Powell & Moderna rattle financial markets

Kia ora,

Welcome to Wednesday’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 the Fed boss said the regulator can move faster unwinding its stimulus.

In Congressional testimony today, the head of the US Fed painted the standard picture of "the economy has continued to strengthen" and "inflation will move down significantly over the next year", but he did acknowledge the downside risks of Omicron and "increased uncertainty for inflation". He also suggested that higher inflation justifies a faster unwinding of QE. Markets reacted by seeing a higher and earlier chance of interest rate rises from the Fed, and have re-rated pricing risks. Commodities and bond yields and equities all are falling, and quite sharply as a risk-off tone sweeps over markets.

The widely-watched Conference Board consumer sentiment survey is reporting a slippage in the US, more than the expected hold, and it is being attributed to the bite of inflation. A fall at this time is magnified because it is in the heart of the holiday retail season.

There was also an unexpected retreat in the Chicago PMI reported overnight, which noted a slowdown in new orders, and no respite from the cost increases.

Meanwhile, Canada reported a better than expected Q3 GDP economic expansion. This was underpinned by good household spending and exports.

Japanese industrial production data was disappointing in October.

Meanwhile, the 2020 Japanese census results show its population fell -0.7% down to 126 mln.

China's official November PMIs were reported late yesterday and they are stuck with neither an expansion nor contraction in their manufacturing sector. Their services sector is still expanding but it was tamer than the October level. Both sectors are extending the downward trends that began a year ago.

Their export sector may suffer for a while longer as strict crew quarantines at Chinese ports is keeping ships away. That won't help the global supply chain issues either.

But there are suggestions that Beijing will be easing its environmental standards soon to allow steel mills to ramp up production. That has put a floor under the iron ore price with speculation that it could rise sharply again soon.

Hong Kong retail sales surprised with a better than expected gain, but they are still lower than 2019 equivalents.

India reported Q3 GDP data and a strong recovery but it was not broad-based, with growth disappointing in some key components such as non-financial, non-public services and manufacturing. They may struggle from here unless these sectors pick up.

The Eurozone CPI rate hit 4.9% in November and a sharp jump from the 4.1% rate in October. This was driven by Germany and energy costs, and was enough to make it a 30 year high. This higher rate will put pressure on the ECB to start its QE unwinding, even potentially raise rates.

In Australia, building consent levels fell. A small fall was anticipated, but a large fall was recorded.

But on the 'plus' side, Australia recorded another record current account surplus in the September quarter of almost +AU$24 bln. Still, they owe the rest of the world almost -AU$1.2 tln in foreign debt.

The UST 10yr yield opens today at 1.45% and -6 bps lower from this time yesterday. 

The price of gold will start today at US$1774/oz and -US$11 lower than this time yesterday - and falling.

And oil prices have fallen very sharply today, down about -9% or -US$6.50 to be just under US$64.50/bbl in the US, while the international Brent price is now just over US$67.50/bbl.

The Kiwi dollar opens today soft again but unchanged at just under 67.9 USc and again a 1 year low. Against the Australian dollar we have recovered +½c to 95.9 AUc. Against the euro we are a tad lower at 60.2 euro cents. That means our TWI-5 starts today at 72.7, and its lowest since the end of September.

The bitcoin price has slipped to now be at US$56,841 and -1.1% below the level at this time yesterday. Volatility over the past 24 hours has been moderate at just over +/- 2.9%.

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.