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 we have a big sell-off underway, induced by markets fearful of a united central bank resolve, who all remain focused on tackling inflation, and a growing understanding that this may require an economic recession to achieve that outcome.

The trigger from both the US and EU is that policy makers have indicated interest rates may have to go much higher before the inflation battle is won.

In the US, their data releases aren't helping the investor mood either. American retail sales fell in November from October and by much more than expected. Car sales were the big problem here. The year-on-year rise is down to +6.5%.

American industrial production came in lower than expected in November too, falling from October when a rise was expected. The year-on-year gain is down to +2.5%.

Inventories however didn't surprise with a small rise in wholesale stocks as expected and a small fall in retail stocks, also as expected. But wholesale inventories are +14% above year-ago levels, and retail inventories are a massive +20% above on the same basis. This is very much more than can be accounted for by inflation.

In the regions, the Philly Fed factory survey stayed quite negative, while the NY Fed's similar survey turned equally negative. Firms in the New York region expect little improvement, but in the Philly Fed region future indicators turned positive.

Despite all this growing negativity, the American labour market rolls on in a positive vein. There were 249,000 new jobless claims last week, a decrease from the prior week, taking the number on these benefits to 1.5 mln, also a fall, and more than -230,000 less than year-ago levels. The insured unemployment rate has stayed at a very low 1.0%.

In Canada, housing starts stayed high in November, bringing no surprises. They have generally been elevated since mid 2020, so perhaps this is the new normal for them.

There was a set of official data released in China yesterday, much of it weak. Retail sales fell and by much more than anticipated, to be a massive -5.9% below year-ago levels in October. Given their pervasive lockdowns, analysts had though a massive -3.7% fall was coming. In fact it was almost twice that. Electricity production was unchanged in November from a year ago. But they claimed industrial production rose +2.2% on the same basis even though that was half the claimed October rise. It hardly makes sense when electricity use is unchanged. They also said house prices fell -1.6% in November from a year ago, a brave estimate when these markets are largely a shadow of themselves.

And we should note that the official Chinese unemployment rate rose to 5.7% in November from 5.5% in October, which for a labour market of 79.2 mln, that is a huge extra number now jobless, 1.14 million. Given most Western countries have jobless rates in the 3-4% range now (Europe excepted), China's labour market is an outlier.

Meanwhile, China's Covid response is careening off the rails. A sudden surge in Covid infections has stoked public anxiety and created huge demand for medical supplies, and even food delivery in Beijing. But pharmacies are running short on medicines and delivery drivers are falling sick, meaning many are now struggling to purchase daily necessities. Now estimates are that more than 1 mln people will die nationwide in this new situation. Their inability to vaccinate enough people with proper vaccines has left them horribly exposed. Even their online delivery systems are wavering.

In Taiwan, their central bank raised its policy rate by a small +12 bps to 1.75%. Hong Kong mirrored the US Fed, as they always to, with a +50 bps rise to 4.75%.

In Europe, there were a string of central bank rate rises. The ECB raised their policy rate by +50 bps to 2.5%. Norway raised their rate to 2.75% with a +25 bps change, as expected. England raised theirs by +50 bps to 3.50% also as expected and mirroring both the US Fed and the ECB. And Switzerland made the same +50 bps change, taking theirs to 1.0%. All suggested more hikes were on their way in 2023.

In Australia, a higher participation rate is powering their labour market, whose jobless rate stayed at 3.4% in November. Their jobless fell by -7,400 to 491,700. Total employment increased by +64,000 to a fresh record peak of 13.8 mln, beating market forecasts of a rise of +19,000.

Global containerised shipping freight rates didn't fall mast week, and unusual situation, indicating the 40 week run of decreases may be over and we are reaching the bottom. Bulk cargo rates inched up, but to their highest in six week.

The UST 10yr yield started today at 3.43%, and down -7 bps from this time yesterday and building on the recent big drop. 

As we noted earlier, Wall Street's Thursday session is very negative with the S&P500 down -2.9%. 

The price of gold will open today at US$1778 and down -US$33 from yesterday.

And oil prices start today down -US$1 from this time yesterday at just under US$76/bbl in the US while the international Brent price is just over US$81/bbl.

The Kiwi dollar opened today at 63.5 USc and down more than -1c overnight. Against the Australian dollar we are up more than +½c to 94.6 AUc. Commodity currencies are not in favour today. Against the euro we are at 59.7 euro cents and also down almost -1c. That all means our TWI-5 starts today at 72.2 and down -20 bps.

The bitcoin price is now at US$17,396 and down -4.0% from this time yesterday. Volatility over the past 24 hours has been moderate at just +/- 2.9%.

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.