US sentiment rises; Washington starts 'dumbest debate' again; China exports fall sharply; Germany expands; Aussie house lending falls sharply; UST 10yr 3.51%; gold and oil up; NZ$1 = 63.7 USc; TWI-5 = 70.6

Here's our summary of key economic events overnight that affect New Zealand, with news not everyone is looking ahead to tough times in 2023.

In an unexpected surprise, the closely-watched University of Michigan consumer sentiment survey recorded much sharper gains in consumer sentiment in is first January reading that was anticipated. A small gain was expected, but a big rise was recorded. Although the overall level remained low from a historical perspective this was a lift for a second consecutive month. Financial markets took note.

The countdown to a budget crisis has started in the US because they need to raise their debt ceiling. However with a Republican-controlled House of Representatives, it is unclear that a necessary Budget resolution can be passed. It is a political fight that will last most of the year however. Economists expect the Treasury will run out of cash around August if the debt ceiling isn’t boosted. In the end, as markets know, it will get increased, despite the game of chicken to be played out. It has become a tiresome battle, but it does play well to far-right voters and will become cause celebre in media like Fox and RT. (Larry Summers calls it the "dumbest debate in Washington".)

Separately, the US Fed is steadily shrinking its balance sheet. It has sold off US$456 bln since its peak in April 2022, taking it down to US$8.5 tln, a -5% reduction so far. Prior to the pandemic, it was at US$4.2 tln, so there is a very long way to go to 'normalise'.

Meanwhile, China said its exports were -9.9% lower in December than the same month a year ago, a slightly worse result than anticipated. It's exports to the US were little-changed in value terms. It bought a lot less from Australia and a little less from New Zealand. But its exports to Australia were up strongly, and even more so to New Zealand. Electric cars (Teslas and BYDs) drove those exports. Overall China's car exports are up +57% from year-ago levels.

South Korea raised its policy rate from 3.25% to 3.50% late yesterday. This was as expected, and they say necessary to combat high inflation.

In Germany, despite all the pressures on them, they have wrapped up 2022 with a +1.9% expansion in their economy. That mightly be slightly less than 2021, but it is another expansion greater than their ten year average.

Meanwhile, EU industrial production came in better than anticipated, rising +2.0% in November from a year ago when only +0.5% was expected. The expansion from October was better than expected too.

Turkey's inflation rate is falling now, up only +1.8% in December from November, and down to just a +64% annual rate. However, Argentina suffered a +5.7% rise in prices in the month, taking its annual rate to +95% pa!

In Australia, lending for housing fell again and more sharply than expected. The November data makes it the 10th consecutive month of decline and is now -26% down from its January 2022 peak. Lending to owner occupiers fell faster than for investors, but overall, it is now at a ten year low. Lending for construction dived substantially more in November from October as the sector shudders.

The sharp decline in American inflation might mean we are approaching the end of the rising interest rate cycle. Certainly, local wholesale rates are now retreating, mirroring American rate trajectories. But with the prospect of a 2023 recession still being expected by most professional analysts, rate curves have turned negative. The New Zealand rate curves are now at record 21st century inversions.

The UST 10yr yield starts today at 3.51%, and up +7 bps from yesterday. A week ago this rate was 3.57%. The UST 2-10 rate curve is more inverted at -72 bps. But their 1-5 curve is unchanged at -111 bps. Their 30 day-10yr curve is more inverted too at -96 bps. The Australian ten year bond is up +6 bps at 3.54%. The China Govt ten year bond is up +2 bps at 2.94%. And the New Zealand Govt ten year is starting today at 4.09% and down -3 bps.

On Wall Street, the S&P500 has started their Friday session little-changed, but holding on to a weekly gain of +1.7%. Overnight, European markets all rose about +0.6%, except Frankfurt which only gained +0.2%. For the week, however, Frankfurt is up +3.0%, Paris is up +2.4%, and London up +1.9%. Yesterday, Tokyo ended down -1,2% for a weekly rise of +1.5%. Hong Kong was up +1.0% for a weekly gain of +2.1%. And Shanghai also ended up +1.0% but than only managed a weekly gain of +0.8%. The ASX200 ended its Friday session up +0.6% for a weekly rise of +3.1%. But the NZX50 only rose +0.8% and ended up a more modest +1.1% for the week.

The price of gold will open today at US$1917/oz and up another +US$24. For the week that is a +US$52 gain, or +2.8%.

And oil prices start today +US$1.50 higher than yesterday's levels at just under US$80/bbl in the US while the international Brent price is just under US$85/bbl. These levels are about US$6 higher than last week.

The Kiwi dollar has changed little, now at 63.7 USc. Against the Australian dollar however we are -¼c softer at 91.4 AUc. Against the euro we are little-changed too at 58.8 euro cents. That all means our TWI-5 starts today at 70.6, and -30 bps lower than this time yesterday and most of the -50 bps fall since last week.

The bitcoin price is on the move higher, now at US$19,239 and up a strong +6.0% from this time yesterday. Recall, it was US$16,846 a week ago, so that is a US$2400 rise since then, or +14%. Volatility over the past 24 hours has been moderate at just +/- 2.0%.

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