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.

Today we lead with news investors are about to learn whether the maxim "don't fight the Fed" is still valid.

Minutes from the March Fed meeting showed many officials would have preferred a +50 bps increase in their benchmark interest rate, instead of a +25 bps hike. Depending on economic and financial developments, they clearly want to move faster. These minutes also showed they are considering reducing their balance sheet by about -US$95 bln per month, a lot more than expected, and starting next month. 'Normalising' is now front and center, and is to quickly morph into inflation-fighting mode. The signal in these minutes is as clear as the stark one issued by Vice Chair Brainard yesterday.

Now out of the Fed, one ex-official says they will be trying, intentionally, to inflict losses on both stock and bond investors, as part of their inflation-taming strategy.

Housing investors, even homeowners, may face losses too. American mortgage applications extended their falls last week due to rapidly rising mortgage rates. That makes it drops in eight of the last nine weeks.

As a side note, we should report that Mexico is turning out to be a serious winner as American companies re-jig their supply chains away from China, and Asia generally.

There was another sharp fall recorded last week in trans-Pacific container shipping rates. They are far from normal (old normal) but they are heading in that direction now and have been for the past five weeks. Bulk cargo freight rates are declining too.

Going the other way global air passenger traffic is rising again and the recovery is quite fast, especially international travel even if it is off a low base.

And global air cargo traffic levels for February are stronger, even when compared to pre-pandemic 2019.

However, all this data is a month old. March data suggests the Russian invasion of Ukraine has taken the top off global trade in March, down -2.8%. Of course, that is mostly an EU thing.

But in China, their economic troubles are deepening. Their services PMI sunk sharply in March, according to the private Caixin survey. Unlike the 2020 one with was part of a short-sharp global retreat, they have this one on their own. Services activity fell at its quickest rate since February 2020 amid notable drop in sales. Input cost inflation picked up more than they expected. Business confidence dived to a 19-month low.

We have previously noted the food supply problems in Shanghai that is under a hard lockdown. We should also note that growing numbers of Chinese farmers are required to isolate, jeopardising harvests in some areas. It is not major at the moment, but if it spreads, it could be.

And it is pretty clear now that the long weekend Qingming/Ching Ming/Tomb Sweeping Festival holiday saw tourism activity fall at least -30% from normal as vast numbers of people stayed at home to avoid pandemic risks. This will have notable economic impacts.

In Australia, regulator ASIC has extended its product intervention order imposing conditions on the issue and distribution of contracts for difference (CFDs) for a further five years to 23 May 2027. CFDs enable speculation, not investing, they say.

And ASIC is being much more active in controlling crypto launches, including by the big banks. They clearly don't want a wild-west rush, one that seemed to have some momentum.

The UST 10yr yield opens today at 2.61% and up +5 bps from this time yesterday. 

The price of gold starts today at US$1921/oz and virtually unchanged since this time yesterday.

And oil prices are down sharply, down more than -US$4 to just over US$96/bbl in the US. And the international Brent price is now just over US$101/bbl.

The Kiwi dollar will open -½c lower than at this time yesterday at 69.2 USc. Against the Australian dollar we are firmer at 92 AUc. Against the euro we are also softer at 63.5 euro cents but holding recent gains. That all means our TWI-5 starts today at just over 74.8 which is an overnight -30 bps slip.

The bitcoin price is down a sharpish -4.6% since this time yesterday now at US$43,883. Volatility over the past 24 hours has been high at +/- 3.1%.

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 tomorrow.