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.

Today we lead with news that markets have reacted to the latest US Fed policy review which wasn't dovish enough for them.

All eyes have been on the US Federal Reserve who today unanimously raised rates by +50 bps as expected to 4.5% which is a 15 year high. That increase may be less than the +75 bps in November, but they now say they will keep going to take this policy rate to about 5.1% in 2023, which is higher than previously indicated. They are trying to slow the rate of increase, as inflation slows, but not lose sight of the fact inflation is well embedded in expectations still, and well above its target range still. A soft landing would be 'nice', but inflation is the declared enemy.

They have a friend in a strong US labour market that has stayed resilient. That labour market strength is expected to wane, but neither the markets nor them know how-or-when. This strength has proven many pundits wrong for a long time now.

2023 rate changes may be far less regular than what we got in 2022, and mostly of the +25 bps variety. They are now not only out of their pandemic 'abnormal' zone, they are through 'normalisation' and out the other side into a new abnormal on the high side.

In other news, after a month of steady declines, American mortgage interest rates rose slightly last week, and mortgage applications did too. Perhaps the American housing market has reached a bottom for the year?

Japanese machinery orders rose more in October than September to finally push the year-on-year result to a gain.

On the other hand, Japanese industrial production slipped in October from September to be more modestly ahead on a year-on-year basis.

In Denmark and in a rare bipartisan agreement, the Danish government said it would cut taxes and cut a public holiday from their calendar, as part of an attempt to invigorate an economy they say is weighed down by their 'welfare society'.

British inflation eased in November from October and by a bit more than expected. Overall prices there are still up +10.7% over the year, but rose less than at an annualised +4% rate from the prior month, so signs of cooling are there.

We should also probably note that yesterday's Half Year Economic & Fiscal Update from the NZ Treasury is forecasting a recession in 2024. The RBNZ's forecasts suggest it will be starting earlier in 2023.

The UST 10yr yield started today at 3.50%, unchanged from this time yesterday and holding yesterday's big drop. After the Fed's release it rose to 3.56%. 

Wall Street opened its Wednesday session with the S&P500 up another +0.6% in trade prior to the Fed, but then fell sharply giving up those gains to be -0.3% lower now. 

The price of gold will open today at US$1811/oz and up +US$3 from yesterday.

And oil prices start today up +US$1 from this time yesterday at just over US$77/bbl in the US while the international Brent price is just under US$83/bbl.

The Kiwi dollar opened today at 64.6 USc and holding most of yesterday's big gain. But after the Fed, it fell to 64.2 USc as the US dollar gained ground. Against the Australian dollar we are soft at 94 AUc and down another -¼c. Commodity currencies are still in favour today. Against the euro we are at 60.6 euro cents and back down almost -½c. That all means our TWI-5 starts today at 72.4 and down -40 bps.

The bitcoin price is now at US$18,121 and up another +1.2% from this time yesterday. Volatility over the past 24 hours has been modest at just +/- 1.5%. 

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 tomorrow.