Weekend briefing; Equity investors show some positivity

Weekend briefing; Equity investors show some positivity

Updated: 4 months, 24 days, 11 hours, 31 minutes, 31 seconds ago

Here's our summary of key economic events overnight that affect New Zealand, with news equity investors like what they see in most global economies - except China.

Following the first positive estimate of US Q3 GDP growth, the follow up PCE inflation rate has been released and it is unchanged at 6.2%. The same data shows consumer spending remained 'robust', growing at a +7.2% rate and above the related inflation level. Personal incomes rose at an annual rate of +5%. Perhaps more important that the monthly September numbers are that none of these metrics seems to be falling away. And they were 'better' than analyst expectations. Wall Street liked what it saw, more or less validating Janet Yellen's recent comments.

The next Fed meeting is coming up next week on Thursday, November 3 (NZT). Markets have priced in a +75 bps hike then taking its policy rate to 3.75% and expect it to rise to 5% from there through to mid-2023. After that, the October non-farm payrolls report will be released in a week, and markets now expect a modest +220,000 gain in payrolls and little change in the low jobless rate. Full employment there seems unchallenged at this time.

But not all Americans appreciate the current focus on tackling inflation. Pending home sales were down a massive -10% in September from August, and down more than -30% from a year ago.

And another sentiment survey, this one from the University of Michigan, remains very low even if it did inch up in October and confirming the earlier 'flash' result.

Perhaps online sales are peaking out; Amazon is warning that this upcoming holiday season sales may be lackluster.

Across the Atlantic, EU business and consumer sentiment remains very low too - for completely understandable reasons.

And markets believe the ECB is about to turn dovish too, to support a flagging region and downgrade the inflation fight.

German inflation is getting worse however. The latest 'harmonised' reading has it at an eye-popping +11.6% pa in October, driven by energy costs up +43% and food costs up +20% in a year. But the costs of the Russian invasion seem to have made Germans more hostile to Russia. Their President, who comes from a wing of Germany's Social Democrats that long argued for closer economic ties to Moscow, said Russia's invasion had brought "a change in era".

Germany is living with the stresses, and even managing to grow their economy in real terms despite the extreme pressure.

The EU struck a deal on a law to effectively ban the sale of new petrol and diesel cars from 2035, aiming to speed up the switch to electric vehicles and combat climate change.

The Bank of Japan kept ultra-low interest rates and maintained its dovish guidance as recession fears dampen prospects for a solid recovery in Japan, cementing its status as an outlier among global central banks who are mostly tightening monetary policy.

Meanwhile, Japan unveiled an economic package worth about US$200 bln to cushion their "high inflation" as households and some businesses struggle under the impact of a weak yen.

In China, almost 20% of the members of the American Chamber of Commerce in Shanghai said they were decreasing their exposure to China. This survey was carried out before the CCP Congress changes were known.

And some key commodity prices sank rather sharply overnight. That included iron ore, zinc, and steel.

The UST 10yr yield starts today up +5 bps from yesterday at 4.01% but down -21 bps in a week. The UST 2-10 rate curve is still inverted at -39 bps. Their 1-5 curve is inverted and at -41 bps. And their 30 day-10yr curve is flatter at +36 bps. The Australian ten year bond is little-changed at 3.80%. The China Govt ten year bond is down another -2 bps at 2.69%. And the New Zealand Govt ten year will start today down another -4 bps at 4.34%. A week ago it was at 4.69% so a -35 bps fall since then.

Wall Street ending its Friday session with the S&P500 up a strong +2.1%. So it is heading for a good 3.4% weekly gain. Overnight, European markets ranged from down -0.4% (London) to up +0.5% (Paris). Yesterday, Tokyo fell -0.9% tipping them into a -0.5% dip for the week. Hong Kong is really taking it on the chin with an ugly -3.7% drop on Friday to cap a loss of -6.5% for the week. Shanghai was bad too, falling -2.3% yesterday and -3.9% for the week. Foreign investors (and a few locals) are fleeing following the hardline CCP leadership change. The ASX200 fell -0.9% yesterday to limit their weekly gain to +1.6%. Australian firms are very exposed to China's economic health plus the frostier East/West relations. The NZX50 rose +0.3% yesterday to book a +2.8% weekly gain, and a +3.2% rise in capitalisation. New Zealand listed companies are far less exposed to the China risk.

The price of gold will open today at US$1642/oz. This is down -US$17 from this time yesterday and down -US$12 in a week.

And oil prices start today -US$2 lower than this time yesterday at just on US$87/bbl in the US while the international Brent price is just over US$93/bbl. A week ago these prices were US$84.50/bbl and US$91.50/bbl respectively. Exxon Mobil smashed profit expectations as these high prices fueled a record-breaking quarterly profit, so outrageously high they nearly matched those of tech giant Apple.

The Kiwi dollar will open today at 58 USc and lower than this time yesterday. A week ago it was at 57.6 USc. Against the Australian dollar we are firm at 90.5 AUc. Against the euro we are soft at 58.3 euro cents. That all means our TWI-5 starts today at 68.3, and down -20 bps from yesterday but up +20 bps from a week ago .

The bitcoin price is now at US$20,698 and up +0.6% from this time yesterday. And it is up +7.7% from this time last week. Volatility over the past 24 hours has been modest at just on +/- 1.8%.

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