Breakfast briefing: Wall Street bounces back; gold hits new ATH

Economy / news

China's exports soar while US exports shrink; India inflation falls below target; Nobel Prize in economics 'proves' creative destruction long term benefits; UST 10yr at 4.07%; gold leaps again, oil little-changed; NZ$1 = 57.4 USc; TWI-5 = 61.9

14th Oct 25, 7:19am by David Chaston

Here's our summary of key economic events overnight that affect New Zealand, with news Trump (and Vance) are attempting to roll-back their aggression in the face of ugly financial market reactions and firm Chinese pushbacks. That cheered Wall Street and American investors, but others are watching the risks mount and have pushed precious metals prices up sharply.

Meanwhile, China said their exports rose +8.3% in September from a year ago. This is faster expansion that the +4.4% August growth, and took the monthly level to US$329 bln the most in seven months. And this was despite a -27% slump in exports to the US. The exports grew modestly to Japan and Korea, but to some key markets they rose more than +10%, like to Taiwan (+11%), ASEAN countries (+14%), the EU (+14%), and Australia (+11%). They raised their exports to New Zealand by more than +17% - and bought +2.6% more from us. It is a pretty impressive performance, it has to be said.

Of course, we don't have any American data to compare it with, their last data for August showed their exports fell -1.4% from a year ago. American disengagement is a unique opportunity for China who so far are a net winner.

And it may get worse for the US. Their farm products are being substituted by other markets (Australia is a winner), and China's rare-earth export restrictions will put a growing share of American technology in a tough spot. Of course, it may also drive innovation to other components but so far there is little evidence of that happening at the scale needed. American companies seem to just be waiting for another TACO moment.

It is not all good in China. A new survey of local economists points out a clear slowing.

In India, their CPI inflation fell to 1.5% in September, down from 2.1% in August and below the expected 1.7%. This is their lowest inflation rate since June 2017. It is also below their central bank's 2% lower tolerance limit under its inflation-targeting framework. Leading the rate lower were food prices that fell -2.3%, the largest decline since a record -2.7% fall in December 2018.

This year's Nobel Prize in Economics has been awarded to three economists (Israeli, French, Canadian) whose investigations showed that sustained economic growth does in fact come from innovation and 'creative destruction'.

In the US, American corporate bond markets are hearing increasing numbers of stories about bond risks and bond collapses, like this one. Involved are some good-sized 'middle' companies (huge by NZ standards). Billion-dollar companies like Saks, New Fortress Energy, Tricolor, and the latest, First Brands (of Fram oil filter and Autolite spark plug fame). A key feature of these collapses is the speed at which they went from 'trading' to 'bust'. It is unnerving some on Wall Street.

The UST 10yr yield is now at 4.07% and up +2 bps from this time yesterday. The key 2-10 yield curve is now at +55 bps. Their 1-5 curve is still positive by only +3 bps. And their 3 mth-10yr curve is now -2 bps inverted. The China 10 year bond rate is down -9 bps at 1.77%. The Australian 10 year bond yield starts today at 4.29%, down -8 bps from yesterday. The NZ Government 10 year bond rate starts today at just on 4.12%, down -4 bps from yesterday at this time.

Wall Street has roared back today with the S&P500 up +1.6%, an outlier in global markets. European markets were higher too but not showing the same enthusiasm, up +0.2% although Frankfurt was up +0.6%. Tokyo ended its Monday down -1.0%, Hong Kong was down -1.2%, and Shanghai dipped -0.2%. Singapore fell -0.8%. Locally, the ASX200 also fell -0.8%. And the NZX50 fell -0.9%.

The price of gold will start today at US$4110/oz, up +US$94 from yesterday. (Silver is now just under US$52/oz, up proportionately more, but that may have more to do with a short squeeze in the London market.)

American oil prices are up +50 USc at just on US$59.50/bbl, with the international Brent price now just under US$63.50/bbl.

The Kiwi dollar is at just under 57.4 USc, up a bit more than +10 bps from yesterday. Against the Aussie we are down -40 bps at 87.9 AUc. Against the euro we are up +30 bps at 49.6 euro cents. That all means our TWI-5 starts today at just over 61.9, up +10 bps from yesterday. Also, see this.

The bitcoin price starts today at US$114,683 and up +0.4% from this time yesterday. Volatility over the past 24 hours has been low at just under +/- 0.9%.

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39 Comments

by KH | 14th Oct 25, 7:27am 1760380072

I am listening to Erica Stanford on Morning Report.

Impressive.

There is nothing better than kids reading better.

by murray86 | 14th Oct 25, 8:11am 1760382670

It all starts with education. I was never in favour of the Lange government's turning the education system on it's head. The mantra the no kid should fail at school denied the real world reality that employers expect performance. Kids need to be taught to strive to succeed.

by 11boomer11 | 14th Oct 25, 8:09am 1760382574

And yet the Trump base hasn’t budged, if anything they’re more committed than ever.

by murray86 | 14th Oct 25, 8:21am 1760383285

"And it may get worse for the US. Their farm products are being substituted by other markets " Canada is perhaps the biggest winner with Europe and China pivoting away from the US. There are reports already that Trump my be spending US$10 billion they've been paid in tariffs on propping up farmers. Changing the president won't change this in a hurry.

I commented on the rare earths issue in yesterday's stream, especially the interesting titbit that any mined in California must be processed in China. Strategically this has to be considered as significant.

by Yvil | 14th Oct 25, 8:42am 1760384554

RMX (VanEck rare earth ETF)up 14.4% so far today !

by profile | 14th Oct 25, 9:45am 1760388333

Rare earths are piddling $5 billion a year industry, and not particularly rare. Can be sources from industrial waste and recycling and/or mined. Anyone can do it.

"In other words, China’s new export ban is not a strategic issue, nor one that requires any intervention. Of course those building or expanding plants would welcome a relaxation of the environmental and planning paperwork, but wouldn’t everyone? We already have an entirely viable and effective set of policies in place – simple capitalist greed and the free markets to go sate it. Gallium and germanium prices are going to rise for the refined material – thus people will increase supply. We’re done and dusted.

Even the temporary price rise is a small problem in terms of financial size: $200 million a year for germanium, $100 million perhaps for gallium in terms of total markets sizes for the basic materials. This is the sort of thing that financial markets deal with in the blink of an eye.

There is just the one possible exception to this laissez-faire attitude. Gallium and germanium really are vital inputs into military machines; therefore governments might want to take a hand in accelerating the timeline of alternative sources."

https://thediplomat.com/2023/10/dont-worry-about-chinas-gallium-and-ger…

by murray86 | 14th Oct 25, 12:06pm 1760396817

Then why is the US (Trump) getting so exercised over it?

by profile | 14th Oct 25, 12:55pm 1760399738

Why is China so exercised, and short sighted - or perhaps desperate, by banning something that is not overly difficult to replace?

by murray86 | 14th Oct 25, 1:10pm 1760400635

Clearly that is not the case. You didn't answer my question.

China is exercised over the Trump tariffs, and holds a dominant hand over rare earths that allows it to hold high tech companies to ransom to a degree. It seems the importance of these REs outweigh the apparent market value. There is plenty of media to support this. while the quantities required are small, the importance of them to microelectronics is significant, and that impacts almost every sphere these days, especially defence industries.

by profile | 14th Oct 25, 1:29pm 1760401776

So China is banning rare earths, and holding high tech companies to ransom, but you think Trump is the party who is exercised.

by murray86 | 14th Oct 25, 1:40pm 1760402448

China is not 'banning' RE's. They're restricting the export of them. and yes Trump is getting a little exercised over it.

by profile | 14th Oct 25, 2:32pm 1760405549

Sure, not banning, just holding to ransom!

by Yvil | 14th Oct 25, 4:02pm 1760410943

Profile, why are you being evasive and do try to change the subject and avoid replying to a simple question: "

"So why is Trump getting so upset if RE minerals are "not so rare" (as you put it) ?

Answer… ?

by profile | 14th Oct 25, 5:06pm 1760414798

Perhaps read the link and take it from a guy with 30 years in the rare earths industry? Germanium from fly ash and gallium from bauxite for example. Perhaps ask Muzza why the change of subject to Trump's mood? I never mentioned Trump, just quoted a rare earth guy.

"For the little secret about both – in fact the little secret about near all minerals and metals – is that there’s no shortage of them out there. Given the size of the planet and the reality all of it is made from the same 90 elements, it’s difficult for there to be such an absolute shortage. There can be – and is in this case – a shortage of plants that extract and refine, but not of the base material. So, the solution is a couple more plants to extract and refine gallium and germanium. Problem solved.

Yes, this is simple; no, I am not being simplistic."

Perhaps Muzza sees him as "so upset" because, as Muzza put it, industries are being held to ransom by China? China must be fairly upset themselves to hold industries to ransom. It is a fact rare earths are not rare, the industry scale is piddling and substituting China supply will be happening right now. Someone changing the subject to Trump's mood doesn't change that.

https://x.com/worstall/status/1977289915324154092

by murray86 | 14th Oct 25, 5:23pm 1760415812

You're being disingenuous Profile. It's not the fact that they're really not rare that is the issue, it's the processing as I mentioned that seems to be the problem. That's the issue with rare earths mined in California; they have to be processed in China to extract them. China is also restricting the export of rare earth processing technology. Ironic really seeing as they stole most of the technology they have. That's the whole strategic vulnerability the US has; they can't process and extract the quantities of rare earths they need, no matter where they're mined.

It seems you completely missed the core problem.

by profile | 14th Oct 25, 6:03pm 1760418231

Disingenuous? A guy with 30 years rare earth experience disagrees with you. You could save yourself a lot of tedious comments, and goal post shifts to Trumps mood by reading the original link. Note self - if someone brings Trump in to a comment thread back away.

"But there’s no reason for that shortage other than the fact that China has been doing such work cheaply these past years, so Western plants have been idled. If China takes itself out of the supply chain, the world will move on. Some of those Western plants have already been spinning up again these past couple of years, and more could be built simply enough. This is all known technology, it simply requires the desire to build it rather than anything else."

by Let me be Frank | 14th Oct 25, 7:47pm 1760424446

Time.

by profile | 14th Oct 25, 8:29pm 1760426966

Link.

"This is all known technology, it simply requires the desire to build it rather than anything else. ...There is just the one possible exception to this laissez-faire attitude. Gallium and germanium really are vital inputs into military machines; therefore governments might want to take a hand in accelerating the timeline of alternative sources."

by Yvil | 14th Oct 25, 8:35pm 1760427333

THAT'S NOT THE POINT WE'RE DISCUSSING !!!

by murray86 | 15th Oct 25, 6:29am 1760462986

Then explain why the US persists in having to send it's rare earths ores to China for processing if the plants are only 'idle' and the technology is well known and readily buildable or accessible?

by profile | 15th Oct 25, 8:15am 1760469357

Because for decades China has been using its "competitive advantage" of ignoring the environment, weak labour welfare and government support, to undercut other suppliers globally. They had a contestable monopoly, in a $5 billion industry, which they have now blown.

by Yvil | 14th Oct 25, 8:34pm 1760427287

Murray, I thought Profile was being disingenuous as well, but I'm actually starting to think that he/she just doesn't understand the flow of the conversation. He/she's so deep into his/her rabbit hole, he/she can't see the light, the world, the way a normal conversation should flow.

by KKNZ2025 | 14th Oct 25, 8:42am 1760384523

Who knew?...anyone reading Interest.co at the time

“In hindsight, an earlier or more aggressive tightening might have reduced inflation sooner,” Reserve Bank chief economist Paul Conway said.

“But this would have been difficult given the data available at the time and could have conflicted with the MPC’s mandate back then, which included maintaining maximum sustainable employment.”

https://www.nzherald.co.nz/business/covid-response-reserve-bank-admits-…

by Yvil | 14th Oct 25, 8:46am 1760384775

Perhaps the minimum OCR move should be +/- 0.5% to get things moving faster, get less lag and especially result in less over/under shoot.

by interesting1234 | 14th Oct 25, 9:18am 1760386684

I think we all know that we cannot have max employment and low inflation given the system is set up to extract maximum benefit from low wage workers to bolster business profits and thus encourage and reinforce the current paradigm. You cannot achieve both of the previous mandates as such, therefore it was foolish to have it in the 1st place. Not saying I agree with the system as is, but it is how it was devised, and benefits the elite to keep it that way.

by Time Lord | 14th Oct 25, 9:00am 1760385658

Central bankers implement ZIRP and then are surprised by runaway inflation… But now claim they’re equipped to navigate future shocks while maintaining price stability (Trust us bro).

Gold at $4000 isn’t euphoria, it’s a confession.

by interesting1234 | 14th Oct 25, 9:20am 1760386800

It's the Central banks failing to keep the cost suppressed after decades when people realise the need to security in the prospect of a falling currency. Many are wising up to the impact if when the USD tanks, ands the flow on effects, and don't trust fiat.

by linklater01 | 14th Oct 25, 9:42am 1760388139

Didn't Schumpeter demonstrate that long ago?

by keithwoodford | 14th Oct 25, 10:12am 1760389947

Absolutely!

by Foxglove. | 14th Oct 25, 10:21am 1760390480

And now over to PDK for a quick word or something a bit longer.

by Phoenix (FKA JC) | 14th Oct 25, 10:36am 1760391365

Quote:

"In different ways, the laureates show how creative destruction creates conflicts that must be managed in a constructive manner. Otherwise, innovation will be blocked by established companies and interest groups that risk being put at a disadvantage."

by profile | 14th Oct 25, 10:29am 1760390994

JPMorganChase today announced the Security and Resiliency Initiative, a $1.5 trillion, 10-year plan to facilitate, finance and invest in industries critical to national economic security and resiliency. As part of this new initiative, JPMorganChase will make direct equity and venture capital investments of up to $10 billion to help select companies primarily in the United States enhance their growth, spur innovation, and accelerate strategic manufacturing.

“It has become painfully clear that the United States has allowed itself to become too reliant on unreliable sources of critical minerals, products and manufacturing – all of which are essential for our national security,” said Jamie Dimon, Chairman and CEO of JPMorganChase. “Our security is predicated on the strength and resiliency of America’s economy. America needs more speed and investment. It also needs to remove obstacles that stand in the way: excessive regulations, bureaucratic delay, partisan gridlock and an education system not aligned to the skills we need.”

by Let me be Frank | 14th Oct 25, 11:52am 1760395954

I thought that was the danger that would be avoided if the private sector were in control of investment...as they have been the past 40 years.

The government are only guilty of that outcome by outsourcing.

by profile | 14th Oct 25, 12:50pm 1760399447

Or as JP Morgan put is the government are only guilty of "excessive regulations, bureaucratic delay, partisan gridlock and an education system not aligned to the skills we need."

by Let me be Frank | 14th Oct 25, 2:05pm 1760403936

You gotta hand it to them....they milk the system they created for 40 odd years and then when it all turns to shit they blame someone else and say dont worry folks if you keep us in charge we will fix it all.

by Te Kooti v1.0 | 14th Oct 25, 11:06am 1760393207

I bought gold a few weeks ago, it's now more likely than not that we see a blowout on the topside.

Why now? I guess that current debt levels and the lack of fiscal discipline mean a bond crisis is inevitable and that will trigger more QE.

I think buy here, buy large and be disciplined.

by Phoenix (FKA JC) | 14th Oct 25, 11:17am 1760393867

Bank of America Global Research has raised its gold price forecast, now projecting that gold could reach $5,000 per ounce by end of year, with an average price around $4,400.

I remember earlier this year the Vampire Squid suggesting we might get to USD2,800 by end of 2026.

https://www.reuters.com/business/finance/bofa-hikes-gold-price-forecast…

by Te Kooti v1.0 | 14th Oct 25, 11:56am 1760396169

I really don't pay much attention to Squid, it's all about the price action. Way back I wrote a Uni research paper where I back tested a momentum trading model on 20 currencies, bonds, indices and commodities. Gold, by a country mile, was the most profitable in that once it had broken resistance, it trended strongly for an extended period.

by Yvil | 14th Oct 25, 4:06pm 1760411209

"Why now? I guess that current debt levels and the lack of fiscal discipline mean a bond crisis is inevitable and that will trigger more QE."

You're not wrong about the reasoning, but "now" is not exactly correct, Gold has already doubled in the last 2 years.