The Red Sea crisis roils freight rates

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.

And today we lead with a quick news wrap-up so you can get back to your 'time-off'.

We are still seeing geopolitics and great power rivalry upending some parts of the global economy, and oil prices as a consequence, but generally conditions are quite stable-to-positive which is perhaps a bit of a surprise in the circumstances. The latest set of US Fed meeting minutes set the scene for more 'normal' market conduct.

First up, markets are turning their attention to the US labour market again, a market the bears have thought would be tanking by now (they have expected a rise in joblessness there monthly for more than two years now). But they may be disappointed yet again and have to reach deeper into their excuse box. The December non-farm payrolls report is out tomorrow and analysts now expect a +150,000 gain.

Today, US jobless claims came in lower than expected and a decrease from the prior week. Seasonal factors had anticipated a rise in claims, but it was not to be. There are now 1.89 mln people on these benefits, and insured jobless rate of 1.3%.

American employers announced the fewest job cuts since July, just 34,817 in December, down -24% from 45,510 in November. Announced layoffs fell -20% from December 2022.

The pre-cursor ADP employment report anticipated a payroll gain of +115,000 in December, but delivered a +164,000 rise in filled jobs, driven by big gains in California which accounted for about half the rise. This same December report shows that pay rose +5.4% for people who stayed in their jobs, and by +8.0% for people who changed jobs. This is more evidence that workers are making real pay gains in this labour market.

The first of the two reports on the services sector in the US in December is out and it underpins the stronger labour market data. It reports the fastest upturn in new business since June which is spurring the rise in activity, and employment growth rose its quickest in six months. The ISM services report will be out tomorrow. From an historic perspective the pace of this expansion isn't notable, but it certainly isn't a contraction.

But sadly, Canada cannot claim the same. Its services sector was shrinking in December and at a faster pace.

In China, the Caixin services PMI reported an activity expansion at its quickest pace for five months in December (52.9). This is in marked contrast to the official services PMI which found barely any expansion (50.4) in the firms they surveyed. The Caixin survey found better underlying market conditions and greater intakes in new business.

Germany reported its December inflation rate at 3.7% which was up from 3.2% in November. But this was basically because of base effects on energy costs, and their core inflation rate continues to track lower, now at 3.5% and its lowest rate since mid-2022.

In Australia, insurer IAG said they have more than 17,000 severe weather claims from recent Queensland and Northern NSW storms. This will hit the insurer and others like Suncorp who say they have 19,000 claims from the same events. The blowback could well accelerate premium rises and coverage restrictions in future that include New Zealand. The effect of climate change at work.

And staying in Australia, evidence is mounting that CBA's stand against home loan rate cutting can't be sustained as rivals eat away at their market share. You will recall this reticence drove ASB to avoid low margin deals, and that too saw its share shrink. Now there appears to be a change of heart within CBA that has them actively defending their portfolio. ASB will no doubt fall into line as well and now be more active.

The Suez Canal / Red Sea shipping risks are roiling global container freight rates. These jumped an outsized +61% last week. Even trans-Pacific rates rose a sharplish +30%. But the really big increases were for China to Europe routes where prices rose more than +110% in a week. However, it is equally notable that bulk cargo rates have moved little over this same period.

The UST 10yr yield starts today at 4.01% and up +11 bps from this time yesterday. 

The price of gold will start today up +US$10/oz at just on US$2043/oz.

Oil prices are -50 USc softer at just under US$72.50/bbl in the US. The international Brent price is now just over US$77.50/bbl.

The Kiwi dollar starts today at 62.2 USc and +20 bps lower than this time yesterday. Against the Aussie we are holding higher at 92.9 AUc. Against the euro we are more than -¼c lower at 56.9 euro cents. That all means our TWI-5 starts today just on 70.6 and down -10 bps.

The bitcoin price starts today higher, bouncing back up to US$44,085 and a gain of +2.7% from this time yesterday. Volatility over the past 24 hours has been extreme at just under +/- 5.7%.

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.