Here's our summary of key economic events over the weekend that affect New Zealand, with news the price of money just keeps going up. Others have pointed out it is not only US policy management that is causing this trend, but also the generational shift of boomer savings starting to run down as they are used, generating a global imbalance. There are fewer savings for the investment demand in the global economy, so a fundamental supply/demand imbalance is growing. The US administrative incompetence is making this shift faster, however.
This week will feature the US Fed's rate decision on Thursday as the key upcoming event. Financial markets are pricing a 75% chance of a +25 bps hike. Economists have the full +25 bps as their central expectation. The reason is clear - inflation isn't under control, not even close.
Locally, Thursday will bring our Q2-2025 GDP result, expected to be +2.3% and up from Q1's +1.8%. But such is the disconnect between consumers lived experience, and sectors like farming, that it is likely to be dismissed as electioneering even if it is accurate. We will also get retail (electronic card) and inflation (selected price) updates this week too. And in the middle of this we will likely get the August REINZ data this week as well.
In Australia, the key data releases will be minor, mainly for tourism and population, but they will both be grist for their culture war debates.
China will report a broad range of data this week, and most of it is expected to deliver minor improvements. We will be especially watching their new lending data to see what has happened after the unexpected July decline.
Japan will report inflation (2.1% expected) and its central bank rate review later in the week (+25 bps to 1.25%).
On Friday, Japan said its producer prices rose +7.6% in August from a year ago, following an upwardly revised +7.7% increase in the prior month, which had been the fastest pace since February 2023. Although fuel is a big part of these rises it isn't the only part, and the outsized rises have been consistent now in each month since April. Despite that, Japanese business sentiment rose to its highest level since 2021, in a report out Friday.
In the coming week, the US will release retail sales, trade terms, and industrial production data. But this is all being overshadowed by the fast-rising fuels costs, even if there is yet another 'hope' that talks can replace fighting in the Persian Gulf.
Over the weekend the US released its official CPI for August (from the same agency that brought you the wildly optimistic non-farm payrolls data), and it shows no change at 3.4%. Apparently food prices were up +2.7%, fuel costs up +16.3%, electricity up +4.0%, drugs down -2.7% and rents up +3.0%. From July to August however, the overall rate rose +0.4% which is an accelerating recent rise.
However, it is doubtful US consumers believe this sanguine official assessment. The widely-watched University of Michigan consumer sentiment survey for September reported a sharpish and unexpected fall, now to its lowest level since the record low in May. That is a -7.5% retreat since August and a -13.7% drop from a year ago. Year-ahead inflation expectations jumped to 4.6%, the highest since June. Year-ahead expectations for personal finances and business conditions deteriorated, as consumers anticipate greater pressure on household budgets amid rising fuel prices and trade tensions.
US petrol prices have risen +4.0% in just the past week and are now up +45% since the start of Trump's war. Diesel prices are up to US$6.06/gal and an all-time record high. (In some parts of the country, diesel is touching $10/gal - which is a technical problem because most signboards and fuel pumps are not designed for $10+ rates there. Of course most places are nowhere near that yet so they have time to figure out how to adjust.)
In some earlier reviews we had noted that the copper price had hit a new record high of US$15,000/tonne. However since then it has pulled back on the prospects for a sharp increase in supply and an easing of demand as the world's two largest economies hesitate. The current price is now US$14,250/tonne so a -5% drop in the past three days.
The UST 10yr yield is now just on 4.98%, unchanged from Saturday, up +20 bps for the week. The 30 year yield is at 5.35%, up +2 bps. The key 2-10 yield curve is now at +33 bps (unchanged). Their 1-5 curve is now at +45 bps (also unchanged) and the 3 mth-10yr curve is at +112 bps (+1 bp). The China 10 year bond rate is up +1 bp at 1.69%. The Japanese 10 year bond yield is now at 2.99%, unchanged but up +8 bps for the week. The Australian 10 year bond yield starts today at 5.36%, down -3 bps from Saturday to be up +17 bps for the week. The NZ Government 10 year bond rate is now at 5.06%, unchanged for a weekly jump of +24 bps.
All this sudden rise in benchmark interest rates is going to do extensive and expensive damage to government budgets which depend on high debt levels and more borrowed money. A reckoning is closer.
The price of gold is now at US$4350/oz, and up a minor +US$4 from Saturday at this time, down -US$74 for the week. Silver is unchanged at just under US$64.50/oz, down -US$1.50 for the week.
The Gulf Cooperation Council is expected to meet their Iranian counterparts later today to discuss a possible temporary arrangement for managing shipping through the strait. Adding to downward pressure, the US EIA raised its 2027 crude production forecast while the IEA sharply cut its global oil demand outlook.
Oil prices have eased -50 USc to a still very high US$100/bbl in the US, while the international Brent price is little-changed just over US$104.50/bbl. A week ago these prices were US$91.50 and US$96.50/bbl so a net +9% rise in that time. Hormuz transits are still very low today with just four ships exiting over the past 24 hours, no tankers escorted (0 dark with transponders off) and six entering for new loads (0 dark). The Red Sea activity is a little more from Saturday with more than 20 each way at the Yemen chokepoint, rushing to beat the coming danger.
The Houthis reached the strategic island of Perim in the Bab el-Mandeb Strait on Friday, moving to tighten their grip on a vital global shipping route in the widening Middle East war. And the Houthis keep attacking the Saudi Arabian East-West pipeline that bypasses Hormuz, so they have temporarily shut it.
The Kiwi dollar is unchanged from Saturday, still just over 58.1 USc but down -70 bps for the week. Against the Aussie we are also still just under 81.1 AUc. Against the euro we are holding at 50.1 euro cents. That all means our TWI-5 starts today at just over 61.4, unchanged from Saturday, down -70 bps from a week ago.
The bitcoin price starts today at US$77,260 and up just +0.2% from Saturday at this time but down -3.0% from this time last week. Volatility over the past 24 hours has again been low at just under +/-0.6%.
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