American inflation expectations sticky; Canadian building consents jump; Australian building consents dive; air cargo activity turns lower; UST 10yr 3.53%; gold and oil up; NZ$1 = 64 USc; TWI-5 = 71.3

Here's our summary of key economic events overnight that affect New Zealand, with news markets seem more convinced of a 'soft landing' ahead, and investors are buying on that basis.

The latest American survey of consumer inflation expectations shows how embedded these are - not disastrously, but quite sticky. In the short term, inflation expectations continued to decline but are only down to 5% for the next year. They were unchanged over the medium term at 3.0%. But longer-term inflation expectations edged up slightly to 2.4%. All of them remain above the policy goal of 2%. And when polled about household income growth expectations, that rose sharply to +4.6%, a new high since this survey started in 2014. That is probably the more revealing trend than just asking about 'inflation'.

The total value of building permits in Canada jumped more than +14% in November from October, rebounding after two consecutive monthly losses. It was an unexpectedly strong jump; no-change was expected, and it comes after their labour market also delivered very strong and unexpected gains.

An updated look at the impact of Chinese factors on global supply-chain pressures shows them worsening in December, against the overall 2022 trend of prior improvement. It is a factor that will speed the separation of many companies from reliance on China as a supplier. The per-unit cost penalties are being judged as less than the costs of disruption. Supply reliability has real-world benefits, as many companies are finding out. Essentially the cost of 'time'.

But we probably should also note that copper prices hit a six month high earlier today, and that is all to do with optimism over the intermediate implications of China's 'reopening'.

In Australia, their building permits jolted sharply lower in November. They fell by -9.0% in November from October to be -15% lower than year-ago levels. The month-on-month retreat included a -2.4% decline in approvals for houses and a -20% decline for multi-units. Overall, the market expected a -1% monthly slip so what they got was a shock. This comes as builders have now worked through much of the large pipeline of work that existed in May 2022. These very much lower level of approvals will drive a contraction in capacity as layoffs start or builders fail. The expectations effect of higher interest rates are biting homebuilding hard now.

The Australian parent of New Zealand's dominant general insurer IAG has said it has been able to get most of its reinsurance cover in place now. IAG owns the NZI, State, and AMI brands, among others like Lumley and Lantern. They provide insurance product through ASB, BNZ and Westpac. That reinsurance provides for cover of up to AU$10 bln for two catastrophe claim events, and a cascading series of smaller events. But they are still negotiating on a small final portion with Hannover Re, they say affects the last 2.5% of reinsurance cover. The bottom line is that all this catastrophe cover will cost almost +NZ200 mln more in 2023 than 2022. So premiums at IAG are going up. The same is happening at Suncorp (Vero and AA Insurance here, and for ANZ customers).

About 1500 kms "east of Australia", a PLA warship is patrolling to test the Chinese navy's refueling and supply capacity at sea. It is a vessel being closely tracked by French jets from New Caledonia. The excursion is seen as ‘testing the waters’ for voyages further into the Pacific to protect China’s strategic interests. If it refueled at one of its "new friends" in the Pacific, it has been done very quietly.

In November, international air travel expanded sharply, up +85% from the same month a year ago and taking total activity to 75% of pre-pandemic levels, itself a quick upturn.

However, air cargo activity turned lower in November, mirroring ocean freight trends as supply chain pressures ease generally in the face of some slower global economic activity. After matching the pre-pandemic levels in the 2022 year to October, the -10% fall in November on that same basis is quite a pullback.

The UST 10yr yield starts today at 3.53%, and down -4 bps from yesterday. The UST 2-10 rate curve is still inverted at -68 bps. But their 1-5 curve is much more inverted at -106 bps. Their 30 day-10yr curve is also more inverted, now at -76 bps. The Australian ten year bond is little-changed at 3.69%. The China Govt ten year bond is still at 2.91%. And the New Zealand Govt ten year is starting at 4.37% and down -1 bp.

On Wall Street, the S&P500 has started their week up +1.0% on a rally driven by a rising conviction the coming slowdown will only be a 'soft landing' despite the Fed's hard-nosed tilt against inflation. Overnight, European markets rose about +1%, except London which only managed a +0.3% gain. Yesterday, Tokyo ended with a +0.6% gain, Hong Kong was up +1.9%, and Shanghai rose +0.6%. The ASX200 ended its Monday session up +0.6% as well, but the NZX50 could only manage a +0.2% gain.

The price of gold will open today at US$1876/oz and up +US$10.

And oil prices start today +US$1 higher than yesterday's levels at just under US$75/bbl in the US while the international Brent price is just under US$80/bbl.

The Kiwi dollar has stayed up, now at 64 USc and a +½c gain. Against the Australian dollar however we are softer at 92.1 AUc and about -¼c lower. Against the euro we are soft at 59.5 euro cents with -¼c slip. That all means our TWI-5 starts today at 71.3, unchanged from this time yesterday.

The bitcoin price is now at US$17,332 and up +2.3% from this time yesterday and back to month-ago levels. Volatility over the past 24 hours has been low at just +/- 1.3%.

The easiest place to stay up with event risk today is by following our Economic Calendar here ».