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 central banks around the world are racing to raise rates in a concerted effort to squash inflation. The cost may be growth and jobs, but there seems universal agreement rampant inflation is a bigger long term risk.

But first, US jobless claims rose last week to +178,000 but this level is still very low by historic standards. It is no indication their tight labour market is easing. There are now still less than 1.3 mln people on these benefits and the insured jobless rate is a tiny 0.9%.

The US current account for Q2-2022 came in pretty much as expected, with a -US$251 bln deficit. It isn't good, and these huge quarterly deficits started in 2020 and haven't let up. Disastrous policy making is behind the ugly trend and although Q2-2022 was an improvement on Q1, it still came in at -4% of GDP. Recovery from mad policy isn't easy as they are finding out. (New Zealand's current account deficit is -2.7% and that isn't good either.)

The latest regional factory survey, this one from the Kansas City Fed, reported a sluggish expansion, but firms continued to add workers and were moderately optimistic about growth in future months.

But with mortgage rates hitting 6.29%, the American housing market is wavering and ready to a substantial drop, it seems. The chance to reset to improve affordability is ahead of them. Rents may have peaked too.

The Bank of Japan met yesterday and held its ultra loose monetary policies. But the Japanese government had to intervene to support the yen for the first time since 1998 after the currency extended losses to fresh 24-year lows. The divergence between monetary policy in Japan and the United States has widened further adding to policy stress. The Bank of Japan maintained its key short-term interest rate at -0.1% with governor Kuroda saying the central bank won't be raising interest rates any time soon.

The Taiwanese central bank also met and raised its policy rate to 1.625% from 1.5%. It was a modest rise in the face of a slowing economic expansion.

Hong Kong had no inflation in August from July and very weak local economic activity, and the annual rate remained at 1.9% - almost all of which happened in October 2021 so is about to leave the index.

Indonesia raised its policy rate by +0.5% yesterday as they are starting to experience inflation at too-high levels for them and now running at +6%. That took their policy rate up to 4.25%.

Norway also raised its policy rate by +50 bps to 2.25%. They have an inflation rate running at 6.5%. Switzerland raised theirs by +75 bps to 0.50% and taking them out of a negative policy rate for the first time since 2015 and their highest rate since 2009. Swiss inflation is now running at 3.5%.

The Bank of England joined the queue unanimously raising their rate by +50 bps too, to 2.25%. Their inflation rate is currently 9.9%. They also said the UK may already be in recession.

EU consumer confidence confidence dropped further in August to a new all-time low since this series began in 2007. 

Container shipping costs dived -10% in the past week alone as demand in the sector deflates very quickly now. But the same is not true for oil tankers; the cost for them has doubled in the past month. And dry bulk cargo rates are inching higher again.

The UST 10yr yield starts today at 3.70% and up a huge +19 bps from this time yesterday. This now its highest since 2010. 

The price of gold will open today at US$1672/oz. This is down -US$12 from this time yesterday.

And oil prices start today up +50 USc from yesterday at just under US$83.50/bbl in the US while the international Brent price is now just over US$89.50/bbl.

The Kiwi dollar will open today at just on 58.5 USc and more than -½ lower than this time yesterday, as the Fed signals settle in. Against the Australian dollar we are slightly softer at just 88 AUc and its lowest in seven years. Against the euro we are little-changed at 59.4 euro cents. That all means our TWI-5 starts today at 68.4, and down -40 bps.

The bitcoin price is now at US$19,071 and down -1.8% than this time yesterday. Volatility over the past 24 hours has been very high at just on +/- 4.5%.

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.