Energy prices have global economy in its grip

Kia ora,

Welcome to Thursday's Economy Watch where we follow the economic events and trends that affect New Zealand.

I'm David Chaston and this is the International edition from Interest.co.nz.

Today we lead with news energy prices are roiling markets everywhere.

But first in the US, the ADP employment report was positive, coming in better than expected with an +568,000 increase in jobs for September and suggesting that the upcoming US non-farm payrolls report will be a reasonable one. There were good gains in every sector in the ADP report. Analysts expect the non-farm payrolls report to show a rise of only +473,000 however.

But there were challenging data in the American home loans sector. Applications fell sharply last week, and interest rates rose sharply which probably explains the applications retreat.

In Asia, fuel prices are soaring, and not just in China. But China is relenting on its blockade of Australian coal, releasing ships carrying the fuel that have been waiting to unload for months. And India, state-owned Coal India has been ordered to raise output of thermal coal sharply. Everywhere, demand for propane, diesel and fuel oil is very high and prices are rising sharply.

In Europe, very high natural gas prices are a very real threat to their economic expansion. But overnight, Russia agreed to increase supplies, taking the top of the sharp increases yesterday at least. Russia has the EU in a choke-hold ahead of their winter season.

And staying in Europe, the recovery in retail sales didn't eventuate in August as expected, a disappointment for them.

In Australia, their prudential regulator APRA has announced an increase in “the minimum interest rate buffer it expects banks to use when assessing the serviceability of home loan applications.” It has risen +50 bps to 3.0%. APRA estimates that “a 50 basis points increase in the serviceability buffer will reduce maximum borrowing capacity for the typical borrower by around 5 per cent.” This is probably just the first of a series of tightening measures aimed at cooling their housing markets.

Also in Australia, their tax office is tightening scrutiny of increasingly popular exchange traded funds (ETFs) amid concerns about the failure to report capital gains from share sales and income from dividends and distributions.

The UST 10yr yield opens today at just under 1.53% and little-changed from this time yesterday. 

The price of gold will start today little-changed, up +US$2 at US$1762/oz.

And oil prices are lower today, down almost -US$2 to just over US$77/bbl in the US, while the international Brent price is just under US$81/bbl.

The Kiwi dollar opens today noticeably lower at just on 69 USc and nearly a -1% devaluation in a day. Against the Australian dollar we are down -40 bps to 95.2 AUc. Against the euro we soft at 59.8 euro cents. That means our TWI-5 starts today down at 72.9, but still in the middle of the 72-74 range of the past eleven months.

The bitcoin price is sharply higher again since this time yesterday, up another massive +9.4% this time to be now at US$54,752. Volatility in the past 24 hours has been extreme at just over +/- 5.3%.

You can find links to the articles mentioned today in our show notes.

And 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.