Lower inflation follows tamer activity

Kia ora,

Welcome to Friday’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 global inflation is coming down as energy cost pressures recede. And so far it hasn't been at the expense of global economic expansion.

But first today, US headline jobless claims rose but the increase was minor and less than expected. On an actual basis the fall was rather sharp but recall last week was a retail holiday week. There are now just 1.56 mln people on these benefits, almost the lowest in a year. So still no sign of rising labour market stress in this data. A week from tomorrow their November non-farm payrolls report is released and markets currently expect an expansion of +175,000 - modest but still expanding.

October pending home sale levels gave up more ground in the continuing trend. Pending home sales is a forward-looking indicator of home sales based on contract signings and the -1.5% drop in October is the lowest number since this index was originated in 2001. The prospect of low demand because buyers are put off by high mortgage rates is holding back sellers from listing into a falling market.

October income and spending data growth was modest, each rising just +0.2% from September. That is the lowest for both in seven months of much better gains. Perhaps of more interest was that PCE inflation eased again, now down to +3.0% (3.5% on a core basis) and closer to the US Fed's 2% target range. But even if it is moving in the right direct, there is still some way to go yet.

The slowing the Fed wants, to quash inflation, is well underway according to the November Beige Book surveys. Economic activity slowed since the previous report, with four Districts reporting modest growth, two indicating conditions were flat to slightly down, and six noting slight declines in activity. They are managing to slow things without falling into recession. It's actually an impressive performance.

It is tougher in Canada however. They reported a Q3 GDP decline of -1.1% from a year ago, a sharpish shift from the +1.4% expansion in Q2. Analysts expected a small +0.2% expansion in Q3, so this is a big miss.

India also released Q3 GDP results overnight and these came in better than expected. The Indian economy expanded +7.6% year-on-year in the period, following a strong +7.8% growth in the previous period and beating forecasts of a +6.8% rise. The reading is also higher than the Reserve Bank of India projection of +6.5%.

In Japan, the steam seems to have gone out of their rising retail trade. It fell in October from September by -1.6% to be +4.2% higher than a year ago. Meanwhile, Japanese industrial production has turned up in October, its biggest monthly rise in almost a year.

China's official November PMIs brought some more minor slippage and at a faster pace. The factory sectors contracted slightly faster (although it is still minor); it was expected to contract less. And their services sector's expansion, already minor, eased toward a steady state. It is hard to see how Beijing will be happy about these trends. Their top-level charm offensive of recent weeks isn't working yet in terms of getting business people to change their actions and reactions.

In Europe declining energy costs are still helping cool inflation there. The inflation rate in the Euro Area declined to 2.4% year-on-year in November 2023, reaching its lowest level since July 2021 and falling more that the market consensus of 2.7%. Meanwhile, the core rate, excluding food and energy, also cooled to 3.6%, marking its lowest point since April 2022 and coming in below forecasts of 3.9%.

In Australia there is some substantial positive action in residential building consents. They rose an impressive +7.5% in October from September to be -6.1% lower than a year ago. That is a huge improvement from the year-on-year fall of over -20% in September. It is a sharp shift up that wasn't anticipated by analysts. Still, despite the rise the overall levels remain low.

Container freight rates were unchanged last week. Bulk cargo rates leapt however in a surge we haven't seen since 2022 and to its highest level since May 2022.

The UST 10yr yield has risen +6 bps from yesterday, now just under 4.34%. 

The price of gold will start today just on US$2040/oz and down -US$2/oz from this time yesterday.

Oil prices have fallen -US$1.50 since yesterday at just under US$76/bbl in the US. The international Brent price is now just under US$81/bbl. Markets were unimpressed by the latest OPEC non-decisions.

The Kiwi dollar starts today at 61.7 USc and unchanged from yesterday. Against the Aussie we are marginally firmer at 93.2 AUc. Against the euro we are back up +20 bps at 56.5 euro cents. That all means our TWI-5 starts today just under 70.5 and up +10 bps from this time yesterday.

The bitcoin price starts today at US$37,795 and almost unchanged (-0.1%) from this time yesterday, and extending its meandering. Volatility over the past 24 hours has remained modest at just on +/- 1.1%.

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

You can get more news affecting the economy in New Zealand from interest.co.nz.

Kia ora. I'm David Chaston. And we will do this again on Monday.