Wall Street likes Washington's crony focus

Kia ora,

Welcome to Thursday's Economy Watch where we follow the economic events and trends that affect New Zealand.

I'm David Chaston and this is the International edition from Interest.co.nz.

Today we lead with news American policy is very skittish and uncertain, shifting daily now.

The just-released US Fed minutes show officials grappled with how to tailor their new policy framework for the pandemic-scarred economy when they met last month. Grappling is probably understating it.

New research by the US Fed shows that their inability to cut interest rates further means they will need to vastly increase asset purchases if it doesn't want to allow more major damage to the US economy. The analysts suggests they will need to double the $3 tln monetary stimulus already actioned for this recession, and take the Fed's balance sheet up to more than US$10 tln. The issue is more urgent because the Administration is blocking fiscal stimulus (although there may be a yoyoing on that).

Another burst like this will drive asset prices even higher however.

Mortgage applications are still rising strongly in the US, encouraged by very low interest rates. Unlike other recessions, American house prices have been rising, and rising at a faster pace recently.

And it is not only American house prices; it is Canada too. Toronto house prices were up nearly +12% year-on-year on a +42% volume jump. Vancouver is up sharply as well and back with C$1mln dwelling averages again, with the average house price C$1.5 mln.

The US Small Business Administration has started 'forgiving' loans made under their PPP program, an Administration action that has drawn sharp criticism because of the opaque nature of the decisions about who get this relief and who doesn't. The White House is blocking transparency, fueling suspicions there is political targeting and opening the opportunity for fraud and corruption.

In China, their August foreign exchange reserves unexpectedly fell.

In Taiwan they produced another bumper trade surplus with exports up +9.4% year-on-year, and imports down -5.4%. Both were much more than expected.

In Australia, their household savings rate leaped in the year to June to almost +20%, the highest rate since June 1974. This was driven by the record fall in consumption. Gross disposable income rose +2.2%, driven by an historic +42% increase in social assistance benefits, due to both an increase in the number of recipients and additional COVID-19 support payments.

An indication of how tough it is in Australia's huge service sector came today when the AIGroup services PSI for September which dropped from a contracting 43 pts in August to a much worse contraction of 36 pts. This is a serious backslide, and the Victorian lockdown will have had a lot to do with it.

Wall Street is up today by +1.6% in afternoon trade on the S&P500, more sure Washington will shower then with new money. European markets closed mixed last night. Yesterday Hong Kong rose another +1.1% and Tokyo closed unchanged. Shanghai is back trading tomorrow. Yesterday the ASX200 ended up +1.3% and the NZX50 Capital Index was up +0.3%.

The latest global compilation of COVID-19 data is here. The global tally is 35,947,000 and up at a faster pace by +347,000 in one day. Global deaths reported now exceed 1,052,000 (+6000) but clearly many are going unreported. 

The largest number of reported cases globally are still in the US, which is up +44,000 in one day to 7,736,000. Their death total is over 216,000 and still rising at about +1000 per day.

In Australia, there have now been 27,182 COVID-19 cases reported, and that is only +8 more cases than yesterday. Deaths are little-changed, up to 897 (+2).

The UST 10yr yield is up +1 bp to 0.78%. 

The price of gold is down another -US$29 this morning at US$1886/oz in New York trade.

Oil prices start today firmer lower by -US$1, now just under US$39.50/bbl in the US, while the international price is down to just under US$41.50/bbl.

The Kiwi dollar starts today lower by -½c at 65.9 USc. Against the Australian dollar we are down as well at 92.3 AUc, and an 18 day low. Against the euro we unchanged at 55.9 euro cents which is also lower. And that means our TWI-5 has fallen to 69.2.

The bitcoin price is also soft today, now at US$10,621 and -1% lower than this time yesterday.

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. We will do this again, tomorrow.