US sentiment rises; US current account deficit shrinks; Japan's exports retreat; China property woes go on and on; Aussie leading index stops falling; UST 10yr 3.89%; gold down and oil stays firm; NZ$1 = 62.8 USc; TWI-5 = 71

Here's our summary of key economic events overnight that affect New Zealand, with news of generally positive news in the US, but extended worries about China's property sector.

After quite a jump in the prior week, American mortgage application levels slipped last week and for the first time in six weeks, despite a hefty retreat in benchmark 30 year mortgage interest rates. Those came in at 6.83% plus points, down from 7.07% the prior week, the first time they have been below 7% since early August.

All that was despite an impressive rise in American consumer sentiment and optimism in December, as tracked by the respected Conference Board survey. It hasn't been this high since mid-year. This rise mirrors the recent parallel University of Michigan survey. To be fair, both are back in the range from 2021, but there is a rising optimism about future expectations.

Perhaps reflecting that, US existing home sales rose in November, and for the first time in five months.

Also positive, the American current account deficit shrank to -US$200 bln in Q3-2023, 'only' -2.9% of GDP. That's its lowest level since Q2-2021 in dollar terms and its lowest since pre-GFC. For comparison, the New Zealand current account deficit is -7.6% of our GDP.

Australia and New Zealand are not the only countries facing record high immigration; Canada is as well. The post-pandemic surge seems to have caught many countries by surprise.

Japan's exports shrank in November when a small gain was expected. Data released today shows they fell -0.2% from the same month a year earlier mainly because China-bound chip shipments dived, underscoring worries that slowing overseas economies may deal another blow to the trade-reliant economy just as their domestic demand slows. At the same time imports dived significantly and that meant their trade deficit shrank rather quickly.

Taiwan's export orders didn't bounce back in November as expected, rising just +1% from a year ago and well short of the +4.3% rise expected. But that was their first rise in more than a year.

Another large Chinese property developer has filed for bankruptcy in the US, using its protections while it "restructures". (Evergrande was the last major Chinese property developer to try that manoeuver.) Interestingly, it didn't notify investors in stock exchange filings, of the move. This may be behind the chunky drop on the Shanghai stock exchange yesterday. But they aren't the only listed company facing existential pressures.

In the EU they are 'reforming' their fiscal rules which have become a straightjacket for some countries. EU finance ministers have bowed to German pressure for tough debt-reduction rules, as part of a deal to phase in a sweeping overhaul of their budget framework. After months of haggling, the new rules gives member states greater independence on debt and deficit plans, but only within tight spending limits demanded by fiscal hawks.

German inflation is likely to return to target ranges if their producer prices are any indication. Those remain in deflationary mode, falling -7.9% from a year ago driven primarily by much cheaper energy costs. The sizable retreat is essentially a base effect.

British consumer inflation is falling from the same energy cost retreat, now down to +3.9% in the year to November. But without those energy effects, their core inflation is still running at +5.1% - a small retreat but far above its neighbours and far above their central bank's target still. (Locally, they fudge the international standards of reporting inflation, but it is still high on their local basis.)

In Australia, the Melbourne Institute leading index has stopped falling which is a good way for them to end their year.

The UST 10yr yield has slipped -3 bps today, now at 3.89%. The key 2-10 yield curve is marginally less inverted, now by -50 bps. And their 1-5 curve inversion is still inverted by -102 bps. And their 3 mth-10yr curve inversion is marginally more inverted at -144 bps. The Australian 10 year bond yield is now at 4.05% and down -4 bps from yesterday. The China 10 year bond rate is up +1 bp at 2.66%. And the NZ Government 10 year bond rate is down -3 bps from yesterday at 4.58%.

Wall Street is up a minor +0.1% on the S&P500 in Wednesday trade. Overnight, European markets featured London's +1.0% rise but other markets were little-changed. Yesterday, Tokyo rose a strong and consecutive +1.4% in Wednesday trade, Hong Kong recovered +0.7%, while Shanghai took an unusual -1.0% dive, worsening as the day went on. The ASX200 ended its Wednesday session up +0.7% whereas the NZS50 fell -0.3% with a late dive.

The price of gold will start today down -US$9 at just on US$2034/oz.

Oil prices are +50 USc higher at just on US$74.50/bbl in the US although they have been higher in between. The international Brent price is now at US$80/bbl.

The Kiwi dollar starts today at 62.8 USc and marginally firmer than yesterday. Against the Aussie we are also firmer at 92.9 AUc. Against the euro we are unchanged at 57.1 euro cents. That all means our TWI-5 starts today just on 71, up +20 bps from yesterday and the highest since May 23, 2023 - just before the RBNZ's MPS signaled that its rate-hiking cycle was over.

The bitcoin price starts today at US$43,770 and up another +3.4% from this time yesterday. Volatility over the past 24 hours has been moderate-to-high at just under +/- 3.0%.

Although this is the final Breakfast Briefing for 2023, we will be releasing Holiday Briefings through until January 13, 2024. During that time, our general coverage will be at a lesser intensity, more focused on holiday reads, reviews, and catch-ups. The advertising that powers much of our sustainability is already on holiday-mode, so this is when we really appreciate the vital support of readers. If you can support us during this commercially fragile time till the end of January, the team at interest.co.nz will be very appreciative.

Happy Holidays!

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