Markets hesitate with US inflation return feared

Kia ora,

Welcome to Wednesday’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 we were all distracted by the 'culture-war' US election, in fact the world's economy was expanding well, except perhaps in China (but even they are still expanding, just not like the they need).

In the US Redbook retail index rose +4.8% last week from the same week a year ago, extending its positive run that started way back in August 2023. This is still not a sign of household financial stress.

US consumer inflation expectations for the year ahead edged down to 2.9% in October, a four year low, and dipping from 3% in each of the previous four months. All indications are the US Fed has won its 'soft landing' in its inflation fight.

The NFIB Small Business Optimism Index rose in October to its highest in three months in a survey carried out prior to the election result.

The RealClearMarkets/TIPP Economic Optimism Index, another measure of US consumer confidence, jumped in November to its highest in over three years. It was a survey carried out after the election result was known.

But all this might change if today's trend of sharp rises in both benchmark interest rates and the USD continue. Certainly Wall Street is having second thoughts with a reversal that now puts it lower than election day.

In Canada, the value of building consents surged in September to be +11.8% higher than the same month a year ago, rebounding from a drop in the previous month. Residential consents rose +7.5% while non-residential building consents rose +18%.

In Japan, machine tool orders resumed their strong expansion in October after the September hesitation. They were up +9.3% from the same month a year ago, and bolstered by strong export orders.

In China, policymakers are still trying to find the key to unlock real estate optimism. Their latest move looks like it will be to cut transfer taxes on housing sales from 3% to 1%. The hope is that people will sell and upgrade their residences.

And of course, it was the Singles Day/Double 11 big retail event in China this week, and it is going off without special notice in the Chinese media. Given that Beijing is looking to boost consumption, you might have thought it would be getting wall-to-wall coverage, but it isn't. However, despite that, it is still an economically significant sales event.

India's industrial production rose +3.1% in September from the same month a year ago, exceeding expectations of a +2.5% growth and rebounding from a -0.1% contraction in the previous month. While this is quite good, it is not back to the average rise for 2024, and even those increases don't really explain why their GDP is rising faster than +7%. India's expansion isn't really based on rising manufacturing prowess.

And India is battling inflation and inflation seems to be winning. In October CPI inflation came in at +6.2%, in a rising trend to its highest since August 2023. Worse, food price inflation rose +10.9% over the same period and almost back to the level they had in 2019. Vegetable price inflation is running at +42%. Unless this is curbed, at some point this will cause social unrest.

Although it has been negative for nearly three years, the Westpac-Melbourne Institute Consumer Sentiment index in Australia rose in November to its highest level in two-and-a-half years as the outlook on the economy and finances finally turned optimistic.

Australia’s NAB business confidence index climbed into positive territory in October 2024, the first positive reading in three months and reaching its highest level since January 2023. There were notable improvements across most industries, except construction and retail. However those surveyed said their business conditions were largely unchanged.

The UST 10yr yield is now at just on 4.43% and up +8 bps from yesterday.

The price of gold will start today at US$2599/oz and down -US$17 from this time yesterday.

Oil prices are +50 USc firmer at US$68.50/bbl in the US while the international Brent price is now just on US$72/bbl.

The Kiwi dollar starts today at 59.2 USc and down -40 bps from yesterday as the USD rises. Against the Aussie we are unchanged at 90.7 AUc. Against the euro we have slipped -10 bps to 55.9 euro cents. That all means our TWI-5 starts today at just on 68.8, and down -10 bps from yesterday.

The bitcoin price starts today at US$87,134 and up another +3.4% from this time yesterday. Volatility over the past 24 hours has been high at just on +/- 3.6%.

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.