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, so far the sky is not falling despite the higher benchmark interest rates

First in the US, the actual number of new initial claims for jobless benefits fell to just under 175,000 last week, emphasising the continuing strength of the American labour market. True, the seasonally-adjusted version rose marginally, but even so, this data has been falling since July and is almost back to the very low levels they had a year ago. It might not be 'news' but it is an impressive run, one that makes it much harder for the Fed to meet its inflation-fighting mandate even if it is acing its full employment one.

They also released their third and 'final' Q2-2023 GDP result today, confirming it rose at an annual rate of +2.1%, a minor slip from the Q1 rate of +2.3%. (That took their GDP on a nominal basis to US$27.1 tln, up +5.9% from a year ago or a gain of +US$1.5 tln. Inflation accounted for US$0.9 tln of that however.) It is likely that the real, inflation adjusted expansion for Q3 will be very much faster than Q2, perhaps twice as fast with a +4.9% growth.

But one American sector remains firmly in the doldrums, their residential real estate sector. Pending home sales for August fell a whopping -18.7% from a year ago with a very sharp fall in August from July. No asset class has immunity from asset price revaluation in a rising interest rate market, and certainly housing doesn't.

The Kansas City Fed's September factory survey reported slippage across the board, including for new orders. But interestingly, not for employment.

In Canada, weekly earnings are rising faster, up +4.3% from a year ago. Their CPI was +4.0% over the same period. The earnings rise was their fastest since March 2022.

EU business sentiment was stable in September, in contrast to the reversing consumer sentiment levels.

Meanwhile, Germany released is September CPI data overnight and while still high at 4.5%, this was lower than expected (4.6%) and sharply lower than in August (6.1%), and their lowest since February 2022.

Container shipping freight rates fell sharply again last week, down -5.1% from the prior week to be 65% lower than year-ago levels. Trans-Atlantic rates seem to have bottomed out, but again it is the outbound rates from China that still show the main weakness. Bulk cargo rates are still rising however, and are back near year-ago levels, and pretty much near their long term averages.

The UST 10yr yield starts today down -2 bps from yesterday at 4.62% but essentially holding its recent high. The inverted curves are flattening more. 

The price of gold will start today at just on US$1863/oz and down another -US$12 from yesterday. This is a new low since February 2023, all driven by the sharply rising yields. China's gold price has risen faster than in most other global markets, but overnight it plunged lower, wiping out most of the premium that had built up.

After getting as high as US$95/bbl overnight, oil prices are moving back down today, -US$1.50 lower than this time yesterday at just under US$91.50/bbl in the US. The international Brent price is just under US$93.50/bbl. The surge to US$100 being talked about isn't happening today although the long-term trend is still firm.

The Kiwi dollar starts today at 59.7 USc, up +½c from this time yesterday. But against the Aussie we are down almost -¼c to 92.9 AUc. Against the euro we little-changed at 56.5 euro cents. That all means our TWI-5 starts today at 69.6 and up +20 bps.

The bitcoin price has moved sharply higher today from yesterday, and it is now at US$27,191 up a strong +3.7% from then. Volatility over the past 24 hours has been moderate at just under +/-2.3%.

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.