Unexpected rises push back Fed cut bets

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 news American data supports the Fed's cautious approach to its monetary policy management - pushing away imminent rate cuts. Benchmark rates have risen sharply.

US new jobless claims came in less than expected when a rise was anticipated. There were less than 200,000 new actual claims last week, and that takes the number of people on these benefits to under 2.1 mln. At the risk of sounding like a broken record, there is still no sign here of a wavering American labour market

But American retail sales were up +0.6% in February from January, following an upwardly revised -1.1% fall in January and below market forecasts of a +0.8% gain. The relatively modest increase, combined with a larger decline in January, suggests a potential slowdown in consumer spending. But the February level is in fact +5.5% higher than year ago levels, pointing out the longer-term above-inflation expansion of consumer activity.

Also rising are producer prices. They rose by +0.6% in February from January, marking the largest increase since last August and surpassing market expectations of a +0.3% rise. Goods prices rose by +1.2%, the most in six months, primarily driven by a surge in energy and food prices. These are not signals the Fed will like

Although they are definitely not at concerning levels and remain at long term average levels, American inventories are rising which will bring increased management attention at firms.

We should point out that the official release on China new yuan loans seems to be delayed. Markets had expected a modest rise, but maybe it isn't like that.

Meanwhile data is coming to light that the 2023 level of commercial property sales in China were unusually light, and marked by distressed sales. More than 20% of all sales were because of seller stress. And it may be more. Some non-distressed deals were made by stressed developers in need of liquidity. Nearly half of the distressed deals in 2023 were in the industrial sector. It seems the office sector's pain is yet to come.

Distressed deals also have make up a high proportion of commercial real estate sales this year. In the first two months of 2024 more than 30% were distressed, and these were dominated by smaller deals.

In India, Bloomberg is pointing out a rather sharp fall in their listed small-cap equities. So far in March, they have fallen -7.5% even if yesterday there was a small recovery. More than NZ$100 bln has been 'lost' in this retreat. It does point out that this market has gotten rather over-valued.

Container freight rates fell another -4% last week although they remain 77% higher than year ago levels. Trans-Atlantic rates rose, but all others fell. Bulk cargo rates basically held over the past week, with the recent sharp rises ending.

The UST 10yr yield starts today at 4.30% and up +11 bps from this time yesterday. 

We should note that the Tesla share price has fallen a very sharp +3.7% so far today. Over the past week that has compounded to a -10% drop. It is actually down more than a third so far this year.

The price of gold will start today -US$15 lower than yesterday at US$2158/oz.

Oil prices have risen another +US$1.50 to just over US$81.50/bbl in the US while the international Brent price is now just over US$85/bbl.

The Kiwi dollar starts today at just under 61.4 USc and -20 bps softer than this time yesterday. Against the Aussie we are firm at 93.2 AUc. Against the euro we are holding at 56.4 euro cents. That all means our TWI-5 starts today at just on 70.3 and unchanged from yesterday. In fact we have been within a tight range around this level for more than two weeks now.

The bitcoin price starts today at US$71,337 and down -2.5% from this time yesterday. Volatility over the past 24 hours has been moderate at just over +/- 2.5%.

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.