Here's our summary of key economic events overnight that affect New Zealand, with news inflation is getting entrenched in the US and policymakers are starting to look away from the threat under political pressure.
But first, US mortgage applications fell for a third consecutive week with both refinance and new home applications decreasing. This came even though benchmark 30 year mortgage rates fell too. But the overall activity level is significantly higher than at this time last year.
In New York state, factories there reported that their new order levels stopped falling. And they shipped more in the past month. That brought a good rebound in the New York Fed's Empire factory survey in October, making back September's drop and almost back to the August levels. One of the reasons respondents feel better about the situation is that their price increases are sticking and they are absorbing less of their tariff-tax cost increases.
Supporting that are two private CPI tracking services who say that consumer prices picked up even more in September, one even suggesting CPI inflation ran at over +6% in September.
And that inflation is rising is confirmed in the October Beige Book release today by the Fed. They noted tariff-induced costs were reported in all districts, as input costs increased at a faster pace due to both these higher import costs and the higher cost of services. Overall, they say American economic activity changed little on balance since the previous report, with three Districts reporting slight to modest growth in activity, five reporting no change, and four noting a slight softening. Consumer spending, particularly on retail goods, inched down in recent weeks.
Across the Pacific, China said its consumer prices stayed in mild deflation, now running -0.3% lower in September from a year ago. Beef and lamb prices are rising now, but milk prices are still falling.
Meanwhile Chinese producer prices, already in moderate deflation, eased back to a -2.3% decrease, from August's -2.9%.
China also released its monthly new yuan loan data overnight. They came in at almost ¥1.3 tln, double the unusually low August level but still short of the almost ¥1.5 tln expected. September's get a seasonal boost normally and those factors were evident this year too. But still, the latest level was lower than the ¥1.6 tln in September 2024. Credit demand remains slightly subdued.
India said its September exports rose +6.1% to US$36.4 bln, building on the August increase. Their exports to the US are only 20% of all their exports and less than half of those are caught up in punitive tariff-taxes. And even among those, it is the Americans paying, it seems.
The EU said their industrial production rose again August from a year ago. Although the rise was a modest +1.1% from a year ago, that is an inflation-adjusted 'real' gain. In fact, their have reported gains on that basis for the past seven consecutive months which is unusual for them. For the prior 38 months they consistently reported year-on-year decreases. It's a turn up they will take.
In Australia, the Westpac-Melbourne Institute Leading Index for Q3-2025 suggests that the Australian economy is only expanding at the long term trend pace, but the pace is picking up marginally. They expect 2025 to come in below trend, but 2026 to edge up to trend levels.
And Australia fell almost -66,000 homes short in the year to June of the aspirational +240,000 new homes built needed to the Government's target of 1.2 million new homes in the five years to 2029. That's a -27% shortfall in year one, not a great start because it is actually the weakest annual rise in three years. A shortfall like this will underpin prices for existing houses and make housing sharply less affordable.
The UST 10yr yield is now at 4.05% and up +2 bps from this time yesterday. The key 2-10 yield curve is now at +53 bps. Their 1-5 curve is positive by only +1 bp now. And their 3 mth-10yr curve is now -6 bps inverted. The China 10 year bond rate is unchanged at 1.76%. The Australian 10 year bond yield starts today at 4.24%, down -1 bp from yesterday. The NZ Government 10 year bond rate starts today at just on 4.07%, down -4 bps from yesterday at this time.
Wall Street has made another small gain today with the S&P500 up +0.3%. European markets were mostly lower by -0.3% except Paris which jumped +2.0%. Tokyo ended its Wednesday up +1.8%, Hong Kong was also rose +1.8%, and Shanghai was up +1.2%. Singapore gained a minor +0.3%. Locally, the ASX200 rose a full +1.0%. But the NZX50 only managed +0.2%.
The price of gold will start today at US$4196/oz, up +US$52 from yesterday.
American oil prices are little-changed at just under US$58.50/bbl, with the international Brent price now just over US$62/bbl.
The Kiwi dollar is at just on 57.2 USc, essentially unchanged from yesterday. Against the Aussie we are down -30 bps at 87.8 AUc. Against the euro we are down -10 bps at 49.2 euro cents. That all means our TWI-5 starts today at just on 61.7, down -10 bps from yesterday. Also, see this.
The bitcoin price starts today at US$110,890 and down another -1.5% from this time yesterday. Volatility over the past 24 hours has been modest at just over +/- 1.3%.
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16 Comments
Can the Fed "look through" a one off inflation increase from tariffs? Our RBNZ would look through a GST increase.
Sounds hard because the tariffs seem to change with the phases of the moon and are a lot larger so more likely to pull wages up also.
Good points.
would the RBNZ look through a GST increase though? The inflationary impacts could easily extend beyond the size of the change.
On the tariffs, these are constantly changing with a significant impact on the cost to consumers. Ironically though Trump may well be helping with a problem PDK keeps raising; that of over consumption. Not a bad thing.
My vague memory of the VAT increase in the UK in 2011 is the BOE looked through the increase, same for petrol tax increases. You get 12 months of high annual inflation readings, then it disappears from the stats again. There is a risk of sparking other inflation, but the environment wasn't particularly inflationary back then...could be different today.
An increase in tax is an effective reduction in living standards. The counter is of course increased wage demands, the result being very inflationary.
RBNZ has just "looked through" $11 Billion in losses from their LSAP. = nothing to see here.
Upton Sinclair — 'It is difficult to get a man to understand something, when his salary depends on his not understanding it.'
Physical Silver becoming unobtanium…
For what it’s worth… from Alisdair Macleod’s substack
https://www.macleodfinance.com/
Today, the fiat currency era which commenced following the suspension of the Bretton Woods Agreement appears to be coming to an end the way fiat currencies always do — through the accumulation of unsustainable debt eventually destroying faith in their value. For now, a small but growing minority of savers suspect that fiat currencies are in trouble. It is their buying which has led to the liquidity crisis now evident in western bullion and paper markets.
There are two dynamics at work here. The first is that as the gold/silver ratio declines, perhaps towards one third of current levels, gold itself is rising measured in fiat currencies whose decline valued in gold appears to be accelerating.
The second problem for markets is that with an increasing tendency for both industrial users and savers to hoard silver, it takes on the characteristics of a Giffin good. That is when rising prices only creates further demand instead of profit-taking, evident as retailers are currently running out of bar and coins. Therefore, supply becomes increasingly restricted as prices rise.
Conclusion
Despite the prospect of arbitrage reflected in a backwardation between London spot and Comex (currently 99 cents on the active December contract) liquidity shortages look like persisting. Furthermore, silver is dramatically underpriced for any monetary role, and being a Giffin good it has the potential to double or triple in short order.
There appears to be no ready resolution to the current squeeze on the paper market.
Purely academic analysis. So long as fiat currencies are the trading mediums issued by governments and backed by national assets, then they will remain.
If however any of those governments are corrupt and/or inept at managing their economies then the value of their currencies will decline.
I can see a time when just as before the 70's it is illegal to own physical gold, as governments try to preserve the value of their currencies.
The retrenching will continue. As PDK keeps repeating, economies are based on energy consumption irrespective of the trading medium. Gold in itself doesn't produce energy so aside from being pretty, its use is limited.
"If however any of those governments are corrupt and/or inept at managing their economies then the value of their currencies will decline."
Unfortunately the level of incompetence is not commensurate with the value decline....it is pretty much an all or nothing effect.
Thanks for sharing 3Cts
R.I.P. Jim Bolger. Never met him but I've done some work with some of his family and they're good people. Note that he left school at 15 and worked his way up. Not sure the next time we'll have a PM like that.
I had met him, he was a very easy man to talk to, you could feel his passion, warmth and compassion when talking to him. The last two qualities are sadly lacking from Luxon.
Mercury have signed a 20 year power purchase agreement with manufacturing group Visy with pre-agreed pricing.
The question to ask manufacturers complaining about power prices in the next dry year is 'why didn't you hedge'?
We only hear about electricity when prices are high. When the stuff is effectively free at $0.00002/kWh notsomuch.
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