The US Fed comes out less hawkish than feared

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.

And today we lead with news today's Fed positioning is less hawkish that markets had expected.

The US Fed policy announcement today brought no change in their rate targets at 5.25-5.50%. They did note that ongoing inflationary pressures and a tight labour market has stalled progress toward bringing inflation back down to its 2% target in 2024, and they won't shift their rate signals until they actually see progress.

In addition they said they will slow their quantitative tightening activities starting from June 1, 2024. That means they will reduce their balance sheet by only US$25 bln per month from the previous US$60 bln per month.

In remarks after the policy announcement, Fed boss Powell said their next move is unlikely to be a rate hike. Equity markets like that, yields fell, and the greenback eased. But part of the lack of action could be its desire not to make large policy moves in an election year.

Meanwhile the widely-watched ISM factory PMI slipped back into contraction in April, just marginally weaker than the Markit version. The ISM version is usually lower than the Markit one, but both generally move in the same direction. Currently that is a softening.

That came as the US JOLTS job openings report declined by 325,000 from the previous month to 8.488 million in March, so really only a very small change. But markets noticed the slowdown.

But the ADP Employment Report beat estimates adding +192,000 workers to their payrolls in April, more that the expected +175,000 increase but less than the March gain of +208,000. Hiring was broad-based, they found.

All this comes ahead of Saturday's (NZT) US non-farm payrolls report which is expected to record a solid employed labour force gain of +243,000.

Because of the widespread May Day holidays around the world yesterday, there is little other international data released overnight.

In Australia, their statistics agency released "employee living cost indexes" (LCI) separate from the consumers’ price index (CPI). In March, their CPI came in at 3.6%. But the employee LCI came in at 6.5%, mainly because of the sharp rise in their variable mortgage rates which pass through there very quickly. It was notable that the other groups, especially retirees, did not suffer much of a variation from the CPI in their own LCIs.

The UST 10yr yield is now at 4.61% and down -7 bps from yesterday. 

Wall Street has risen +1.0% the S&P500 after the Fed announcement. 

The price of gold will start today up +US$9 from this time yesterday at US$2303/oz.

Oil prices are down another -US$2 from yesterday at just under US$79/bbl in the US while the international Brent price is now just on US$83.50/bbl and down even more.

The Kiwi dollar starts today unchanged from yesterday at just over 59 USc. Against the Aussie we are holding at 90.9 AUc. Against the euro we are also holding at 55.3 euro cents. That all means our TWI-5 starts today just on 68.8 and down -10 bps from yesterday.

The bitcoin price starts today at US$57,694 and another -4.3% lower that this time yesterday. And this is a new two month low. Volatility over the past 24 hours has remained very high at just on +/- 3.9%.

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 tomorrow.