Oil prices have fallen another -US$2 to US$67.50/bbl in the US while the international Brent price is now just on US$71.50/bbl. The Saudis seem to have surrendered the idea that production cutbacks will juice the price in their favour. They are shifting to pump more and regain market share.

The Kiwi dollar starts today in a yoyo pattern at 63.3 USc and back up +60 bps from this time yesterday. Against the Aussie we are unchanged at 91.8 AUc. Against the euro we are up +30 bps at 56.6 euro cents. That all means our TWI-5 starts today at 70.6, and back up +30 bps from yesterday.

The bitcoin price starts today at US$65,167 and up +3.3% from this time yesterday. Volatility over the past 24 hours has been moderate at just on +/- 2.9%.

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.