Powell can't tame the American labour market

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.

And today we lead with news the strength of global labour markets is still on display, especially in the US.

But first, despite mortgage interest rates back rising again, last week mortgage applications rose as well and that breaks a three week retreat.

For all the talk about how Americans are supposedly loading up on more credit card debt, the latest data on overall consumer debt (January) shows it rose a very modest +US$15 bln and far less than was anticipated.

But the key overnight news has been the release of more data that points to a 'hot' labour market, not fading yet.

We get the US non-farm payrolls report for February this weekend (NZT) and it is expected to reveal their employment rose +205,000 on top of the prior month's +517,000 unexpectedly good gain. Today, the private ADP pre-cursor report was also strong for February, showing a gain of +242,000 and well above the expected +200,000. That has changed the risks for the non-farm movement to the high side. There is some evidence that the continued expansion is due to many more women returning to their workforce.

Data for their January JOLTS report also came in better than expected. The number of job openings fell by 410,000 to 10.8 mln in January and much better than the 10.5 mln expected, and the December levels were revised higher.

American exports rose in January from December and were at a level higher than anticipated.

All this data, especially the labour market data, is keeping pressure on the Fed. A return to outsized rate hikes are more likely now starting at their next review on March 23 (NZT), a rate that has already risen to 4.50% so far. A rise to 5.00% is priced in, and markets now expect it to rise to 5.65% within the next six months.

Locally, we should also note that our own two year swap rate rose to 5.54% yesterday, its highest in 15 years.

Canadian exports also rose more than expected in January and that enabled them to report a good trade surplus for the month when a deficit was expected.

Meanwhile, the Bank of Canada has kept its policy rate unchanged at 4.5% and maintained its quantitative tightening is a well-signaled and expected decision. Inflation is running at 5.9% there but their central bank thinks it has done enough for now with rate rises. It thinks their inflation will fall from here.

In China, their housing woes are having an interesting impact on mortgage borrower sentiment. Homeowners are paying down their loans much faster. Also motivating this are cash shifts back from disappointing returns in investment funds. This overall effect is showing up in bank earnings as they miss out increasingly on the lonf flow of interest earnings.

In Germany, 'real' retail sales were lower than expected, in fact they fell in January when a small rise was anticipated. But their industrial production data went the other way, expanding much more than expected in the month. However, that still left it -1.6% lower than the same month a year ago.

In Australia and in an overnight speech, the RBA Governor went out of his way to make two points. Firstly that future rate hikes by them are uncertain and very data dependent. And secondly, they don't care where the US rates end up; they are not trying to match them. This added a very dovish overlay to what was a hawkish RBA Statement on Tuesday. Markets now have to figure out the RBA's resolve on beating inflation which is currently running at 7.8%.

And yesterday we noted that air cargo volumes are now weakening. Today, January data shows that air passenger travel is strong and growing, also a sharp turnaround in a year. Domestic travel seems to be back to pre-pandemic levels, although there is some way to go for international travel. But it is recovering fast.

The UST 10yr yield starts today at 3.99% and a net +3 bps higher from yesterday although in between it got up to over 4%. Powell's Congressional testimony is moving this around today. 

The price of gold will open today at US$1817/oz and down another -US$4 since yesterday.

And oil prices start today down -US$1.50 at just over US$76.50/bbl in the US. The international Brent price is down to just over US$82/bbl.

The Kiwi dollar is down marginally, now at 61.2 USc. Against the Aussie we are back a little at 92.6 AUc. Against the euro we are little-changed at 58 euro cents. That takes the TWI-5 to 70.1 and little-changed from yesterday.

The bitcoin price is little-changed again from this time yesterday, now at US$22,143 and a further -0.7% slip. And volatility over the past 24 hours has been modest at +/-1.1%.

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.