Higher inflation and faltering growth

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 all signals point to high inflation and lower growth, and bond markets are scratching their collective heads.

The global economy's recovery track seems to be faltering as the combination of rising inflation and supply chain bottlenecks is undermining consumer confidence in their future buying-power, from Japan to Germany. Delta isn't helping the mood either.

In the US it is touch-and-go.

American consumer price inflation came in at +5.4% in September, marginally higher than for August and slightly above what was expected. Core inflation - without food or energy costs - was an unchanged rise of +4.0% in the year to September. These rising costs are so far more or less keeping pace with the weekly income gains of +4.6%.

It is uncertain whether the US Fed will stay patient, or now get aggressive on how it deals with inflation.

The Fed minutes show that the central bank policy makers have plans to begin reducing their bond-buying stimulus program next month and will aim to wrap up these asset purchases entirely by the middle of 2022.

China turned in a very strong export result in September, up +28% from August and very much better than expected. It was also a record high. That led to a strong +US$67 bln trade surplus in the month, +US$42 bln of which was with the US. China ran a -US$9.1 bln deficit with Australia and a -US$0.5 bln deficit with New Zealand in September.

But new loan growth in China rose in September from a weak August but by much less than expected. Perhaps that is more robust than it first seems as lending to their large property sector is a clear restraint on the overall levels. Property development may make up as much as 30% of China's economic activity, so to get any growth when that sector is under a cloud is actually quite impressive.

German inflation came in at the expected high level of +4.1% pa in September, similar to August.

EU industrial production slipped in August from July and it looks like it's recovery has topped out - and below the pre-pandemic levels.

Japanese machinery orders slipped in August from July, which was a bit of a surprise. But year-on-year the improvement grew and the trend higher is still in place.

In Australia, the new incoming NSW premier is signaling that the State is about to go on an immigration bender "to catch up some of those numbers we've lost" over the pandemic. He seems to have eyes on technical, construction, and healthcare skills.

The UST 10yr yield opens today down another -3 bps at 1.55% as other markets lack direction.

The price of gold has moved up smartly today, up +US$33 at US$1794/oz.

And oil prices are essentially unchanged and still at just on US$80/bbl in the US, while the international Brent price is now at US$83/bbl.

The Kiwi dollar opens today just marginally firmer at just on 69.6 USc. Against the Australian dollar we are little-changed at 94.4 AUc. Against the euro we marginally softer at 60.1 euro cents. That means our TWI-5 starts today little-changed at just on 73.3, and still in the middle of the 72-74 range of the past eleven months.

The bitcoin price has risen +1.7% today from this time yesterday to be now at US$56,948. Volatility over the past 24 hours has been moderate at just over +/-2.8%.

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.