Equities surge after the US Fed rate cut

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 stock markets are roaring today after the US Fed rate cut, many, including Wall Street, powering up to record highs. And interest rate curves are steepening.

But first, the actual number of people making initial unemployment benefit claims in the US dropped from the previous week to 185,000 last week, significantly lower than the expected 230,000, and a 4-month low. There are now 1.68 mln people on these benefits, also a decrease.

Meanwhile the Philly Fed factory survey reported improved conditions in the rust-belt states in September. Although the new orders component didn't rise, the sentiment indexes for the future all did.

But not rising is their real estate market. Existing home sales fell -2.5% in August from the previous month, the fourth decline of the year. It was down -4.2% from the same month a year ago. The fall happened despite the drop in mortgage rates in the period. And the median existing-home sales price fell too, to US$416,900 (NZ$670,000). The inventory of unsold housing rose rose to 18 weeks of sales at the latest rate, rising from 15.6 weeks in the prior month.

But one thing the Fed rate cut did was suddenly drop home loan interest rates, falling more than -25 bps in the first day to 6.09% for their benchmark mortgage. It is likely to go sharly lower tomorrow again.

The US current account deficit widened slightly to -3.7% of GDP in Q2-2024. That is entirely manageable, especially as the USD is still the world's reserve currency. (For comparison, the New Zealand current account deficit is running at -6.7% of our GDP - and we are certainly not a reserve currency.)

Overnight there were central bank rate decisions in both Taiwan and England. Both made no changes. Perhaps the Taiwanese one was a bit of a surprise because they tend to follow the US Fed's moves. Later today Japan will also review rates, and no change in their rate is expected either. But markets will be looking for signals about when the next rise is coming.

Will the start of the rate easing cycle trigger an economic upside? Certainly some commodities markets think so. And they also expect China to come to the party soon with new emergency stimulus, which would be another boost.

In Hong Kong, a man was jailed for 14 months for wearing a t-shirt with a protest message.

In Australia, their number of workers without a job fell by -10,500 to 627,000, or an unchanged 4.2% of their workforce. Even though employment rose by much more than the expected +25,000, the number of new part-time roles rose +47,500 and the number of new full-time roles fell -3,100 in August. Almost 31% of all Aussie jobs are now part-time. (In New Zealand it is barely touching 20%.)

The overall jobs growth in Australia has analysts thinking that the RBA will delay any move to cut rates there any time soon. But a rise doesn't seem on the cards either, despite their outlier sticky inflation.

Container freight rates fell another -5% last week, taking them back to where they were at the start of the year. But they remain 180% higher than the average 2019 pre-pandemic rate. The Panama issues are resolved, but the Suez/Red Sea issues are not. The shipping industry is adjusting to that new reality however. Bulk cargo rates fell -3.6% over the past week and are now themselves +30% higher than year-ago levels. As we all know, for both there has been a lot of volatility in between and that volatility has probably not ended.

The UST 10yr yield is now at just on 3.73% and up +2 bps from this time yesterday. The key 2-10 yield curve is now +14 bps positive. 

Wall Street is surging today with the S&P500 up +1.8% from yesterday after the Fed decision. Overnight, European markets were all up too, but with varying enthusiasm. Tokyo ended its Thursday trade up is own strong +2.1%. Shanghai was up a more modest +0.7. But Hong Kong closed up +2.0%. Singapore was up +1.1%. 

The price of gold will start today at US$2589/oz and up +US$14 from yesterday's high to near a new all-time high again.

Oil prices are up +US$1.50 at US$72/bbl in the US while the international Brent price is still just under US$75/bbl.

The Kiwi dollar starts today at 62.5 USc and up +10 bps from yesterday. Against the Aussie we are down -20 bps at 91.6 AUc although all of that before the Fed. Against the euro we are up +10 bps at 56 euro cents. That all means our TWI-5 starts today at 69.9, and up +10 bps from yesterday.

The bitcoin price starts today at US$63,817 and up another strong +5.6% 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 on Monday.