Stagflation still a real threat

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 there is more evidence we are in a high inflation period even as economic activity sags.

Last week we noted a rise in American mortgage applications, but this week they fell back and hard and to their lowest level of 2023. So no light at the end of the tunnel of the US housing market yet. Benchmark mortgage interest rates rose to 6.39% plus points

American retail sales grew by more than expected in January in a sign that consumers' willingness to spend may be holding, even rising, helped by their tight labour market and possibly by a slight easing of inflation expectations. They were up +6.4% from a year ago, the same as CPI inflation in the period. This is the first time these gains have matched CPI in four months. This data won't encourage the Fed to change course.

Business activity continued to decline in New York State, according to firms responding to the February Empire State Manufacturing Survey. But the slippage was very much less this month that expected.

US industrial production rose but at a disappointing rate, less than expected. It is now only +0.8% higher than year ago levels, hardly a measure of strength. But it has been held up by surprising strength in business capital goods. Boardrooms are positive places, it seems. Households not so much.

In Canada, January housing starts sagged a little but this is after a strong run over the past two year so perhaps should not have been the surprise it was. Certainly the overall Canadian housing market is in the doldrums so rising new home sales can't be sustained.

In China, it is emerging that Beijing has been worried about sagging demand in their economy for a few months, and President Xi has exhorted his officials to bring in “more forceful measures” to expand domestic spending. Also promised more are favourable policies to support private and foreign businesses. Details of the new emphasis in December were only released overnight.

Meanwhile it has been revealed that China's renewable energy sector is now larger than its coal sector. New additions to solar power generation fueled the jump in 2022 as they look set to meet ambitious carbon emissions goals

India merchandise exports came in lower in January, but then again so did their imports, so their January trade deficit shrank. All this data was less than expected, perhaps pointing out that the global trade environment isn't a source of rising demand any more. But India's service exports are growing, and strongly.

British CPI inflation is staying very high and was +10.1% in January, even if that was lower than in December and slightly lower than expected.

In Australia, under-fire-from-politicians RBA Governor Lowe has been testifying in Canberra before politicians and said he won't be resigning. Further he rarked them up, reported saying "There is a risk that we have not yet done enough with interest rates.”

Staying in Australia, regulator ASIC is targeting predatory lending, and dodgy insurance pricing as a priority. It has laid 173 criminal charges in just six months.

The UST 10yr yield starts today at 3.80% and up +5 bps from yesterday. 

The price of gold will open today at US$1838/oz and down -US$11 from this time yesterday.

And oil prices start today down another -US$1.50 at just on US$77.50/bbl in the US. The international Brent price is now just under US$84/bbl.

The Kiwi dollar is down another -½c today, now at 62.8 USc. Against the Australian dollar we are down -¾c at 91.1 AUc. Against the euro we are softer at 58.8 euro cents. That all means our TWI-5 starts today back at 70.5 and down -20 bps.

The bitcoin price is now at US$22,776 and up another +3.3% from this time yesterday. Volatility over the past 24 hours has been moderate at +/- 2.1%.

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 will do this again tomorrow.