Here's our summary of key economic events overnight that affect New Zealand with news financial market reactions to yesterday's Fed announcements are still echoing around the world.
But first up today, and confirming the strong data we have been reporting for months, the first estimate of economic activity in the December quarter in the US has come in unusually strong, in fact the best result in nearly 40 years. GDP rose +1.7% in December from September which is an annualised rate of +6.9%. For the full 2021 it was up +5.7%. These are 'real' increases, discounting inflation. But the nominal rise takes the US economy to a US$24 tln behemoth - and supercharged by a strong exchange rate. By any measure, todays Q4 result is impressive, although it is not final - two more revisions will come over the next month or so.
This GDP data also gave us our first look at December PCE data, the inflation measure the Fed is said to prefer. They have an inflation problem with that up +6.5% and core PCE up +4.9%.
Financial markets are seeing a Fed that seems determined now to fight inflation, a job that is harder because they are late to the effort. And that may bring a bumpy road.
It could be especially bumpy for tech stocks. The latest to slip out of favour is Tesla, which is down an eye-watering -28% since the start of the year, including today's -8% dumping.
Meanwhile, initial jobless claims for last week were +268,000 and more than anticipated. There are now just on 2 mln people on these benefits, marginally higher than pre-Christmas, but basically back to pre-pandemic levels.
It isn't all good news. December durable goods orders fell -0.9% from November when a -0.5% fall was expected. This follows a stellar November, so a pullback from that isn't a major concern. But at least they are up +21% higher than the same month a year ago. New orders for capital goods are up +33% from a year ago, confirming business is investing freely now.
US pending home sales fell -3.8% in December from a year ago as a lack of inventory, and higher mortgage rates, keep a lid on their residential real estate market. It is a broad-based fade, nationwide. At least it confirms an economy that isn't 'just houses'.
In fact, the Kansas City Fed factory survey is evidence of a healthy manufacturing sector, even if it does have unusually tough cost and supply chain pressures. Activity expanded at a faster pace, and it was already running fast. Orders, including new export orders were up, but there was no sign that cost pressures were fading.
Today's US Treasury 7yr bond auction was well supported, raising US$61 bln from the US$133 bln that was bid. The median yield rose to 1.70% however which was up from 1.40% at the prior equivalent event a month ago.
Across the Pacific, Chinese New Year is starting. This year, authorities there are trying hard to prevent people from travelling because of the Covid risks. But the people are apparently more determined than ever to get back to their home villages after being locked away for two years. Could get ugly. The legal holiday is seven days starting February 1, but the migration - one of the world's largest, is now underway even if 'silent' this year.
And industrial profits from large Chinese companies remained positive in December, up +4.2% above the same month in 2020 which is actually their slowest pace in 18 months. They are talking up the 2021 gains over 2020 which of course are large given the weak base.
It is a week until the Beijing Winter Olympics. They will be subdued affair with little international sponsor support.
At the World Trade Organisation, China had something of a 'win' in its trade dispute with the US. And arbitrator there ruled China can levy US goods up to US$645 mln in penalty duties because the US had broken WTO rules. But the amount is much less than the US$2.4 bln that China had initially requested legal authority to target.
Meanwhile the EU is taking China to the WTO over Beijing's attempts to apply trade pressure on Lithuania for dealing with Taiwan in a friendly way. Beijing's trade bullying there is reminiscent of their pressure on Australia. The EU's response is also reminiscent of Australia's pushback reaction.
In Australia, the demise of their coal industry and the use of the mineral for electricity generation is relentless. The viability of thermal coal plants may fall quite quickly now as the cost of renewables falls sharply. The squeeze on fossil fuels is on.
In NSW, there were 17,316 new community cases reported yesterday, a decrease from the prior day, now with 181,527 active locally-acquired cases, and 29 daily deaths again. There are now 2,722 in hospital there off their high. In Victoria they reported 13,755 more new infections yesterday. There are now 119,153 active cases in that state - and there were 15 more deaths there. Queensland is reporting 11,600 new cases and 15 more deaths. In South Australia, new cases have slipped to 1953 yesterday with no more deaths. The ACT has 884 new cases and no deaths, and Tasmania 726 new cases. Overall in Australia, about 46,870 new cases have been reported.
The UST 10yr yield opened today at 1.78%, unchanged from this time yesterday but in between it was up as high as 1.88%. The UST 2-10 rate curve starts today sharply flatter at +62 bps. Their 1-5 curve is marginally flatter at +90 bps, while their 3m-10 year curve is marginally steeper at +176 bps. The Australian Govt ten year benchmark rate is little-changed at 1.96%. The China Govt ten year bond is +3 bps higher at 2.75%. The New Zealand Govt ten year is up +6 bps at 2.67%.
After that stellar US GDP result, Wall Street is up but with the S&P500 only gaining +0.8% in early afternoon trade. Restraint remains because the Fed is probably even more likely to raise rates now. Overnight most European markets were up +0.5% although London gained another +1.1%. Yesterday, Tokyo fell a very sharp -3.1%, Hong Kong fell -2.0% and Shanghai fell -1.8%. The ASX was also closed yesterday down -1.8%, and the NZX50 ended -1.1% lower.
The price of gold starts today at US$1795/oz and another -US$37 lower than this time yesterday. A week ago it was US$1841/oz.
And oil prices start today marginally softer than yesterday's recent high at just under US$87/bbl in the US, while the international Brent price is now just under US$89/bbl.
The Kiwi dollar will open today a full -1c lower at 65.9 USc as the greenback surges. Against the Australian dollar we are firmer at 93.6 AUc. Against the euro we are a little softer at 59.1 euro cents. That means our TWI-5 starts today at 71 and we haven't been this low since November 2020.
The bitcoin price has jerked back down today, now at US$36,513 and a sharpish fall of -4.6%. Volatility over the past 24 hours has been very high at +/- 4.7%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».