The consequences of a series of bad choices bedevils the US, and the rest of us

Kia ora.

Welcome to Monday’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 of zero progress in the mess in the Middle East. In fact, it has probably gotten worse.

And in the week ahead, geopolitical developments will likely dictate global market directions. Reports by the IEA and OPEC this week will reveal how the institutions see the supply shock of seaborne energy from the Persian Gulf. The spotlight on US economic data will be on consumer inflation for February (Thursday) and PCE for January (Saturday). Both are expected to rise (CPI to 2.5%, PCE to 2.9%) but everyone will know this is the base on what the March data (released on April 11) will be built on.

Where US inflation goes, the bond market goes, and the cost of money locally, Of course, we will be tracking that for you.

In China, they will release February inflation data, with headline CPI expected to firm to 0.8% from 0.2%, while producer prices are likely to decline at a slightly slower pace of 1.1%. They will also release new yuan loans data which is expected to decline in February, partly reflecting seasonal weakness linked to the Lunar New Year holidays. In Japan, we will get updated machine tool orders results. In Australia, it will be about consumer and business confidence, consumer inflation expectations. In India, it will also be about CPI data.

Locally, apart from some retail data (card use) and more analysis on mortgage activity, data releases will be relatively quiet this week.

But there will be plenty of news to follow, especially flowing from the consequences of shrinking workforces in the US, which will have global implications.

The US economy shed -92,000 jobs in February at the headline level, the most in four months, following a downwardly revised +126,000 rise in January and much worse than forecasts of a +59,000 gain. From a year ago, payrolls are up +129,000 and that is unusually low. Apart from December's tiny +59,000 year-on-year gain you have to go back to the pandemic (and Trump 1) to find as weak a rise. It gets worse by broadening the view of all employment, not just payroll employment. That broader view shows overall employment down -391,000 in February from a year ago, the second consecutive shrinkage.

US retail sales inched lower by -0.2% in January from December, slightly less that the expected dip. It was the first decline since October. From a year ago, they are +3.1% higher. Most of this is accounted for by 2.5% CPI core inflation.

US inflation may be about to get a shock. Petrol pump prices are up today +10% from a year ago, up +18% from a month ago. And these costs are only just getting started with US crude oil up +35% in a week, up the same in a year. When US March CPI is reported, the Fed won't be able to look away. 

They are facing fast-weakening labour markets and fast rising inflation. They have a dual mandate so they will have to choose what to prioritise. The simple fact is that inflation problems are harder to remedy using monetary policy tools than the labour market. Absent political pressure, they would want to fight inflation first. (If they choose the other goal, they will embed inflation for a very long time.)

In Canada, their widely-watched Ivey PMI surged higher in February, a strong expansion signal, to its best since September 2025, and prior to that its best since July 2024.

In the Persian Gulf, the Qatari oil minister said in the next few days they have to decide whether to declare force majeure, releasing them from obligations to deliver supplies to customers. He said that could drive crude prices to US$150/bbl. There are still no ships transiting the Straits of Hormuz - except Iran-linked ones.

China’s foreign exchange reserves rose to US$3.428 tln in February, a small +US$30 bln increase over the previous month and the seventh consecutive monthly gain. These are now back to their highest level since November 2015. USD weakness helped, but it is clear US efforts to 'contain China' aren't working at the most fundamental level. Meanwhile, they bought slightly more gold and now have 74.22 mln troy ounces. American missteps have juiced the price of gold of course, so the value of their holdings rose +US$20 bln to US$388 bln at the end of February, now 11% of their total reserves.

After falling consistently since August, the FAO food price index rose in February, basically tracking similar levels for the start of 2025. But there is wide variation between categories. Meat prices are steady, Dairy prices are falling as is sugar. Dairy prices are now at their lowest since the start of 2024. But vegetable oils are rising, and fast, with cereal prices turning higher too.

Meanwhile, metals prices are rising, led by aluminium's overnight jump, and it is now approaching the heady heights of the pandemic peaks. Copper and zinc have been rising recently too, even nickel and zinc. Sulphur is another essential commodity at a peak, even higher than the pandemic levels. This is a particular problem for China. But iron ore prices are not joining the party.

The UST 10yr yield is now just on 4.13%, up +2 bps from Saturday. 

The price of gold will start today up +US$28 from Saturday at US$5172/oz. Silver is up +50 USc at US$84.50/oz today.

American oil prices are up +US$1, at just under US$91/bbl, while the international Brent price is up a bit less to be now just on US$92.50/bbl.

The Kiwi dollar is unchanged against the USD from Saturday, still just on 59 USc. Against the Aussie we are down -10 bps at 84 AUc. We are up +10 bps against the yen. Against the euro we are up +10 bps at 50.9 euro cents. That all means our TWI-5 starts today little-changed at just over 62.7.

The bitcoin price starts today at US$66,882 and down -2.0% from this time Saturday. Volatility over the past 24 hours has been moderate at just on +/- 2.5%.

You can get more news affecting the economy in New Zealand from interest.co.nz.

Kia ora. I'm David Chaston and we’ll do this again tomorrow.