Global factories expanding

Kia ora,

Welcome to Tuesday’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 the global manufacturing sector is in good shape.

Overnight a set of factory PMIs for October were released worldwide and were generally reporting improving economic activity.

The widely-watched US ISM one reported strongly expanding conditions, little changed from September. But they aren't yet reporting any easing of pricing and supply-chain pressures. That was matched by the internationally-benchmarked Markit version although this one recorded a small pull-back from very healthy conditions, driven by production constraints. New order levels were very strong.

Hong Kong economic activity disappointed in Q3-2021, turning in a limp result and well below the expected result. Q2-2021 shrank, and a bounce-back was expected in Q3, but what they got was a stall.

The China Caixin PMI was a bit more positive than the retreating official one, suggesting things are not completely dire in their private manufacturing sector.

The October PMI for Japan was positive with a moderate expansion and better than for September. For India, it was similar.

It was also a similar story for Taiwan, Thailand, Indonesia, and Malaysia. But South Korea's factory expansion slipped back a bit.

In financial market news, rising bond interest rates are causing big losses in the hedge fund sector and they are pulling back. This is creating less liquid market conditions, and it may only get tighter with a Fed taper, and rate hikes for them down the road that are now getting priced in. The problem with the hedge fund industry and risk pullback is that the US Treasury market is struggling for liquidity, and those conditions could spill over into other financial markets.

At the same time, the UST yield curve is flattening, usually a sign that markets are worried about longer term growth prospects.

In commodity markets, the Baltic Dry Index is signaling that the period of strong demand for cargo ships may be over. And related, global wheat volumes may be declining, and that is causing a surge in the price for this staple food, now back at a ten year high.

The two Australian factory PMIs delivered contrasting results. The locally-watched one recorded conditions that were decelerating and now barely expanding, whereas the Markit one reported their manufacturing sector growth accelerates in October as restrictions eased. It is hard to know why they would diverge.

The Aussie property market continued to rise in October but the rate of growth has slowed dramatically since the start of the year, as a lack of affordability, less government stimulus and more listings hit the market, new figures show. The compiler of the data says things may turn lower soon.

In fact, investor lending rose in September in a minor way but was overshadowed by chunky a fall in owner occupier lending leading to an overall reduction in housing lending.

The UST 10yr yield opens today at 1.57% and up +1 bp overnight. 

The price of gold will start today at US$1791/oz. At this level it has recovered +US$7 from this time yesterday.

And oil prices are little-changed but softish at just under US$83.50/bbl in the US, while the international Brent price is now just under US$84.50/bbl. 

The Kiwi dollar opens today just over 71.9 US and a slight firming overnight. Against the Australian dollar we are marginally firmer too at 95.5 AUc. Against the euro we are unchanged at 62.1 euro cents. That means our TWI-5 starts today firmer that at this yesterday at just under 75.5, still well over the top of the 72-74 range of the past eleven months, and moving to resetting this range.

The bitcoin price has firmed just +0.9% since this time yesterday, and now at US$61,156. Volatility over the past 24 hours has been moderate at just over +/-2.4%.

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.