Old man revives old grievances

Economy Watch

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 that financial markets are being rattled somewhat by the isolationist rhetoric from the incoming US President on tariffs, especially as they will apply to Canada, Mexico and China. However, despite the incendiary nature of the talk, the market reactions have been relatively mild with the expectation the adults in the room will calm things in January.

But these reactions have hit commodity currencies.

One reason restraining Trump might work is that his mind is still in the 2020 past. In fact the Biden Administration has been particularly successful in restraining drug importation, fentanyl in particular, that overdose deaths are falling rather fast now. And restraining the drugs trade from China and Mexico is a motivating reason for those tariff threats. (It was during the last Trump Administration that those deaths spiked.)

Anyway, away from the ramblings of a bitter old man, first up today, we can report higher dairy prices for two key commodities at the overnight GDT Pulse auction event. SMP rose +0.5% in USD terms and was up +1.8% in NZD terms. WMP rose another +2.2% in USD terms to be up +3.5% in NZD terms. This will give upside to all the analyst farmgate payout forecasts, and it seems likely they will coalesce around the $10/kgMS mark now. That, of course, would be a record high.

In the US, their retail impulse is staying 'healthy' as measured by the Redbook survey, and last week it rose +4.9% above the same week a year ago, holding the expansion we have observed for the past eight months.

This was supported by a rise in consumer sentiment, as measured by the Conference Board survey. It is now at the top of the range that has prevailed over the past two years. November’s increase was mainly driven by more positive consumer assessments of the present situation, particularly regarding their labour market.

Further, there was an improvement in the Texas services sector in November, taking into an expansion. And a return to expansion was also reported for the service sector in the mid-Atlantic states.

But none of this has spilled over into confidence in home buying, yet anyway. New home sales in October dropped more than 17% from the previous month to at a seasonally adjusted annualised rate of 610,000. And that takes it -9% lower than the same month a year ago.

Singapore’s factory production rose by only +1.2% in October from a year ago, slowing sharply from a downwardly revised +9% rise in the previous month and disappointing analysts. Activity slowed significantly for biomedical manufacturing.

Here's something we rarely report on, but is an indication of the tight ASEAN economies. Car sales in Thailand sank -36% in October from a year ago to be the seventeenth consecutive month of decline, driven primarily by high household debt and significant tightening of loans.

Later today in Australia, we will be following the October CPI indicator and it is expected to reveal a small rise from the prior month.

Join us at 2pm for the RBNZ's Monetary Policy Statement and the OCR review. A -50 bps rate cut is widely expected. But it will be a twelve week gap until the February 19, 2025 MPS, so this review has to carry them through a period which may have considerable international uncertainty attached to it.

The UST 10yr yield is now at just on 4.32% and rising +3 bps from this time yesterday.

The price of gold will start today at US$2629/oz and down -US$2 from this time yesterday.

Oil prices are little-changed at just under US$69.50/bbl in the US while the international Brent price is just under US$73.50/bbl.

The Kiwi dollar starts today at 58.3 USc and down a minor -10 bps from this time yesterday. Against the Aussie we are +20 bps higher at 90.2AUc. Against the euro we down -20 bps at 55.6 euro cents. That all means our TWI-5 starts today at just on 68.1, down another -10 bps from yesterday.

The bitcoin price starts today at US$94,496 and down another -1.2% from this time yesterday. Volatility over the past 24 hours has been moderate at +/- 2.5%.

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.