Here's our summary of key economic events overnight that affect New Zealand, with news it is looking clearer that the inflation battle has been won in the US.
The main data release overnight came from the US, revealing November personal income and spending levels. And from those they can extract a view of consumer price inflation, the PCE.
US personal spending was up but only because of services like rent, utilities and eating out. Spending on goods actually fell in November from October. Overall spending was up +2.7% from a year ago. American petrol prices are virtually unchanged in a year.
Meanwhile, personal incomes rose slightly faster in November from October and at a faster pace than spending. They were up +4.3% in a year.
The PCE inflation measure was up +2.6% from a year ago, its lowest year-on-year rise since early 2021. Today's data will feed the idea that the US Fed has successfully gotten on top of inflation without a recession (the "soft landing"). So now the task turns to keep the expansion going.
And that is on the way according to business decision-makers. They are ordered durable goods at a significantly faster pace in November, up +5.4% from October's levels and up +10.0% from a year ago - although you need to see this data as including inflation. However, that is still the best month-on-month rise (apart from the pandemic recovery) in six years. Orders for capital goods were up a startling +28% from the same month a year ago. Decisionmakers are assuming the future is brighter.
US new home sales in November disappointed however with an unexpectedly sharp drop. We recently noted a good pickup in new homebuilding starts (but not consents). Homebuilder may have misread the demand signals. That sector isn't out of the woods yet and won't be a driver of any American expansion.
In Japan, their consumer inflation rate in Japan dropped to 2.8% in November from 3.3% in October, and the lowest level since July last year. Core inflation fell to 2.5%, the lowest in 16 months, from 2.9%. This was as expected but was outside the Bank of Japan's 2% target for a 20th month.
In China, the move started by ICBC is extending with most banks now cutting term deposit interest rates for savers. You will be unlikely to get a 2% rate there now, more like 1.5%.
Updated IMF data as at September shows very little change on how the world's countries hold their foreign exchange reserves. The US still dominates with just under 60% followed by the euro at just under 20%. Other currencies like the Chinese yuan are insignificant (2.4%) and little different to Australia's dollar (2.0%). The only major to rise was for holdings in Japanese yen (up to 5.5%) and passing the retreating UK pound. But from a long perspective, the US dollar's dominance has fallen from a 70% share back 25 years ago.
In Australia, they (meaning their banks) are lamenting weak loan growth. But at +4.0% rise, that is much stronger than our +2.9% expansion. Their business loan growth was a more impressive +6.4% (although to them they think that is weak given it expanded at almost +14% a year ago). New Zealand business lending expanded just +0.1% in November.
Locally, Greenpeace's bid to stop the green hydrogen projects in Taranaki using the Treaty of Waitangi as a way to get at the dairy industry have been dismissed by the Court of Appeal.
Also 'positively' in an economic sense, there is a noticeable upswing in local retail activity in the final week before Christmas. Worldline's transaction data shows spending this week lifted to take the first 21 days of December value activity to more than $2.6 bln, which is up +2.9% the same period in 2022 and up more than +17 above the same days in 2019. Expectations are that Friday and Saturday will be the busiest shopping days of the year.
The UST 10yr yield has risen a minor +1 bp today, now at 3.91% and little-changed from the 3.93% a week ago. The key 2-10 yield curve is marginally less inverted, now by -42 bps (it was -50 bps a week ago). And their 1-5 curve inversion is little-changed, now by -97 bps. And their 3 mth-10yr curve inversion is marginally more at -147 bps. The Australian 10 year bond yield is now at 4.02% and down -4 bps from yesterday. The China 10 year bond rate is still down at 2.63%. And the NZ Government 10 year bond rate is also little-changed at 4.56%. A week ago it was at 4.67% so it has fallen -11 bps in that time.
Wall Street is up +0.4% on the S&P500 in Friday trade and heading for a +0.9% weekly rise if they hold this level. Overnight, European markets were all little-changed. Yesterday, Tokyo was also little-changed in Friday trade and ending the week up a creditable +1.2%. Hong Kong had a tough afternoon yesterday falling a sharp -1.7% on the day to end the week down -2.0%. Meanwhile Shanghai dipped just -0.1% with home-team support at the end and finished their week down -0.7%. The ASX200 ended its Friday session little-changed in thin trading in its Friday session but up +0.8% for the week. The NZS50 was also little-changed yesterday, also in very light trade, and ended the week up +0.7%.
The Fear & Greed index we follow has moved well into the 'extreme greed' side as risk appetites embed deeper. The VIX remains unusually low but in past recessions it holds at this level for 3 or 4 years before the recession hits and it has just started that process in this cycle. (The past is not always a good guide to the future however.)
The price of gold will start today up +US$18 at just on US$2058/oz. A week ago this price was US$2033/oz so a +1.2% gain since then. the gold price might be high, but the price of diamonds is on the skids.
Oil prices are +50 USc firmer at just on US$74/bbl in the US. The international Brent price is holding at US$79/bbl. From a week ago these prices have gained a net +US$2/bbl.
The Kiwi dollar starts today at 63 USc and up +20 bps than yesterday. A week ago we were at 62.2 USc. Against the Aussie we are marginally softer at 92.5 AUc. Against the euro we are firmish at 57.2 euro cents. That all means our TWI-5 starts today just on 70.9, up 10 bps from yesterday but up +50 bps from a week ago.
The bitcoin price starts today still high at US$43,745 although a minor +0.3% firmer from this time yesterday. However that is a +4.4% gain in a week. Volatility over the past 24 hours has been modest at just under +/- 1.1%.
Merry Christmas all. This curation review will return on Wednesday, December 27, 2023.
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