Breakfast briefing: US powers on driving global economy
Here’s our summary of key economic events overnight that affect New Zealand, with news our meat exports to China face tough conditions, and not just from competition from excess Aussie lamb supply.
But first, US mortgage applications rose +3.3% last week even as benchmark mortgage interest rates rose to 7.13% plus points and a four month high. (A month ago it was at 6.84%.) But to be fair, the recent shift higher in application levels is still -10% lower than the same weak week a year ago,so last week’s rise is hardly significant.
Today’s UST 20yr bond auction was another success with the usual excess demand. But just like the mortgage market, the median yield rose again to 4.77%, up from the prior equivalent event a month ago at 4.50%. It seems investors are prepared to accept a lesser rise than they want from home loan rates.
Despite these rising interest rate levels, the Fed’s Beige Book survey paints a picture of a moderate and broad expansion in recent activity in the country, consistent with other recent data. They said overall economic activity expanded slightly since late February. Ten out of twelve Districts experienced either slight or modest economic growth, up from eight in the previous report, while the other two reported no changes in activity. They still found an expanding labour market, and the economic outlook among contacts was cautiously optimistic, they reported.
While most blue-chip professional economists think the US economy is expanding at about a +2% rate, the Atlanta Fed’s GDPNow model ingesting current rate thinks it is much faster than that, near +3%. It is an expansion that is driving the global economy, including that of its rivals like China.
And Japan is on a roll, despite their currency issue angst (in USD terms). Their exports rose by +7.3% in March, following a +7.8% rise in February. It was the fourth straight month of increase for them.
In China, meat prices – especially pork prices – are in an extended slump. Pork accounts for almost two thirds of Chinese meat sales and you will recall prices hit a peak in October 2022. But it has been all downhill since, dropping -40% and putting producers at increased bankruptcy risk. It is a crisis that has national attention, even international attention because feed grain imports are falling. Soybean prices are down -23% from a year ago. It is tough for beef and sheepmeats to compete with pork in China at present.
The British released their March inflation rate overnight and it eased to 3.2% from 3.4% in February. But remained slightly above the market expectation of 3.1%. It was their lowest rate since September 2021, primarily driven by a slowdown in food prices.
The UST 10yr yield is now at 4.59% and down -7 bps from yesterday. The key 2-10 yield curve inversion is still at -34 bps. But their 1-5 curve inversion is more at -56 bps. Their 3 mth-10yr curve inversion out to -81 bps. The Australian 10 year bond yield is now at 4.37% and down -3 bps. The China 10 year bond rate is unchanged at 2.28% and still its lowest level since at least 2002. The NZ Government 10 year bond rate is now at 5.03% and up another +7 bps from yesterday.
Wall Street is lower on the S&P500 in their Wednesday trade by -0.5%. Overnight European markets were firmer bookended by Paris’s +0.6% and Frankfurt’s +0.1%. Yesterday Tokyo ended up +1.3%. Hong Kong was unchanged at the end. But Shanghai rose a strong +2.1%. Singapore ended +0.2% firmer. The ASX200 ended its Wednesday session down -0.1% while the NZX50 actually rose +0.6%.
The price of gold will start today lower by -US$22 from this time yesterday at US$2372/oz.
Despite continuing Middle East tensions and uncertainties, oil prices have dropped a sharpish -US$2.50 to just on US$82.50/bbl in the US while the international Brent price is down at US$87/bbl. Rising US crude stocks as their economy gains energy efficiency is behind the shift lower for oil.
The Kiwi dollar starts today at just over 59.1 USc and back up +30 bps from yesterday. Against the Aussie we are firmish at 91.9 AUc. Against the euro we are also firmish at 55.5 euro cents. That all means our TWI-5 starts today just on 69 and back up +20 bps.
The bitcoin price starts today lower at US$61,348 and down -1.6% from this time yesterday. Volatility over the past 24 hours has been very high at just under +/- 4.0%.
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