Kia ora,

Welcome to Friday’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 all eyes are on whether the global economy is heading for a hard or soft landing.

In a closely watched speech yesterday, Fed boss Powell said the US Federal may scale back the pace of its interest rate hikes in December. "It makes sense to moderate the pace of our rate increases as we approach the level of restraint that will be sufficient to bring inflation down. The time for moderating the pace of rate increases may come as soon as the December meeting". However, Powell added that the "terminal rate," is likely to be "somewhat higher" than the 4.6% indicated by in their September projections.

Markets are now sure the December 15 (NZT) rate change will now be +50 bps, rather than the 75 bps previously assumed. Their higher end point will probably keep pressure on the RBNZ to stay ahead of them.

Layoffs in the tech sector are starting to mount, and this has pushed the layoff data to nearly a two year high. Still, in the grand scheme, the numbers at 77,000 are really very low still.

US jobless claims came in lower than expected at just under 200,000 taking the total on these benefits to 1.26 mln and still +0.9% of their workforce. It was surprising that this labour market data didn't rise given the anecdotal job layoff reporting.

Analysts are still expecting payrolls to have grown just +200,000 in November, which will be the lowest level in nearly two years. This data will be released tomorrow morning.

The PCE inflation measure came in at 6.0% in October, its lowest of the year and another indicator price pressures are easing the in US. Meanwhile personal income rose faster, at a rate exceeding +8% pa, while personal spending rose even faster, at an annualised rate exceeding +9%. The core drivers of consumption are not showing any sign of stress yet.

All these labour market signals may be remaining upbeat, and point to a soft landing, but things have turned lower on the factory floor.

The widely-watched ISM PMI contracted in November, its first since May 2020. And the internationally-benchmarked Markit PMI is contracting too.

And American construction spending las fattened right off. But to be fair, it remains at a high level at +9% higher than year-ago levels.

In their housing markets, mortgage interest rates dropped their most in a month in November since 2008.

The FT is reporting that Blackstone is now limiting withdrawals at its US$125 bln property fund as investors rush to exit these exposures.

In China, Beijing is set to announce an easing of its pandemic quarantine protocols in the coming days and a reduction in mass testing, a marked shift in policy after anger over the world's toughest curbs fueled widespread protests.

Meanwhile, another factory PMI report shows China's manufacturing sector contracting, confirming the official data.

Trade activity is softening fast now. South Korean exports fell -14% in November from a year ago. That is a big move for a big exporter.

Japan's factory PMI slipped back into contraction in November.

And the downturn intensified in the EU.

In Australia we are seeing a deceleration rather than a contraction in their factory sector. But a separate local PMI already has them in contraction.

And with all this retreat in trade, as you would expect, container shipping rates are still falling fast, down another -5% last week alone to be -75% lower than year-ago levels and -15% lower than ten year averages. Outbound rates from China are the weakest. Bulk cargo rates are little-changed however.

International air cargo volumes are sagging again too, down -5.6% globally in October, down -8.0% in the Asia/Pacific region. Things would have been worse if it wasn't for the +10% rise in air cargo volumes out of North America.

But there is a recovery of sorts evident in passenger air travel, although it is still a massive -28% lower than pre-pandemic levels. Again, these global averages would be worse without the North American data that is almost back to pre-pandemic levels.

The UST 10yr yield starts today at 3.55% and down -22 bps on the Powell speech. 

The price of gold will open today up a USD-induced +US$49 to US$1802/oz.

And oil prices start today up another +US$2 from this time yesterday at just over US$82/bbl in the US while the international Brent price is up much less at just over US$87/bbl. These shifts are also induced by the falling US dollar.

The Kiwi dollar will open today at 63.7 USc, and up almost +1½c since this time yesterday. Against the Australian dollar we are +¾c firmer at 93.6 AUc. Against the euro we are also up +¼c at 60.7 euro cents. That all means our TWI-5 starts today at just over 72 and up +60 bps from this time yesterday to a three month high.

The bitcoin price is now at US$16,973 and up +0.7% from this time yesterday. Volatility over the past 24 hours has modest at just +/- 1.7%.

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’ll do this again on Monday.