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 financial markets are hoping today's data heralds a downshift in central bank rate hike pressures.

The closely anticipated American inflation rate eased to 6.5% in December, confirming analysts’ expectations. That was a pull back from the 7.1% rate in November. The shift from November to December was actually a tiny decline, mainly as a result of lower petrol prices. The latest 6.5% rate is their lowest since September 2021 and the negative month-on-month shift the lowest since April 2020, and prior to that pandemic bump, August 2015.

Bond yields sank and the USD slipped. Equity markets rose. Market bets that the Fed will dial back the pace of its rate rises rose on this conviction.

Meanwhile, US jobless claims stayed low yet again, suggesting their labour market remains quite resilient. Obviously they rose in actual number after the holiday period but less than seasonal factors would have suggested. There are now 1.87 mln people currently on this support, an insured unemployment rate of just 1.3%.

Meanwhile, American estimates for grain supplies are little-changed. But they expect to import more beef from Brazil, produce less milk, and are also seeing egg production fall. Egg prices are rising very fast there.

There were also no surprises in the December inflation data from China, coming in as expected at 1.8% which was up very marginally from 1.6% in November. But the annualised rate of change between November and December was 0%. Food prices rose +3.7% year-on-year but are easing off now. Beef and lamb prices fell from November. Milk prices rose, and at a surprising fast clip in the month (annualised +8%).

China's producer prices fell -0.7% in December from a year ago, after a -1.3% dropped in the previous month, worse than market forecasts of just a -0.1% decline. This was the third straight month of decrease in factory gate prices, amid weakening domestic demand and falling commodity prices. But the annualised rate of decline from November to December was more than -5% pa. so pressure is building.

The Indian consumer inflation rate eased as well to 5.7%, also reporting a small deflation from November.

India industrial production however rose strongly in December and by much more than expected. It was an impressive result.

In Australia, their trade surplus rose to +AU$13.2 bln in November for both goods and services, from October’s of +AU$12.7 bln, beating market forecasts of a +AU$10 bln surplus. It was the largest trade surplus since June, as exports dropped less than imports, amid high inflation and aggressive monetary tightening by major economies. Australia has now recorded a +AU$135 bln trade surplus for the year to November, and back up to its all-time high first recorded in the year to June 2021. That is a surplus of +5.7% of their GDP.

Australia will report its December CPI inflation rate on Wednesday, January 25. New Zealand reports ours on the same day.

And our weekly look at container shipping freight rates reveals little-change. Bulk cargo rates however are still falling. The heat has gone right out of this supply-chain logistics cost as global trade flows slow, especially from China.

The UST 10yr yield starts today at 3.44%, and down -14 bps from yesterday. 

The price of gold will open today at US$1894/oz and up +US$20.

And oil prices start today +50 USc higher than yesterday's levels at just over US$78.50/bbl in the US while the international Brent price is just under US$84/bbl.

The Kiwi dollar has risen +¼c, now at 63.8 USc. Against the Australian dollar however we are -¼c softer at 91.8 AUc. Against the euro we are soft at 58.9 euro cents. That all means our TWI-5 starts today at 70.9, and -20 bps lower than this time yesterday.

The bitcoin price is now at US$18,150 and up a strong +4.5% from this time yesterday. But volatility over the past 24 hours has been remained low at just +/- 0.6%.

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 will do this on Monday.