Powell in no hurry to cut rates, defying Trump

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.

And today we lead with news the USD is wavering (down -1.7%) as policy missteps especially on the impact of the trade war hostilities. Benchmark interest rates are rising as risk premiums rise. Estimates for US growth are getting downgraded, while estimates for US inflation are being raised. These latest shifts will have global echoes.

And in a shameless move, the US President has ended enforcement of the Foreign Corrupt Practices Act, saying bribing foreign officials is now a part of US diplomacy. Previous you could go to jail for that, and many people did. The lack of enforcement will probably only apply to Trump's supporters.

The US Fed boss Powell is testifying before Congress, newly hostile because Trumps troops are gunning for lower policy interest rates. He also pushed back on 'being rushed' on rate cuts. At the accusation the Fed is overstaffed, he countered that they aren't, but they are overworked.

Last week's American retail Redbook index rose +5.3% above year-ago levels, a slowing but still a notable rose.

Also at a good level is SME business optimism. But uncertainty is on the rise. This January survey by the NBIB was expected to rise from December, but it fell.

There was another large, but well-supported US Treasury three year bond auction earlier today and that went for a yield of 4.26%. This was slightly below the prior equivalent event a month ago at 4.29%. Fear is being priced in more than uncertainty.

The February USDA WASDE report has been released. It shows the US will likely produce more beef in 2025, and import levels will remain unchanged. But prices are rising they say on rising demand. They also so US milk production is in a declining phase with fewer cows milking. They see prices holding, in USD terms of course.

In Canada, December building permit levels rise sharply and by much more than expected. They were +11% more than in November and a massive +30% higher than in December 2023. Although this metric does tend to jump around a bit, there are some substantial gains here.

In India, their central bank has intervened in currency markets frying to stop the fall and speculative shorting of the rupee. It had ballooned out to almost 88 to the USD and the intervention brought it back to 87. However even that level is a notable devaluation. The RBI probably doesn't have the resources to fight market shorters.

In China, President XI is out visiting the regions, and emphasising the importance of food security. Beijing must be worried if they give it this much repeated exposure.

And yet another large property developer is throwing in the towel, not opposing its winding up.

The social-media-recorded pushback during the Covid lockdowns in China that "we are the final generation" is continuing to echo, and echo loudly there. After rising slightly in 2023, marriages fell sharply in 2024 and to their lowest since China's public records began in 1986. This means the public efforts to stop the sharp fall in births are not working. (And yes, if you try to follow the link to the data, you may well find yourself blocked. But it is the source data for this item.)

In Australia, the Westpac-Melbourne Institute consumer sentiment survey reported no improvement in January from the flat levels that have been around for the two prior months. But the NAB Business Sentiment survey is reporting that their responders are finding a more positive mood.

The UST 10yr yield is at 4.54%, up +5 bps from yesterday at this time.

The price of gold will start today at just under US$2904/oz and up +US$4 from yesterday.

Oil prices are up +50 USc at just on US$73/bbl in the US and the international Brent price is now just under US$77/bbl and back to week-ago levels.

The Kiwi dollar is now at 56.6 USc and up +10 bps from this time yesterday. Against the Aussie we are down -10 bps at 89.9 AUc. Against the euro we are also down -10 bps at just under 54.7 euro cents. That all means our TWI-5 starts today just on 66.8, essentially unchanged from yesterday at this time.

The bitcoin price starts today at US$96,409down -0.9% from this time yesterday. Volatility over the past 24 hours has been modest at +/- 1.2%.

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.