Breakfast briefing: Inflation up, jobs down. The US Fed has to choose a policy direction

Economy / news

US inflation expectations stay high as sentiment turns lower; US & China talking in Madrid; China loan demand soft; France downgraded; copper resource plentiful; UST 10yr at 4.06%; gold dips, oil stable; NZ$1 = 59.6 USc; TWI-5 = 66.7

15th Sep 25, 7:19am by David Chaston

Here's our summary of key economic events over the weekend that affect New Zealand, with news fighting inflation may well be a downgraded objective in the face of political pressure. The consequences could be long-lasting and global.

For financial markets, this week will be all about the US Fed's Thursday rate decision where now a -25 bps cut is widely anticipated, to try and weigh against the softening US labour market. The same day the Canadians will review their policy rate too where a similar -25 bps cuts is expected.

And there will be central bank reviews in Japan this week (no change), Indonesia (no change), England (no change), and Brazil this week too.

China will also review its key rates and no change is expected there either. And China will release a lot of August economic data too, including FDI data.

Australia will release its August labour market update and a modest +25,000 rise in employment is anticipated. Our balance of payments data will be released on Wednesday (expect a larger deficit), and Q2-2025 GDP will be released on Thursday (expect a decline). And before that we will get the August REINZ data and a full dairy auction.

But back in the US, the pessimistic turn continues. The widely-watched University of Michigan consumer sentiment survey delivered downbeat results in September, sharply lower from August and well below what analysts had expected. They had expected a turn lower but not by this much. Declines were strongest among lower- and middle-income households because concerns grew over business conditions, jobs, and inflation. Both short and long term sentiment fell back. This index is more than -20% lower than year-ago levels.

Meanwhile, year-ahead inflation expectations held steady at 4.8% while the five-year expectations moved up for the second straight month to 3.9% from 3.5%.

Canadian building consents were unchanged in July from June but down -8.2% from a year ago. But most of this was due to non-residential work; residential consents were up, especially in Toronto.

We should probably note that there are trade talks going on in Madrid between the US and China.

In China, August data for new yuan loans came in well below what was expected although expectations weren't high. It was the lowest amount of bank debt for an August since 2011, extending the current period of weak credit demand amid the weakening consumer debt demand and the prolonged crisis for housing. The debt appetite dropped despite central bank efforts to loosen monetary conditions and stimulate borrowing.

In India, consumer inflation rose, as expected, but only to 2.1% and ending a ten month period where it fell consistently from 6.2% to 1.6% in July. Food prices were little-changed and had no effect on the overall result.

In France, Fitch has downgraded their credit rating to A+ from AA- on Friday, citing political turmoil and rising debt.

We should probably note that copper prices are basically back to levels they were at five years ago, which is double what they were ten years ago. At current production levels the USGS estimates that existing mines will be able to operate for the next forty years, and proven resources will last about 200 years. (But there are expected to be much larger resources yet to be discovered.) We will look at some aspect core mineral resources weekly, going forward. (H/T PDK)

The UST 10yr yield is now at 4.06%, little-changed from Saturday. The key 2-10 yield curve is still at +50 bps. Their 1-5 curve is still inverted by -4 bps. And their 3 mth-10yr curve is now inverted -11 bps. The China 10 year bond rate is up +2 bps at 1.82%, up +5 bps for the week. The Australian 10 year bond yield starts today at 4.23, unchanged from Saturday but down -9 bps from a week ago. The NZ Government 10 year bond rate starts today at just under 4.31%, unchanged from Saturday but down -12 bps from a week ago.

The price of gold will start today at US$3,641/oz, down -US$7 from Saturday. That is up +US$48 from a week ago. Silver had another spurt, now up over US$42/oz.

American oil prices are unchanged at just on US$62.50/bbl, with the international Brent price firmish just under US$67/bbl, both up +US$1 for the week.

The Kiwi dollar is at just under 59.6 USc and unchanged from Saturday but up +70 bps from a week ago. Against the Aussie we are also unchanged at 89.6 AUc. Against the euro we are holding at 50.8 euro cents. That all means our TWI-5 starts today at just over 66.7, little-changed from Saturday but up +50 bps for the week.

The bitcoin price starts today at US$115,666 and down -0.6% from this time Saturday. Volatility over the past 24 hours has been very low at just on +/- 0.4%.

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Source: RBNZ

Source: CoinDesk

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16 Comments

by NZGecko | 15th Sep 25, 7:37am 1757878665

So China drops loan rates to the floor, encourages lending measures and yet demand for credit weakens further...... Sounds just like what is playing out in New Zealand.

The hapless, house collecting, overleveraged, should be watching, as no letup on the NZ housing crash is coming. The bottom is years away.

by nktokyo | 15th Sep 25, 7:56am 1757879811

Want to make a friendly bet?

I think the bottom is now. It's the bottom of a curve though, so will play out through Christmas and next year we will see an uptick.

by Foxglove. | 15th Sep 25, 7:58am 1757879904

Wonder what percentage of New Zealanders own no more property than their own home and either have no mortgage or just stick to solely paying off the original P&I mortgage. As such value ups and downs are largely immaterial , a bit like boats in the harbour riding the tides.

by murray86 | 15th Sep 25, 8:05am 1757880319

I'm one of those and your point is that the value is a paper value only and mean nothing until it is leveraged somehow. But a lot of people don't seem to understand that.

by middleman | 15th Sep 25, 11:43am 1757893418

FG, according to Stats NZ only 32% of NZrs had a mortgage on their owner occupied house in 2021, with half of those having less than $260K of debt. Both numbers will have increased a bit since then but I agree with your your proposition that house value changes are of far less interest to the majority of homeowners than the seemingly endless stream of hyper ventilating media pronouncements about this might indicate.

by Foxglove. | 15th Sep 25, 12:11pm 1757895062

Aye and it is a shame that the distinction between a household property, that is owner occupied, and everything else is neither recognised nor considered as it once was. The open slather property market commenced by the Lange/Douglas government can take most of the credit for that.

by Jonny.Foe | 15th Sep 25, 8:01am 1757880080

House prices are floored by rent levels and the cost of credit, with a side helping of confidence in future gains. They've bottomed out. In fact, the average mortgage for property purchases has been rising for months ($600k) and sales figures are basically back to pre-cvid levels. I actually hope I'm wrong about all of the above, but I don't think so.

by IT GUY | 15th Sep 25, 8:17am 1757881023

I was reading about Meadowbank dropping 120k in 3 months just a few weeks ago, another 20 suburbs -5% over the same 90 days

This is not normally indicative of a pending boom

HPI tomorrow ?

by NZGecko | 15th Sep 25, 8:40am 1757882406

The next significant leg down is occurring. FRED does the REAL charting best:

Real Residential Property Prices for New Zealand (QNZR628BIS) | FRED | St. Louis Fed

Back to their index 130, here we come!

We've had the expert clairvoyants here, calling the "Bottom" every month since 2023.......Not happening every month or today!

by Jonny.Foe | 15th Sep 25, 10:33am 1757889196

I prefer the average wage adjusted house price index. See here. Similar trend obviously.

by 11boomer11 | 15th Sep 25, 10:14am 1757888065

You'll be anticipating the REINZ figures this week.. Have a good look around the country to see if all areas are so negative

You and Gordon Gecko can stay on the sidelines clutching at straws

by Phoenix (FKA JC) | 15th Sep 25, 8:46am 1757882764

In fact, the average mortgage for property purchases has been rising for months ($600k) and sales figures are basically back to pre-cvid levels.

That should be enough proof. The only known unknown is the intentions and wellbeing of the marginal buyer cohort.

Lose those people and anything could happen.

You could say similar about the actions of the Ashley Church disciples. But once again, you need to be able to unlock their thinking. My reckon is that loss aversion impacts their decision making. They stand to lose more than the punters betting on the hottest new crypto being bandied around the water cooler communities.

by Time Lord | 15th Sep 25, 12:02pm 1757894565

Flow indicators certainly look promising, but there’s a risk it overlooks broken fundamentals preventing normal price floor discovery. There’s plenty of regional variability at play. Take Auckland for example, it now has too much supply and not enough demand. Until that imbalance clears, I don’t think flow indicators alone are enough evidence to call the floor. Especially with 5 straight months of HPI declines.

by rastus | 15th Sep 25, 8:43am 1757882635

Isn't it wonderful that the struggling Taylor Swifts of the world can now get a leg up from our rates and taxes.

by powerdownkiwi | 15th Sep 25, 10:59am 1757890763

The stupidity of the interviewing on Morning Report (re that) was mindblowing.

It boils down to economics not accounting energy and resources. That blindness is then taken as gospel by the media - and therefore by the population.

But at the end of the day, debt (savings, cash, investments) is a presumption that there will be both energy and resources in the future. More debt means a bigger collective presumption.

An 'event' uses both resources and energy, from finite stocks. Therefore, overall, we are less wealthy post-event; not more. Under that sinking lid, Swift's entourage will remove proxy from NZ, far more than it will inject (or it wouldn't do it). This Govt. move has just made that a more-socialised debt, transferring the general taxpayer's wealth to those who can afford a discretionary spend (the ticket price).

There will also be a wealth-transfer on a more minor scale, from attendees to hospo - but that merely uses a bit of the resource/energy stock, and maybe increases total debt (total future-demand). And too temporary to be a real game-changer.

Basically, we need to understand that money is no longer a measure of, or guarantee of, wealth and that by association, Luxon's 'growth' is in permanent trouble.

by rastus | 15th Sep 25, 11:34am 1757892851

Or for joe blogg to understand ...the product cannot be purchased at a price that it can be sold for at profit - so govt/council's will subsidise it.

But yeah morning report swallowed it whole. The simple point that the only stimulation is from having a large group spend their cash in one small area rather than on their own home turf.

Net result negative due to funds flowing offshore.