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 it is expected that the US will announce reciprocal tariffs today, although the phase-in time might be months. To be revealed. This will be seen as the formal start of a global trade war. New Zealand won't be any focus but it won't be immune. The tariffs will be on goods. But the retaliatory tariffs will likely come on services where the US runs large surpluses. Both will tend to drive countries away from US influence.

Every country is going to learn how to play hard-ball in a zero-sum struggle. None of this will be good for trade, or any sense of cooperation for mutual benefit.

Meanwhile, US initial jobless claims came in at 231,000 last week, almost exactly as expected. There are now just under 2.2 mln people on these benefits, quite similar to this time last year.

The expected easing in the rise in American producer prices didn't happen in January. They were up +3.5% in December and that was expected to ease to a +3.2% January rise. But in the end the pace of cost increases stayed unchanged at +3.5%. Although it is not a key metric, it is more data that will encourage the Fed to hold its settings and put off a rate cut. Tariffs are likely to make matters worse for them.

US household debt pushed on up through US$18 tln at the end of Q4-2024 in new data released today. That is 62% of US GDP, so compared with other countries, not a huge load. In fact it rose only +3.1% from a year ago, basically keeping pace with inflation.

There was a UST 30 year bond auction earlier today and that brought a median yield of 4.68%. That compared with the 4.87% at the equivalent eventa month ago.

Across the Pacific, Japanese producer priceswere expected to rise in January from December's 3.9% to 4.0%. In fact it came in at 4.2% for the year to January in a broad-based trend higher. And apart from the pandemic period, this is a ten year high for them.

It may seem an odd economic 'win' but EU industrial production fell -2.0% in December. This was marginally more than the November -1.8% drop, but very much less than the -3.1% fall expected. It was toughest in Austria, Italy and Hungary, all countries ruled by right-wing populists. So far they are not making their countries great again.

Container freight rates fell -5% last week to be +118% higher than pre-pandemic but -19% lower than the same time a year ago. Outbound freight rates from China brought the largest retreats. Bulk cargo rates remained near all-time low levels, but were unchanged over this past week.

The UST 10yr yield is at 4.54%, back down -9 bps from yesterday at this time.

The price of gold will start today at just under US$2913/oz and up +US$18 from yesterday.

Oil prices are down nearly -US$1.50 at just over US$71.50/bbl in the US and the international Brent price is now just on US$75/bbl.

The Kiwi dollar is now at 56.5 USc and up +20 bps from this time yesterday. Against the Aussie we are unchanged at 89.8 AUc. Against the euro we are down -10 bps at just on 54.2 euro cents. That all means our TWI-5 starts today just on 66.7, essentially unchanged from yesterday at this time.

The bitcoin price starts today at US$95,526 and virtually unchanged from this time yesterday. Volatility over the past 24 hours has been modest at +/- 1.5%.

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.