US shutdown risks return; US PMIs lackluster; Japanese inflation stay up; other PMIs also uninspiring; eyes on yields; UST 10yr 4.44%; gold up and oil unchanged; NZ$1 = 59.6 USc; TWI-5 = 69.3

Here's our summary of key economic events overnight that affect New Zealand, with news a damp, colder tone is descending on the global economy.

First up we should note that partisan Congressional stupidity is on full display in Washington DC, and there is a chance that there would be an unexpected American Government shutdown due to the inability to pass a regular funding resolution. Markets deem the risks low, but the display is very unseemly. (It seems the idea is to defund law enforcement so that the cases against Donald Trump have to be abandoned. But like a lot of ideas in the wacky wing of the Republican Party, it actually wouldn't be true anyway. In any shutdown, prosecutions and trials continue.)

In the real world, the updated September Markit PMIs for the US paint a steady-state picture of no significant expansions nor contractions. Their factory sector is reported to be contracting very slightly but that is its 'best' reading in 2 months. Their services sector is marginally expanding, but that is a very light slip from August.

And it isn't going to improve, with the autoworker's union expanding its strike to 38 factories owned by GM and Stellantis (Chrysler) sites across the US and Canada - but none for Ford yet.

In Canada, retail sales may have slipped very slightly in August, it their overnight update. But they are up +2.0% from a year ago. That wasn't enough to account for inflation of course, but in Montreal they did. They were weakest in Vancouver.

Japan said its CPI inflation rate in August was little-changed at 3.2% from 3.3% in July, but that was its lowest reading in three months. Prices continued to rise for food however, up a sharp 8.6%, offset by even sharper falls for fuel, down -12.3%. Outside these, core inflation was unchanged at 3.1% and that makes it 17 straight months core inflation has been above the Bank of Japan's 2% target. They must be ready to change policy settings. In fact, the central bank met yesterday and didn't make any headline change in a unanimous decision. The lack of any clear sign of a shift in its policy stance puts a damper on market speculation over the prospects for a near-term interest rate hike. And it is fueling pressure on the yen.

The latest Markit PMI for Japan shows factory activity contracted a bit faster in September than the previous month, and sharper than market forecasts so they now have a fourth straight month of fall in factory activity and the steepest drop since February. But their services sector is still expanding at a healthy rate.

China has found a new temporary way to boost its private sector; it is ordering the state-owned enterprises to pay outstanding bills to their private contractors. Apparently, dragging settlement for suppliers is a favoured tactic to save costs by SOEs.

In Europe, the Markit services PMI reported an improvement even if it is still contracting. The EU factory PMI is also contracting but at an unchanged rate. What is a worry there is that new order levels are falling at their sharpest pace in three years.

Meanwhile in Australia, their services sector shifted out of contraction - just, but their factory sector is still contracting, extending that to a 3 month low.

For all the economic activity shifts over the past week, the most substantial one is the rise in benchmark interest rates, triggered by a hawkish American central bank.

The UST 10yr yield starts today retracing -4 bps at 4.44%. But that is up from a week-ago level of 4.33%. Their key 2-10 yield curve is little-changed from yesterday at -68 bps. And their 1-5 curve is now at -88 bps and fractionally more inverted. Their 3 mth-10yr curve inversion is a but more too at -95 bps. The Australian 10 year bond yield is now at 4.33% and back -2 bps from yesterday. However, the China 10 year bond rate is up +2 bps to 2.71%. But the NZ Government 10 year bond rate is now at 5.26% and up another +3 bps.

Markets now have a full +25 bps priced in for an RBNZ rate rise in early 2024. Globally, higher rates for longer is the trend setting in, and that will continue to weigh on asset price valuations

Wall Street ended down -0.2% on the S&P500 in its Friday trading and was down -2.8% for the week. Overnight, European markets were little-changed except Paris was down -0.4%. Yesterday, Tokyo fell -0.5% to be -3.1% lower for the week. Hong Kong ended its Friday session up +2.3% to be unchanged for the week. Shanghai was up +1.6% to be up +0.7% for the week. Singapore was unchanged yesterday but ended down -2.3% for the week. The ASX200 was also unchanged on the day, but ended down -2.9% for the week. But the NZX50 distinguished itself by rising +0.5% with an end-of-session surge, to be up +0.2% for the week

The Fear & Greed Index has shifted to the 'fear' side this week, after being neutral for the past month. But although the VIX index of volatility rose, it is still low by historical standards.

The price of gold will start today at just on US$1923/oz and up +US$3 from yesterday. A week ago it was at US$1922/oz.

And oil prices are +50 USc up from yesterday at just on US$90/bbl in the US. The international Brent price is unchanged, still just on US$92.50/bbl. A week ago these prices were US$90/bbl and US$93/bbl, so not material change in the past seven days (despite all the chatter). In fact with the NZD rising, the cost of oil in our local currency is lower.

The Kiwi dollar starts today on the up to end the week. It is up to 59.6 USc, a +¼c rise from yesterday and up more than +½c for the week. Against the Aussie we are another +¼c higher as well at 92.6 AUc (remembering we started the week at 91.7 AUc). Against the euro we are up over 56 euro cents and we haven't been this high since late July. That all means our TWI-5 is up +40 bps on the day to 69.3 and up +80 bps for the week and a 45 day high.

The bitcoin price has retreated again from this time yesterday, but this time only marginally and it is now at US$26,566 and down just -0.4%. A week ago it was at US$26,369 so the net shift has been insignificant. Volatility over the past 24 hours has been very low too at just over +/-0.4%.

Daylight savings time kicks in this weekend. Clocks will go forward by one hour at 2am Sunday, September 24. Daylight Saving time will continue until 3am Sunday April 7, 2024. If you are working when Daylight Saving begins and the clocks go forward, you actually work an hour less, but you are entitled to payment for your normal hours. For example, if you were meant to work from midnight to 8am you will only work 7 hours, but you are entitled to be paid for 8 hours of work. If you are working when Daylight Saving ends and clocks go back an hour, you are entitled to any extra hours that you work. For example, if you were meant to be working from midnight to 8am, you actually work 9 hours and you are entitled to be paid for 9 hours of work.

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