Global markets quite mixed, gold rises

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 with news it is Friday the 13th, so don't expect too much from the day.

The actual number of American jobless claims last week were +178,000, a one year low, taking the total number of people on these benefits to 1.71 mln, a nine month low. But the seasonally adjusted level reported was +230,000. It is unclear why the variance is so large this week.

Meanwhile, American producer prices rose +1.7% in the year to August, the lowest in six months, easing from a downwardly revised +2.1% gain in July and below market expectations of +1.8%. Their 'core' PPI rose +2.4% however emphasising the role much cheaper energy costs are playing in keeping inflation down.

The September USDA WASDE report confirmed global wheat and rice production will be higher than expected earlier in the year, coarse grains slightly less. They also say American beef imports will rise on rising demand. American milk production is expected to slip on lower local production.

There was another well-supported US Treasury 30 year bond auction overnight delivering a 3.95% median yield. That is down sharply from the 4.22% yield at the prior equivalent event a month ago.

India's inflation rate rose to 3.65% in August from an upwardly revised 3.60% in July (which was the lowest since August 2019). But the August level was above forecasts of 3.55%.. However, these levels are below the RBI's targets, and while food prices are still rising at a +5.7% rate, that is down from year-ago levels of +9.9%. It is this base effect change that is making overall price increases look low.

Meanwhile, India's July industrial production was up +4.8%, about the average level it has been for all of 2024.

In China, markets are expecting some significant cuts for interest rates for home loan borrowers soon. These were signaled earlier, but are now imminent. At the same time Beijing is rounding up investment bankers, taking passports, and investigating them for 'corruption'. Despite all this, their government bond sector is rallying sharply today in defiance of Beijing's efforts to calm matters. Equity prices are falling, also on the uncertainty, and in contrast to what is happening in other global markets.

As expected the ECB cut its policy rates but they varied a lot this time by type of facility. The deposit rate was cut by -25 bps to 3.50%. But the main refinancing operations rate and the marginal lending facility rate were lowered to 3.65% and 3.90%, both from 4.00%, so these cuts are larger. They see a better inflation outlook and "better transmission of policy". They are also facing a weaker level of economic activity in the bloc. Their balance sheet reductions continue at an unchanged pace.

It seems the Australian central bank is right to be sceptical inflation is trending in the way they need it to. Consumer inflation expectations are still at 4.4% in September in Australia, only slightly down from August's 4-month high of 4.5%. Perhaps the situation will turn soon. The same survey showed that respondents expected total pay was expected to grow by just +1.4% over the next 12 months.

World container freight rates fell a rather sharp -13% last week as the shipping industry adjusts to the Suez Canal risks, and the Panama Canal drought impacts fade. Prices were down -13% last week from the week before to be only about double what they were a year ago. This is counted as 'progress'. The biggest falls were for cargoes outbound from China. But bulk freight rates are rising, up +3% over the past week but they are +60% higher than a year ago

The UST 10yr yield is now at just on 3.68% and up +3 bps from yesterday. 

The price of gold will start today up a significant +US$40 from yesterday at US$2554/oz and almost touching its record high of US$2555 on September 12, 2024. In fact, as we publish, it may have bested that ATH level.

Oil prices are up another +US$1.50 at just on US$69/bbl in the US while the international Brent price is now just over US$72/bbl.

The Kiwi dollar starts today at 61.6 USc and +30 bps firmer from this time yesterday. Against the Aussie we are down -10 bps at 91.9 AUc. Against the euro we are +20 bps firmer at 55.8 euro cents. That all means our TWI-5 starts today at 69.5, and +20 bps higher from yesterday.

The bitcoin price starts today at US$58,242 and up almost +1.0% from this time yesterday. Volatility over the past 24 hours has been modest at just under +/- 1.1%.

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.