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.

And today we lead with news inflation's force is on full display again, and long bond yields are back rising.

But first in the US, consumer inflation was steady at 3.7% in September, the same as August, against market expectations of a slight decrease to 3.6%. A smaller decline in energy prices offset slowing inflationary pressures in other categories. Energy costs fell by -0.5%, following a -3.6% decrease in August, primarily because petrol prices rose offsetting other energy like natural gas and electricity price retreats.

Core inflation, that is without food or energy, fell to a still-high 4.1%, but that is its lowest in two years.

Meanwhile, the actual number of Americans filing for jobless benefits last week was unchanged from the prior week at 197,000 which was below estimates of 210,000 and remaining close to the seven-month low. There are now 1.55 mln people on these benefits, also lower. No labour market stress signs here.

Between the two metrics - brisk inflation holding and extending labour market strength - the Fed seems still a long way off being able to declare victory. The higher for longer theme we saw in yesterday's Fed minutes for its September meeting is justified by this latest data.

In the background, US Social Security payments will rise by +3.2% from January 1, 2024, it was announced overnight. That will affect more than 70 mln recipients. But that is a lot less than the +8.7% rise for 2023. The 2024 increase will amount to about +US$59/month per person taking it to US$1907/month (NZ$3210/month or NZ$740/week.)

In India, retail price inflation dropped to 5.0% in September 2023, down from 6.8% in August and well below the expected 5.5%. A year ago it was running at 7.4%. This new level fell within their central bank's 2-6% target range for the first time in three months, primarily due to a significant slowdown in food inflation.

India also released August industrial production data and it was unusually strong. It climbed +10.3% from a year ago, the highest since June last year. That is up from a +5.7% rise in the previous month and above market expectations of a 9% gain.

In China, banks are pushing out more debt. They extended +¥1.36 tln in new yuan loans in August (+315 bln), marking a sharp increase from July's +¥0.35 tln (MZ$80 bln) and even above the market bounceback expectations of +¥1.20 tln (NZ$275 bln). This expansion fits their central bank goal of bolstering economic growth in the face of subdued demand both domestically and internationally.

In Australia, prudential regulator APRA said no bank breached capital and liquidity buffers in stress tests that assumed house prices fell by a third and unemployment spiked to 10%.

The global container freight rates fell yet again last week, to be -60% lower than a year ago and -4% lower than the ten year average, one that includes the huge pandemic surge. In contrast, freight rates for bulk cargoes are still rising, and rising fast. They are now back to year-ago levels which is 3.5 times higher than they were when they bottomed out in February.

The UST 10yr yield starts today up +10bps from yesterday at 4.71%. 

There was a UST 30yr bond tender overnight for US$20 bln, and it only drew US$47 bln in bids which was considered low. The median yield rose to 4.74%, which was more than expected.

The price of gold will start today at just on US$1869/oz and down -US$4 from this time yesterday.

Oil prices have slipped another -US$1.50 to just over US$81.50/bbl in the US. The international Brent price is now just on US$85/bbl.

The Kiwi dollar starts today at 59.4 USc and down -¾ bps from yesterday as commodity currencies fall out of favour. Against the Aussie we are slightly softer at 93.8 AUc. Against the euro we are down -½ to 56.3 euro cents. That all means our TWI-5 starts today at under 69.7 which is down -50 bps from yesterday.

The bitcoin price starts today at US$26,676 which is virtually unchanged (-US$3) from this time yesterday. Volatility over the past 24 hours has been low however at +/-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 on Monday.