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.

And today we lead with news all dominated by the US Fed decision which is playing out in real time as you hear this.

They have raised their policy rate by +25 bps to 5.0% today as widely expected.

But the outlook was more hawkish than expected. "The Committee anticipates that some additional policy firming may be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time." and "the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans. The Committee is strongly committed to returning inflation to its 2 percent objective."

Their official note hardly noted the banking crisis. It is essentially all about fighting inflation. That means the upcoming Powell press conference will be focused on that.

Markets reacted with the expectation that bond markets will be taking more pain and benchmark yields eased slightly. Equities jumped on the modest rate hike. The USD fell, but only relatively modestly.

Of course these are just initial reactions. After the backgrounding from Powell at 7:30 am NZT there could well be more dramatic reactions.

Meanwhile, the recovery of the long-dormant US housing market took another step last week. Mortgage applications rose +3% last week, a third consecutive week of increases. Their 30 year benchmark mortgage rate fell by -23 bps to 6.48%, declining for a second consecutive week. Having noted these changes we should also note it is early days. Mortgage applications are still down -36% from a year ago, and mortgage rates are up from 4.16% a year ago.

Things are not so good in the commercial and office real estate sector. Office tower owners face pressure on two fronts: borrowing costs and vacancies. And bankruptcies are starting to emerge with two big landlords succumbing in the past few days. More than 17% of the US office supply is vacant and an additional 4.3% available for sublease. Nearly $US92 bln in debt for those properties from non-bank lenders comes due this year, and another $US58 bln will mature in 2024. We are likely going to see a cascade of landlord defaults and the global office and commercial market get significantly re-rated. New Zealand and Australia won't be spared these markdowns even if vacancy rates stay tolerable. Lenders everywhere will derisk.

In northern China and around Beijing, they are getting their worst air pollution is years. It is as much environmental as industrial.

In the UK where they released February CPI data overnight, they didn't get the retreat below 10% they expected. In fact, CPI inflation rose to +10.4% with a rise from January running at a rate exceeding +13% pa. Inflation is biting its hardest there since their October surge. This is all a somewhat surprising result because Germany, Italy and Spain are all recording slowing or lower inflation rates. French inflation is similar to the UK, even if not quite as high.

In Australia, ASIC has told their superannuation fund managers they must revalue their asset portfolio to market conditions much more frequently in the current environment, recognising the market repricing even for unlisted asset valuations. At the same time, they are on the warpath looking for greenwashing.

The UST 10yr yield starts today at 3.55% and down -4 bps from this time yesterday. 

The price of gold will open today at US$1948/oz and up +US$7 from this time yesterday.

And oil prices start today up  +US$1 from yesterday at just under US$70.50/bbl in the US. The international Brent price is now just under US$76/bbl.

The Kiwi dollar is up almost +1c against the USD and now at 62.5 USc after the Fed decision. Against the Aussie we are +¼c firmer at 93.1 AUc. Against the euro we are also a little firmer at 57.6 euro cents. That puts the TWI-5 back up at 70.4 with a +50 bps gain.

The bitcoin price is marginally higher today, now at US$28,685 and up +0.7% from this time yesterday. And volatility over the past 24 hours has been modest however at +/-1.4%.

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.