Unexpectedly strong US retail sales shake financial markets

Kia ora,

Welcome to Tuesday’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 that bullish American consumers are likely pushing back the likelihood the US Fed will cut its policy rate any time soon.

Financial markets now price in only two cuts this year, one in September and one in December and far less than the four priced in at the start of the year. And the conviction for these scaled back indications is easing rather fast. The latest pricing suggest the September one might still happen but there in more of a chance the December one will be skipped.

And that is because American retail sales posted impressive results in March, and February's results were revised sharply higher. Those revisions means they were up +2.1% in February from a year ago, up 4.0% in March on the same basis. Consumer spending belies consumer sentiment. What they do is way more positive than what they say.

Meanwhile, overall February business inventories remain in good control, holding their relative level to sales. There is no buildup of tensions on this front.

On this data, the USD rose yet again, bond yields jumped - again - and equity prices packed a sad that they are unlikely to get the rate cuts they were banking on.

It is not all positive however. The New York Fed's local factory survey reported that both new orders and shipments fell significantly in March and unfilled orders continued to shrink. Optimism among these businesses is subdued.

And we should note that carmaker Tesla is cutting 10% of its global workforce, or -14,000 jobs, on stuttering sales and profitability issues. Its shar price fell another -5% in today's trading to be down -35% so far this year, down -59% from its peak on November 5, 2021.

Canada reported manufacturing gains in February from January, and even small gains from year-ago levels. Those gains, tiny as they are, also came out when inflation-adjusted.

In China, a new industry report from a corner of their economy details just how tough it has become to make deals there. Pay at China’s private equity and venture capital firms plunged as much as -40% year-on-year in 2023 as the industry’s downturn showed no signs of abating.

Just for the record, the People's Bank of China had its monthly review of its benchmark One-Year Medium-Term Lending Facility Rate, which is the main rate at which the central bank lends to big commercial banks, and it held it unchanged at 2.5%.

In Japan, machinery orders jumped +7.7% in February from January, reversing the -0.7% fall in January and far exceeding market expectations for just a +0.8% gain. That put them a healthy +9.4% higher than year-ago levels.

In the EU, industrial production rose again in February, making it the third rise in the past four months. Analysts were expecting this type of improvement. But despite this month-on-month rise, they still have some way to go to convert that into year-on-year gains.

We should also note that the rise and rise of the aluminium price over the past eight weeks too a sharp turn higher yesterday, taking it back to June 2022 levels. This shift is largely due to sanctions biting on Russian supplies.

In Australia, employers and unions are close to a national agreement that will allow workers to take double their holiday time off at half their pay. There are still details to be agreed, but the principle for this flexibility is being set.

The UST 10yr yield is now at 4.63% and up +11 bps from yesterday. 

The price of gold will start today higher by +US$20 from this time yesterday at US$2363/oz.

Despite continuing Middle East tensions and uncertainties, oil prices have slipped -50 USc overnight to US$84.50/bbl in the US while the international Brent price is unchanged at US$89.50/bbl.

The Kiwi dollar starts today at just over 59.1 USc and down -20 bps from yesterday and a five month low. Against the Aussie we are also down -20 bps at 91.7 AUc. Against the euro we are down -20 bps too to 55.6 euro cents. That all means our TWI-5 starts today just under 69 and down its own -20 bps but that is only a ten day low.

The bitcoin price starts today marginally firmer at US$64,004 up +0.3% from this time yesterday. Volatility over the past 24 hours has been moderate at just on +/- 2.8%.

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 tomorrow.