Lowe to go higher with another rate rise

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.

And today we lead with news all eyes today are on the signals to be sent by the Reserve Bank of Australia. Inflation seems to be easing there but the central bank is widely expected to keep its foot firmly on the throat of inflation with another rate rise.

But first, American factory orders fell in January, mainly because of weak aircraft orders. This was as expected. But without that category, they rose and by a bit more than the advance reports suggested.

In Canada, the Ivey PMI series which is the most widely-watched set there fell back to only a modest expansion in February and this was not expected. It is a far steeper drop than anyone saw coming.

South Korea is making progress on the inflation front - probably at the cost of growth. Their February CPI rate fell below an annualised 4% rate and the year on year rate slipped to 4.8%. We get their Q4 GDP growth data later today.

China has released its budget and most of the focus has been on the big increase in defense spending. But it also raises its spending to increase its grain reserves in a clear self-sufficiency push amid ongoing concerns over food security.

China is also quickly expanding is 5G base station network. It currently has 2.3 mln in place and will add another 600,000 in 2023. The country currently has more than 575 million 5G mobile phone users.

EU retail sales were expected to rise +1.0% in January, recovering from a chunky December drop. But in the end the rise was only +0.3% which disappointed market analysts. However, the softness is all about lower levels of fuel and energy sales, which for them may be a good thing.

In Australia, the Melbourne Institute's Monthly Inflation Gauge showed prices eased sharply to under 5% at an annualised rate in February from January from almost 11% annualised rate in January from December. This was the sixth straight month of increase in the index, bringing the year-on-year rate to 6.3%, which was the second highest since the series began. For sure, the RBA will have noticed this data ahead of their cash rate target review later today. But another +25 bps rise is baked in now and that will be their tenth in a row and taking their cash rate target to 3.60%.

Separately, the Aussie agricultural sector is in for a banner year this year on the back of very favourable La Nina growing conditions. They will produce product worth AU$90 bln in the 2022/23 year, also aided by high global prices. But forecasters expect drier conditions to return soon, so this may be a high mark for some time. Although late this year, their fire season is returning now on the back of some very hot weather.

The UST 10yr yield starts today at 3.98% and a net +2 bps from yesterday.

The price of gold will open today at US$1851/oz and down -US$6 since yesterday.

And oil prices start today up +50 USc at just under US$80.50/bbl in the US. The international Brent price is now just over US$86/bbl.

The Kiwi dollar is down -½c at 61.9 USc. Against the Aussie we are down marginally at 91.9 AUc. Against the euro we are down -½c at 57.9 euro cents. That all takes the TWI-5 down to 70.1 and a retreat of -40 bps.

The bitcoin price is little-changed again from this time yesterday, at US$22,523. And volatility over the past 24 hours has been low at +/-0.7%.

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.