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 the US central bank still sees American inflation 'elevated' above where it needs to be.

At its latest review, the US Fed has delivered the result markets expected, and one well signaled by the recent Fed speakers - a hawkish hold. They kept the federal funds rate at a 22-year high of 5.5% for the second consecutive time. Inflation is easing back and they seem aware of avoiding an overshoot in monetary tightening. But with the American economy defying repeated expectations of a slowdown, market expectations that the Fed is 'done' raising rates may be premature, and the Fed is clearly keeping its options open on that.

Staying in the US, the level of mortgage applications fell -2.1% last week from the prior week. This in itself is not surprising, because it extends a long run of weakness. But it does take their current levels down to those last seen in 1995, a 28 year low. Mortgage interest rates slipped slightly in the latest week, down to 7.86% plus points for the benchmark 30 year mortgage, still close to a 23 year high.

With the American working age population growing at least +70,000 per month, it is 'positive' that payrolls rose +113,000 in October from September in the pre-cursor ADP Employment Report on private sector payrolls, and well above the +89,000 gain in September. But the rise was much less than the expected +150,000. This Saturday (NZT), non-farm payrolls are expected to grow +150,000 when they are reported for October. The ADP report noted that annual pay rose +5.7%, so there is still significant strength in US labour markets - a key factor why the UAW won its dispute with carmakers.

In a 'positive' surprise, job openings in September rose by 56,000 from August to 9.55 mln, the highest level in four months and exceeding the market consensus of 9.25 mln. But they are down sharply from the 10.9 mln in September a year ago. Hires were lower too on a year-on-year basis, but 'separations' fell.

In the nation's factories, the internationally-benchmarked Markit PMI was revised up slightly to neither expanding nor contracting in October, a small improvement from their 'flash' report. But the widely-watched local ISM factory PMI told a different story, contracting slightly, and slightly faster in October than September. Weak new order levels were a feature of the ISM report, contrasting with rising new order levels in the Markit survey. Take your pick.

In Japan, Toyota has signaled record high profits, justifying its market strategies and position. It is an interesting contrast to the recent Tesla result which is suffering from the price-slashing carnage in the EV market, especially in China.

Mirroring the official version, the private Caixin PMI for China's factory sector slipped lower into contraction in October. It just reinforces earlier data that they are in a funk, one that will be hard to escape from - at least in the way they were running pre-pandemic. This Caixin report drop wasn't expected.

And for the first time on record, bank lending for commercial property actually fell in September according to central bank monitoring (item 6). They claim it has stabilised. Debt growth to companies was high overall, up +10.9% from a year ago, but it seems to have 'culminated' in the commercial real estate sector.

In India, their jobless rate jumped to 10.1% in October from 7.1% in September, the highest level since May 2021. The issue is especially sharp in rural India where the weakest monsoon rains in five years is weighing on farm production, especially for rice.

In Australia, building consents dropped -21% in September from a year ago. They fell -4.6% from August. These were sharper retreats than expected because a rise was expected from August.

And staying in Australia, mortgage stress seems to be rising. Surveys by Roy Morgan show that as at the end of September, 1,573,000 or more than 30% of mortgage holders were 'at risk' of mortgage stress, up an eye-watering +760,000 from a year ago when only 15.7% were under stress threat.

The IMF is about to release an update of its review of Australia. It will be critical of policy approaches especially around 'wasteful' infrastructure spending which they say will be inflationary and require the RBA to raise official rates further. The visiting IMF economists concluded the economy was running above capacity, with low unemployment, “sticky” inflation and rising house prices.

In international shipping, we should note that the drought affecting the Panama Canal is crimping international trade and the effects are likely to worsen with El Nino.

The UST 10yr yield is down -5 bps from this time yesterday, now at 4.81%. 

The price of gold will start today at US$1976/oz and down another -US$15/oz from this time yesterday.

Oil prices have held at their recent lower level, still at just on US$81.50/bbl in the US. The international Brent price has risen +50 USc to be now just under US$86/bbl.

The Kiwi dollar starts today at 58.3 USc and back up +¼c from yesterday. Against the Aussie we are softish at 91.6 AUc. Against the euro we are also +¼c firmer 55.3 euro cents. That all means our TWI-5 starts today fractionally higher at just on at 68.4.

The bitcoin price starts today at US$34,464 and another tiny -US$31 or -0.1% lower from this time yesterday. Volatility over the past 24 hours has been modest at just under +/- 1.6%.

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.