Here's our summary of key economic events overnight that affect New Zealand, with news the US Fed is telling markets rate cuts from them are not coming soon.
First up today, the overnight dairy auction confirmed the recent rises, but didn't add to them in a subdued event. In USD terms overall prices were up +0.1% and in NZD terms up +1.5%. Volumes were seasonally small however. Perhaps of some concern in this data was that foodservice components like butter, cheddar, and mozzarella all fell, by -1.4%, -8.5%, and -3.8% respectively. However, given the overall 'hold', it is unlikely any farmgate payout forecasts will be changed by today's outcomes.
US housing starts and new building consents are in the doldrums as this sector continues to fade. March brought steep drops, almost -15% below February levels for new housing starts, -4.3% lower than year-ago levels. The situation isn't going to get much better because residential building consents also fell, down -4.3% from February although marginally up on March a year ago.
US retail sales rose +4.9% last week in their Redbook tracker, the tenth week in the past 13 that the rise has bested inflation. The retail expansion is embedded now.
US industrial production rose +0.4% from the previous month in March, in line with expectations and following an upwardly revised +0.4% increase in February. A rise in vehicle production was a notable component of the recent up-trend.
Meanwhile, Fed boss Powell was out speaking indicating their policy rate will stay elevated for some time yet. They see no pressing need to cut, or in fact make any changes. “The recent data have clearly not given us greater confidence and instead indicate that is likely to take longer than expected to achieve that confidence,” Powell said. “Given the strength of the labour market and progress on inflation so far, it is appropriate to allow restrictive policy further time to work and let the data and the evolving outlook guide us.” This indicates that Fed officials don't feel a pressing need to lower rates and implies that any rate cuts in 2024 may occur toward the end of the year, if they happen at all.
Meanwhile there was some important Canadian data released overnight. They said consumer inflation rose 2.9% in the year to March with their core rate rising just 2.0%
And Canadian housing starts eased slightly in March from February although they were +13.5% higher than year-ago levels.
In China, electricity production rose just +2.8% on March from a year ago, a huge retreat from the +8.0% rise in December. This is an important background data that should be reflected in China's economic activity (GDP). But Beijing reported Q1-2024 GDP rose +5.3% (up from 5.2% in Q4-2023) and this was despite retail sales only rising +3.1% and national real estate investment falling -9.5% in official data. They say industry expanded +4.5% (and down from the +6.8% rate in December). While we have raised our eyebrows at how they can deliver a credible GDP result just 16 days after the quarter end (no-one else can), few of the major components show expansions at the level of the claimed overall growth, and readers can draw their own judgements on the credibility of the rising 5.3% growth in Q1. Certainly ex-Premier Li Keqiang did.
Meanwhile, China's new home prices dropped by -2.2% in the year to March, faster than the -1.4% fall in February. It was the ninth straight month of decline and the steepest pace since August 2015, despite multiple support measures. For second-hand dwellings none of the 70 largest cities reported any rises, and the average fall over this set is now -5.9% year-on-year.
China continues to struggle with youth unemployment. You will recall they withdrew data that reflected badly on them last year and replaced it with 'better data'. But now an official confirms that even this data, the next update yet to be released, shows a situation that "requires a high degree of attention".
And we should note that China is clamping closed real-time stock exchange data, in the name of 'national security'. It applies to Shanghai and Shenzhen at first, not Hong Kong, yet. For most of us it won't have a significant impact, but it is just another shift away from market transparency.
In Europe, the ECB boss said that they will likely cut rates soon. She was speaking at the IMF's release of their 2024 growth forecast update, and those revealed that despite gloomy predictions, "the global economy remains remarkably resilient, with steady growth and inflation slowing almost as quickly as it rose". They say: "growth this year and next will hold steady at 3.2%, with median headline inflation declining from 2.8% at the end of 2024 to 2.4% at the end of 2025. Most indicators continue to point to a soft landing."
Join us at 10:30am this morning to find out what New Zealand's CPI inflation level came in at in Q1-2024..
Ratings agency Moody's said overnight that New Zealand's sovereign credit rating stays at its current maximum Aaa grade. The outlook is Stable. They are the only ratings agency to assign a triple A to New Zealand. They say this level is "supported by ongoing economic and institutional strengths that will continue to allow its wealthy and competitive economy to effectively weather shocks as it did in previous decades, including in recent years".
The UST 10yr yield is now at 4.66% and up +3 bps from yesterday. The key 2-10 yield curve inversion is up a bit and back to -34 bps. But their 1-5 curve inversion is less at -51 bps. Their 3 mth-10yr curve inversion unchanged at -75 bps and holding its recent substantial flattening. The Australian 10 year bond yield is now at 4.40% and up another +4 bps. The China 10 year bond rate is down -1 bp at 2.28% but we make that its lowest level since at least 2002. The NZ Government 10 year bond rate is now at 4.96% and up +8 bps from yesterday.
Wall Street is little-changed on the S&P500 in their Tuesday trade (up +0.1%). Overnight European markets were down -1.4% except London which fell -1.8%. Yesterday Tokyo ended down -1.9%. The mood was mirrored by Hong Kong, down -2.1%. And Shanghai fell -1.7%. This is an interesting fall given the official GDP data beat everyone's estimates. Singapore fell -1.2%. The ASX200 ended its Tuesday session down -1.8% while the NZX50 actually got off lightly, down by "just" -0.9%.
The price of gold will start today higher by +US$31 from this time yesterday at US$2394/oz.
Despite continuing Middle East tensions and uncertainties, oil prices have changed little at just under US$85/bbl in the US while the international Brent price is also unchanged at US$89.50/bbl.
The Kiwi dollar starts today at just over 58.8 USc and down -30 bps from yesterday and a new five month low. Against the Aussie we are firmish at 91.8 AUc. Against the euro we are down another -20 bps to 55.4 euro cents. That all means our TWI-5 starts today just over 68.8 and down -20 bps and a ten day low.
The bitcoin price starts today lower at US$62,368 and down -2.6% from this time yesterday. Volatility over the past 24 hours has been modest at just on +/- 1.9%.
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