Kia ora,

Welcome to Monday’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 the sudden Middle-East explosion is likely to put safe-haven assets back in the spotlight this week.

But first, China said its giant foreign exchange reserves were little-changed in August. They don't provide transparency of which currencies they hold them in, but we do get some of that from the US data which shows Chinese holdings of US debt is about US$800 bln (25% of the Chinese holdings) and falling. That means the Chinese hold about US$2.4 tln of other country debt. Many will be rogue nations. The Chinese fx reserves now have high risk attached to them, and will become an increasing problem for them (not to mention the debtors).

Hong Kong and southern China are bracing under Typhoon Koinu. Their stock market will be among many institutions not opening this morning, perhaps all day.

In India, their central bank kept its key policy rate unchanged at 6.5% as expected on Friday but said it would keep liquidity tight using bond sales to bring inflation closer to its 4% target and this focus on bond selling was not expected. Indian CPI inflation is currently running at 6.8%. It didn't release details of what it expected to sell, but is was suddenly active and that drove benchmark bond yields sharply higher, up 13 bps yesterday, the most since August last year, to close at 7.34%.

In Japan, household spending unexpected rose more than expected in August from July (+3.9%). It might still be lower than a year ago, but the month-on-month rise impressed financial markets.

In the US, there has been a positive 'surprise' from their labour market in September. We had suggested the expected +170,000 gain might have an upside, but no-one expected gains as strong as the +336,000 (sa) delivered. Nor the big upwards revision for August (up from +187,000 to +227,000).

These are the seasonally adjusted headline numbers, but as regular readers know we look at the actual unadjusted survey results. And they show actual payrolls rose +585,000 in September (+394,000 in August) to now be at 157.0 mln people on employer payrolls and a new record high. Looking deeper to include the unincorporated self-employed, there are now 161.7 mln in their employed labour force. Only +29,900 of this monthly increase was for part-time work.

If there are any downsides, they include that their jobless rate was unchanged from 3.8%, their participation rate made no progress at 62.8%, and their weekly earnings were up +3.75% from a year ago, little premium to inflation's 3.65%.

US vehicle sales rose to an annualised rate of 15.7 mln in September according to updated NADA data. And there seems to be "significant progress" in union negotiations with the carmakers. The carmakers seem to be caving quickly now.

US consumer credit data actually fell in August when a small rise was anticipated. Overall it fell by -US$15.6 bln, driven by a sharper -US$30.3 bln fall in car and student loans, to US$3.7 tln. That was offset to some extent by a +14.6 bln rise in credit card debt (to US$1.25 tln).

It now appears more likely that another US Fed rate hike will be coming soon. A hot labour market and good pay and conditions increases will be seen as fueling inflation by the regulators. They will feel they need to get ahead of these pressures. Bond yields are rising again. The global geopolitical situation will have a say too.

And it wasn't only the US's labour market that turned in a much-better-than-expected result. The Canadians did too. They expected a +20,000 gain in employment in September but delivered a +64,000 gain and they also upgraded their August data sharply. But in Canada, it was part-time work that drove most of their gains.

This is a holiday weekend in Canada, their Thanksgiving Day and they will be closed tomorrow (NZT). It will also be a Federal holiday in the US, Columbus Day, but that has fading recognition and is not actually a holiday in many states. The bond market may be closed tomorrow, but their stock market will be open.

This coming week will bring the US CPI for September on Friday NZT. A 3.6% rate is expected, down fractionally from August's 3.7%.

In Australia, the RBA has been looking at household financial stress in their latest Financial Stability Review. They say early indicators show that financial pressures have increased and the incidence of severe financial stress has increased but remains low. The group of borrowers at higher risk of falling into arrears on their mortgage remains small.

Also falling are world food prices. They may not have fallen in September from August, but they are -11% lower than year ago levels. The drop would have been more if it wasn't for sharply higher sugar prices. Dairy prices are down -25% in a year (as the GDT auctions confirmed), and global meat prices are lower too. Grain prices are -15% lower than a year ago. These are the changes for producers, not consumers. Food prices should not be driving inflation.

The UST 10yr yield starts today up +2 bps from yesterday at 4.80% on the implications of the strong US labour data. The new conflict between Israel and Gaza may well add to risks this week however. 

The price of gold will start today at just on US$1833/oz and up +US$4 from Saturday. Although that is down -US$17 from a week ago, it would not be surprising to see this price rise sharply from the Gaza conflict explosion.

Oil prices have stabilised lower at just under US$82/bbl in the US. The international Brent price is just on US$84/bbl. These are five-week lows and are -US$8 lower in a week. But the new Middle-East conflict may well change these levels when trading resumes.

The Kiwi dollar starts today at 59.9 USc and a very minor slip from Saturday. Against the Aussie we are marginally firmer, now at 93.9 AUc although up +½c in a week. Against the euro we are unchanged at 56.6 euro cents. That all means our TWI-5 starts today at just on 70 which is actually little-changed in a week.

The bitcoin price starts the new week at US$27,926 which is up a very minor +0.1% from where we left it on Saturday. From a week ago it is up +4.0%. Volatility over the past 24 hours has been very low at just under +/-0.7%.

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 tomorrow.