air cargo

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 financial markets are now more convinced rate cuts will be coming in 2024 as inflation transitions away.

First up today we should note that the US Fed will announce the results of its latest FOMC meeting soon, at 8am NZT. No-one is expecting them to change any rates today, leaving their policy rate at 5.5%. But markets have increasing expectations that some sort of signals will emerge about how and when they will start cutting that rate in 2024. Of course that is almost all to do with how they see inflation tracking in the US and where they think it may settle. Benchmark bond yields have sunk in anticipation of those meeting details. There seems little pressure on the employment mandate they have, and little indication that their jobs market is about to change, so that is now only a background factor.

After rising strongly for the prior three weeks, last week these was a correction in the number of mortgage applications in the US, dropping -7.2% from the prior week. This was despite no change in benchmark mortgage interest rates.

The ADP employment report showed private businesses in the US added +107,000 jobs this month, below forecasts of +145,000. It also showed that the pay premium for those switching jobs has now evaporated. This is the report that comes just before the US non-farm payrolls report for January that is out this weekend. That is expected to show a gain of +180,000 jobs in the month, although analysts have consistently underrated the strength of the US labour markets recently.

China's official PMIs for January were out yesterday. The factory PMI was unchanged at 49.2 maintaining the December contraction. It was their fourth consecutive month of decline and the ninth in the past ten months. Their services PMI expanded slightly more than in December at 50.9 and up from 50.4. Their services sector has never slipped into contraction in these official surveys. So overall these surveys record a slight expansion in January.

Yesterday, China moved to merge more than 2,100 rural banks with about NZ$11 tln in loans (assets) in a move to contain growing financial risks. These banks have been hit by by bad loans, shrinking margin, and slowing growth.

And staying in China, it has been reported that investors sold out of ¥14.5 bln (NZ$3.3 bln) worth of mainland equities (net), a sixth month international investors have pulled back. This is the longest and strongest retreat from Chinese equities in a decade. 

Meeting notes from the last Bank of Japan review shows that more members are coming to the view that they need to shift their unusually low rate up soon. This will be a very big deal when it happens.

Singapore is in the sights of Chinese regulators cracking down on illicit money flows. Oddly, the crackdown is on money flowing in to China, not out.

Inflation in Germany fell below 3% in January, its lowest since June 2021. Lower costs of energy enabled the drop to 2.9%. Without food & energy, their rate was 3.4% and also its lowest since mid-2022.

In Australia, the Federal Court has declared that Westpac engaged in unconscionable conduct in October 2016 when executing a AU$12 bln interest rate swap transaction, the largest of its kind in Australian financial market history. It did pre-hedging ahead of an interest rate swap transaction with some large customers. Westpac will pay a fine of AU$1.8 mln as a penalty and reimburse ASIC $8 mln for its investigation and litigation costs. No one will go to jail though, and the costs of the behaviour are a rounding error compared to Westpac's profits. Lessons are probably not learned here.

Australia's inflation rate came in lower than expected at the end of 2023. The quarterly CPI was 4.1% from a year ago (a two year low) and well below the 5.4% in Q3-2023. Markets expected 4.3%. And their Monthly Inflation Indicator for December alone came in at 3.4%, a big drop from 4.3% in November and well below the expected 3.7% analysts were expecting. Both are substantial shift lower and paint a picture of fast-easing price pressures.

These results sparked a rise in the local equities market, and a sharpish fall in bond yields as markets start to price in a 0.25% cut in official interest rates by August. (For reference, markets have priced in almost two -0.25% cuts by then here in New Zealand.)

Global air cargo volumes rose +10.8% in December from a year ago, meaning 2023 volumes fell only -1.9% over the whole year. But the year ended with December volumes +2.3% higher than December 2019 volumes, pre-pandemic.

The UST 10yr yield starts today at 3.96% and down -12 bps from this time yesterday as bond markets start pricing in anticipated Fed rate cuts. 

The price of gold will start today up another +US$15/oz from yesterday at just on US$2050/oz.

Oil prices are down -US$1.50 at just over US$76.50/bbl in the US while the international Brent price is now just over US$81/bbl.

The Kiwi dollar starts today at just on 61.4 USc and +20 bps firmer than yesterday. Against the Aussie we are also up +20 bps at 93.1 AUc. Against the euro we are a touch firmer at 56.6 euro cents. That all means our TWI-5 starts today at 70.3 and up +10 bps from yesterday.

The bitcoin price starts today firmer yet again. It is now at US$43,492 which is up +0.7% from this time yesterday. Volatility over the past 24 hours has been modest at just on +/- 1.7%.

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 tomorrow.

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.

And today we lead with news the return of Wall Street from their long weekend holiday has been a quiet one, although Saudi Arabia greeted them back with a move that raised oil prices.

But first up, the overnight dairy auction delivered a +2.7% rise in overall prices, headlined by the +5.3% rise in the WMP price. (From the last GDT Pulse event, the WMP price rose +10% which is quite something.) This follows seven main events that recorded price declines overall so it isn't clear whether this breaks the declining pattern or not. At the same time the NZD fell too, so the rise at this event in NZD was more than +4.1%. Volumes were much higher this time at over 37,700 tonnes sold. Price movements for other commodities than WMP were modest.

US factory orders were expected to fall in July and they did - but not by as much as anticipated. And without aircraft orders they actually rise from June nicely. There had been four consecutive monthly gains in new orders prior with the last one being quite strong, so a settling was expected. Still, year-on-year these orders are still running lower than a year ago, down -1.4%, so pretty lackluster.

But there was an expansion in the US logistics sector in August, a shift up from the July contraction. Warehousing and freight activity rebounded.

In China, the private Caixin service sector PMI for August came in weaker than expected (in contrast to their factory PMI which came in better). The Caixin services PMI is at 51.8 and down sharply from the July 54.1. That is twelve straight months of expansion although the August result is the weakest in that sequence in 2023. (50 is neither expanding nor contracting.) The official services PMI for August was recorded at 51.0. But at least they are still expanding.

In the EU, producer prices fell at a record pace. They dropped -7.6% from a year ago in July but it was in line with market estimates. It was the third consecutive decline in producer prices and at the steepest pace since 2009, largely due to base effects from the surge in energy prices following Russia’s invasion of Ukraine. Hence, energy prices sank by -24% from the -16% in the previous month.

Turkish inflation, which peaked at over 85% in October 2022, and then fell to 38% in June, is moving back up strongly again. In August it came in at 59% pa. The more conventional monetary policy that was started in July hasn't had an effect on inflation yet - nor their exchange rate either it seems. Once public policy loses control of its policy levers, it is fiendishly difficult to get it back under control. Turkey (and Argentina) remain cautionary tales for most other central bankers.

In Australia, in Governor Lowe's swansong meeting, they claimed that inflation there is retreating now and left their cash rate target unchanged at 4.1%.

Internationally, global air cargo demand came in just marginally lower in July from a year ago, but continued its good recovery since February. Asia/Pacific demand was actually up year-on-year but other regions struggled to get back to the year-ago surge. However the 2023 track higher is a good sign.

The UST 10yr yield starts today up +6 bps at 4.27%. 

The price of gold will start today at just under US$1926/oz and down -US$12 from yesterday.

And oil prices are up +50 USc at just over US$86/bbl in the US. The international Brent price is up +US$1 at just over US$89.50/bbl, hitting US$90 briefly, the first time in 2023 it has done that. Saudi Arabia has extended its oil export curbs until the end of the year.

The Kiwi dollar starts today down -½c from yesterday at 58.8 USc. Against the Aussie we are +¼c firmer at 92.2 AUc. Against the euro we are down about -¼c at 54.8 euro cents. That all means the TWI-5 has slipped -25 bps to 68.3.

The bitcoin price is down -0.6% from this time yesterday, and is now at US$25,735. Volatility over the past 24 hours has been low again at just under +/- 0.7%.

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 tomorrow.

As the current standing of Brexit hangs in limbo until Jan. 31, 2020, with little light likely to be shed on the situation until the United Kingdom’s general election takes place on Dec. 12, freight forwarders are already at work establishing contingency plans for a worst-case scenario during this murky period.

In this episode of On Air with Air Cargo World, we spoke with Robert Keen, British International Freight Association director general, regarding what regulatory uncertainty stemming from Brexit means for freight forwarders – namely, a potential skilled labor shortage and increased costs to customers.  

Zhengzhou Airport (CGO), located in China’s central Henan province, is working to become a Chinese cargo hub with the construction of its Zhengzhou Airport Economy Zone (ZAEZ). The airport, which already hosts flights from international carriers such as Cargolux and AirBridgeCargo, has made several moves over the past year to grow its business with the acquisition of fifth freedom rights and signing of agreements with Hungary’s Budapest Airport (BUD) and the Thai government.

Today we hear from Celine Hourcade on her consultancy work with Zhengzhou Airport regarding the Economic Zone’s development. At the end of October, she and ten other experts visited the project to advise on its construction and accreditation processes as the airport seeks to boost volumes through attracting carriers, logistics providers and other business, including fintech and sustainable fuel.