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 price pressures seem to be easing in most economies - will they in New Zealand?
But first today, American mortgage applications, which had been rising in recent weeks, fell back sharply last week in an unexpected reversal. It seems the recent rises did not indicate a recovery. They were down -9% from the prior week and down -36% from the same week a year ago. There was a minor rise in the benchmark 30 year fixed mortgage rate to 6.43% plus points, but it seems hard to assign the reason to that. But with rates well above year-ago levels and with most on very long contracts, there is little refinance incentive in this market.
The US Fed's April Beige Book reviews describe an economy that is just chugging along at a moderate pace, nothing spectacular but now really slowing either. Consumer spending was flat, car sales steady, but lending volumes and loan demand were noted as lower. Their labour market showed a softer pace of growth and layoffs were concentrated in just a few industries they observed. Price increases "appeared to be slowing" the report noted. This has all the hallmarks of describing a 'soft landing'.
Wall Street is awash in earnings reports that don't suggest their economy is failing. But ratings agencies are on track to cut the most US corporate bonds to junk since the early part of the pandemic, boosting funding costs for some companies just as economic growth is slowing. Apart from the pandemic jolt, 2023 is on track to be the toughest on bond rating downgrades since 2016, possibly even 2009.
Canadian producer prices didn't bounce in the way expected. In fact they were -1.8% lower in March than year-ago levels after February was +1.6% higher on the same basis. The price pressure is noticeably off for Canadian businesses.
Canada housing starts however fell sharply to just a 214,000 annual rate in March. Almost 240,000 were expected, the same level as February.
And more than 155,000 federal workers in Canada went on strike after wage talks with the Ottawa government failed.
In China, the way provincial institutions hide bad debts from property companies is getting some transparency. The financial engineering pushed the losses deeper away from view, but they are still there and building. Analysts are concerned they are now so concentrated and so large that their capacity to hide them is running out, and a financial earthquake is much closer for these zombie companies and assets.
And one of China's largest EV markets, Europe, is insisting EV batteries meet their broad carbon targets - and that is a major problem for Chinese battery makers. They can't at present. EV sales were a stunning bright-spot in China's March exports. It may be brief.
And we perhaps should also note that Tesla has again cut prices. This is the third time it has made major price reductions, and in the prior cases it resulted in sharply rising demand. It is a move that puts a hard squeeze on other EV makers.
British inflation stayed above +10% when a fall lower was expected. However it was a fall from February, back to January's level. Food prices are the culprit there. It has now been more than two years that British consumer prices have been rising at an above +10% rate. The March result compares with EU inflation that is running at +5.7% annual rate now.
In Australia , the Westpac-Melbourne Institute Leading Economic Index was almost flat from the prior month in March 2023. This isn't a good sign according to Westpac. "The index for March is now consistent with below-trend growth extending throughout the remainder of this year," said Westpac chief economist Bill Evans. "While we see the household sector at the center of this, slowdown in the components of the index is also highlighting the drag from dwelling construction and the slowdown in the world economy.”
Join us at 10:45am this morning where we will have full coverage of the local March CPI. Markets expect an annual rate of +7.1% and an annualised Q4-2022 to Q1-2023 rate of +6.8%. Variation from these levels will certainly have financial market implications.
The UST 10yr yield starts today at 3.60%, and up +2 bps from this time yesterday.
The price of gold is at US$1994/oz and down -US$11 from this time yesterday.
And oil prices are down -US$1.50 and just over US$79.50/bbl in the US. The international Brent price is just under US$83.50/bbl.
The Kiwi dollar is unchanged against the USD and now at 62.1 USc. Against the Aussie we are slightly firmer at 92.4 AUc. Against the euro we are little-changed at 56.7 euro cents. That means the TWI-5 is at 69.9, up +20 bps.
The bitcoin price is softer today, now back down to US$29,255 with a -3.1% fall from this time yesterday. Volatility over the past 24 hours has stayed moderate at +/- 2.4%.
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’ll do this again tomorrow.
