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 of deliberate chaos being constructed in Washington DC with a much higher prospect of a US Federal Government shutdown likely. Authorised funding expires later today / Friday, US time. Financial risks are sharply elevated today, and markets are pricing these in.

Elsewhere, US jobless claims fell sharply last week and by more than can be accounted for by seasonal factors. There are now a bit less than 1.9 mln people on these benefits.

The PhillyFed survey of factories in America's traditional rust belt turned very negative, the worst result since April 2023. Soft demand was behind this shift. Optimism about the future took a hit too.

The Kansas City Fed's equivalent survey in its region wasn't so negative, but it wasn't positive either. Optimism was a bit better there however.

American existing home sales in November rose, but to be fair it is still stuck in the very low range it has had post-pandemic which is even lower than the post-GFC range, and back to levels first seen in 1995. So the November rise in that perspective is kind of irrelevant, no matter what the industry peak body says.

The US Conference Board leading index tracking rose in November. Higher building permits, high equity prices, rising average hours worked in manufacturing, and fewer initial jobless claims boosted the November result. But the December result will no doubt take a hit from the current Washington shenanigans.

The final estimate for US Q3-2024 GDP raised the expansion to +3.1% and extending the good run they have had since mid-2022. The US economy delivered US$29.4 tln of economic activity in the past year, with the expansion of +US$1.4 tln and the most ever. And that describes what is at risk from bad policy.

Elsewhere there were many central bank rate reviews.

In Japan, the Bank of Japan held its key short-term interest rate unchanged at 0.25%, keeping it at the highest level since 2008. That was what financial markets expected. But the vote was split 8-1, with one board member wanting a +25 bps increase. Essentially they are waiting to see how destabilising the incoming American Administration will be. But the bank boss seems to have turned dovish in the circumstances, and that turn moved markets.

In Taiwan, they kept their policy rate unchanged at 2%

In the Philippines, they cut their rate by -25 bps to 5.75%.

In Sweden, they cut by -25 bps to 2.5%.

In Norway, they held at 4.5%.

In England, they held unchanged at 4.75% with a split 6:3 vote with the dissenters wanting a cut. This is a pause as inflation starts to rise there again.

In something of a surprise, Australian inflation expectations rose to 4.2% in December, ending their encouraging falls that started in September. It is not a result either the RBA or the Australian Treasury would have wanted.

Container freight rates rose +8% last week but to be fair that was only because of a +26% rise in teh China-to-USWC route and a +17% rise in Chin-to-New York as traders raced to get ahead of the impending tariff threat. Other routes saw small declines. Bulk cargo rates fell another -7% last week to be less than half what they were a year ago and back to levels last seen in July 2023.

Many mineral commodities are retreating in price in expectation 2025 will be tough, with copper down -2%.

The UST 10yr yield is now at just on 4.59%, up a very sharp +19 bps from this time yesterday as markets digested the Fed's move and the deliberate mess being created by the incoming President.

The price of gold will start today at US$2592/oz and down -US$42 from yesterday.

Oil prices are down -US$2.50 to be just on US$69.50/bbl in the US while the international Brent price is now just under US$73.

The Kiwi dollar starts today just on 56.5 USc and down -60 bps from yesterday. Against the Aussie we are down -40 bps to 90.3 AUc. Against the euro we are also down -10 bps to 54.5 euro cents. That all means our TWI-5 starts today at just on 67.1 to be down another -25 bps from yesterday at this time.

The bitcoin price starts today at US$100,994 and down -3.1% from this time yesterday. Volatility over the past 24 hours has been high at +/- 3.1%.

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.