It's not going to be transitory

Kia ora,

Welcome to Thursday’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 it is all about consumer inflation, and the market reactions that followed.

The US CPI came in way above its expected high level. It was running at 5.4% in September and was expected to rise to 5.8% in October. But the actual October rise was by 6.2%. Even their 'core inflation' data pushed on up sharply higher than expected from 4.0% in September to 4.6% in October. Their headline inflation rate is the highest in more than 30 years; their core inflation rate is the same.

The largest increases in this data are for energy-related costs (+30%), but nearly everything else rose sharply as well like food (+5.3%) and apparel (+4.3%). The only major category holding the line has been medical and healthcare costs.

Tomorrow is Veterans Day in the US, a Federal holiday, so we got some data usually due out on their Thursday's a day earlier. And that includes their weekly jobless claims data update. Another +254,000 people signed up for these benefits last week and a small increase from the previous week. There are now 1.9 mln people on these programs and basically back to their pre-pandemic level.

Japanese machine tool orders impressed yet again, up more than +80% above year ago levels and +70% higher than October 2019 levels. Even if there are inflationary aspects to discount, these clearly indicate company boardrooms have authorised recovering capital investment plans. They take them back to the very healthy 2018 levels.

China's CPI inflation rate rose to 1.5% in October from 0.7% in September, but this was a rise that was expected. And small as it is, consumer inflation is creeping back in China.

But their producer prices rose at a faster rate, up +13.5% in a year and well above the +10.7% rise in September. It is this acceleration that may have global consequences.

As expected, new yuan loans in China fell sharply in October but at least they came in slightly better than what was expected.

We are now right at the sharp end of the Evergrande crisis. Some bondholders report have not received coupon payments by the end of 30-day grace periods at close of Asia business yesterday, which may trigger default action.

German CPI inflation was confirmed at the 4.5% their earlier 'flash report' had signaled.

Elsewhere in Europe, courts there have upheld the giant US$2.8 bln anti-trust fine on Google, adding new momentum to the bloc’s assault on big tech companies.

In Australia, Austrac, the Australian Federal Police and the Australian Criminal Intelligence Commission told a parliamentary hearing into Australia’s money-laundering laws that criminals are using lawyers, accountants and real estate agents to launder tens of billions of dollars through the Australian property market each year. Austrac testified that in 2020, Chinese interests laundered AU$1 bln through real estate transaction, and they pointed out that there were times when prospective homeowners would be competing against money launderers at auctions.

The UST 10yr yield opens today at 1.55% and up a very sharp +12 bps since this time yesterday and rising. 

The price of gold will start today up +US$25 to US$1854/oz and to a 100 day high. Most of this rise happened after the London market closed.

And oil prices are softer by about -50 USc and are now at just over US$81/bbl in the US, while the international Brent price is now just under US$83/bbl.

The Kiwi dollar opens today giving up more it its recent gains and is back to 70.9 US. Against the Australian dollar we are softer at 96.3 AUc. Against the euro we are unchanged at 61.5 euro cents. That means our TWI-5 starts today at just on 74.9 and back to where it was on Monday.

The bitcoin price has risen to a new record high and is now at US$68,616 and a +2.8% rise from this time yesterday. It is probably getting a push as some sort of inflation hedge because this latest rise came following the US CPI data. Volatility over the past 24 hours has moderate at just over +/-2.2%.

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.