US inflation high, factories working hard; Container rates out of China drop; growth lame in east Asia; Aussie house prices strong in September; UST 10yr 1.47%, oil soft and gold unchanged; NZ$1 = 69.4 USc; TWI-5 = 73.1

Hunua Falls, Hunua Regional Park, Auckland

Here's our summary of key economic events overnight that affect New Zealand with news there may be some early relief ahead for very high container shipping costs.

But first, the US released its PCE inflation data overnight, the preferred measure of the Fed, and it was higher at +4.3% in August, the fourth straight month it has been above 4% pa. On a core basis its was up too, but at 3.6% pa it is still its highest in 30 years.

This same data shows consumer spending edged higher, and separate data shows consumer sentiment edged up in late September as well, but the real surprise overnight was on factory floors.

The widely-watched ISM PMI for September came in reporting a strong expansion, better than for August and better than expected. Order backlogs remained high as did pricing pressures.

The internationally-benchmarked Markit PMI for the US was equally positive, showing the same attributes even if it did pull back from an even stronger August. Orders and prices both rose in this report at a record pace.

There were factory PMIs reported for most of the main global economies released overnight and the US was the strongest. Overall, the global result was held up by the American result. China struggled to show any expansion. Japan's recent expansion eased off a bit. The EU's faster expansion in August fell back even more, mainly because of a slowing in Germany. Australia jumped out of a sharpish August contraction to a strong expansion in September.

In Congress, they approved kicking the can down the road until December on their debt-limit standoff, confirming bond markets who had dismissed the market risks as actually eventuating.

Meanwhile, the US Fed's balance sheet shrank by -US$41 bln this week (-0.5%), and the record high reverse repo balances eased back as well, by -US$219 bln (-14%).

There are signs the extreme cost of shipping containers is easing, and fast. An executive with a Shanghai freight company said overnight that the cost of shipping a 40-foot container from China to the US West Coast dropped by nearly half in the previous four days, going from about US$15,000 to just over US$8,000. The spot rate for shipping to the US East Coast had fallen by more than one-quarter from over US$20,000 to less than US$15,000. The shipping off-season is almost here, the Chinese power crunch has slowed Chinese factory output, and seeing this, speculators are rushing to sell-off their hoarded shipping spots.

In the more broad east Asian region, the World Bank has said that while China’s economy is projected to expand by +8.5% off a very low base, the rest of the region is forecast to grow at just + 2.5%, nearly 2 percentage points less than forecast in April 2021. Employment rates and labour force participation have dropped, and as many as 24 million people will not be able to escape poverty in 2021.

The EU reported its CPI inflation data for September overnight and that came in +3.4%. Without the energy component it was +1.9%. Both were as expected and both the highest in twelve years.

In Australia, new borrower-accepted home loan commitments fell -6.6% from August, but for the year they are up +34% and so remains very strong. In fact, investor lending is continuing to grow and is now at a six-year high.

And Aussie house prices have surged at the fastest pace in more than three decades, but looming lending restrictions are expected to slow the breakneck speed of growth in the months ahead.

Staying in Australia, there has been an explosion of Delta cases in Victoria with 1143 cases reported there yesterday and more than 10,000 active cases in the state. In NSW there were another 864 new community cases in NSW reported yesterday with another 645 not assigned to known clusters. They now have 9,841 active locally acquired cases which is lower, but they had a record high 15 daily death toll yesterday. Queensland is now reporting two new cases. The ACT has 52 new cases. Overall in Australia, more than 54% of eligible Aussies are fully vaccinated, plus 24% have now had one shot so far.

In equity markets, Wall Street is ending their week firmer with the S&P500 up +0.6% in its final Friday afternoon session and limiting its weekly loss to -2.2%. Overnight, European markets were mostly negative, with London down -0.8% but Paris ended its day largely unchanged. Yesterday the very large Tokyo market dived -2.3% on the day and ended their week with a very sharp -5.0% loss. Shanghai and Hong Kong were both closed for their week-long national holiday and will reopen next Friday. The ASX200 gave up all of its strong Thursday rise and more, falling -2.0% on Friday to cap a -2.1% weekly retreat, and losing nearly as much in a day as it did in all of September. The NZX50 Capital Index didn't suffer the same sinking feeling, ending flat on Friday, for a weekly gain of +0.2%.

The UST 10yr yield opens today at just over 1.48% and down -5 bps from this time yesterday and nearing the levels of a week ago. The US 2-10 rate curve is marginally flatter at +121 bps. Their 1-5 curve is a much flatter at +86 bps, while their 3m-10 year curve is much flatter too at +139 bps. The Australian Govt ten year benchmark rate is unchanged at 1.49%. The China Govt ten year bond is at 2.89% and also unchanged. And the New Zealand Govt ten year is now at 2.02% and up +1 bps since this time yesterday but that locks in a weekly rise of +13 bps.

The price of gold will start today little-changed, up just +US$1 at US$1760/oz. But that is a +US$13 rise in a week.

And oil prices marginally softer overnight, down -50 USc to just under US$75.50/bbl in the US, while the international Brent price is just under US$79/bbl.

The Kiwi dollar opens today +½c firmer at just on 69.4 USc, which pegs back the weekly retreat to -70 bps. Against the Australian dollar we are unchanged at just on 95.5 AUc. Against the euro we up +40 bps to 59.9 euro cents and back to week-ago levels. That means our TWI-5 starts today at 73.1, and back at the middle of the 72-74 range of the past eleven months.

The bitcoin price is sharply higher since this time yesterday, up more than +10% to be now at US$47,496. That is also +13% higher in a week and it is now back above its 200-day moving average. Volatility in the past 24 hours has been extreme at just over +/- 5.7%.

The easiest place to stay up with event risk today is by following our Economic Calendar here ».