Information breakfast; Global rush to raise policy rates, following the US Fed

Here is our summary of the key economic events overnight affecting New Zealand, with news that central banks around the world are racing to raise rates in a concerted effort to crush inflation. The cost may be growth and jobs, but runaway inflation appears to be a greater long-term risk.

But first, Unemployment insurance claims in the United States have increased last week at +178,000 but this level is still very low by historical standards. There is no sign that their tight labor market is easing. There are still less than 1.3 million people who receive these benefits and the insured unemployment rate is a mere 0.9%.

The American checking account for Q2-2022 was about as expected, with a deficit of -$251 billion. It’s not good, and these huge quarterly deficits started in 2020 and haven’t stopped. Disastrous policymaking is driving this ugly trend and although Q2-2022 was an improvement from Q1, it still came in at -4% of GDP. Recovering from crazy politics is not easy as they find out. (New Zealand’s current account deficit is -7.7% and that’s not good either.*)

The latest regional factory survey, this one from the Kansas City Fed, reported slow expansion, but businesses continued to hire staff and were moderately optimistic about growth in the months ahead.

But with mortgage rates reach 6.29%, the US housing market is hesitant and ready for a substantial decline, it seems. The chance to reset to improve affordability is before them. Rents may also have skyrocketed.

The Bank of Japan met yesterday and maintained its ultra-accommodative monetary policies. But the Japanese government had to intervene to support the yen for the first time since 1998 after the currency extended its losses to fresh 24-year lows. The divergence between monetary policies in Japan and the United States has widened further, adding to political stress. The Bank of Japan kept its main short-term interest rate unchanged at -0.1% as Governor Kuroda said the central bank would not raise interest rates anytime soon.

The Taiwanese central bank also met and raised its key rate to 1.625% from 1.5%. This is a modest increase in the face of slowing economic expansion.

Hong Kong did not experience inflation in August from July and very weak local economic activity, and the annual rate remained at 1.9% – almost all of which occurred in October 2021 and is therefore on the verge of leaving the index.

Indonesia has raised its policy rate +0.5% yesterday as they begin to experience inflation at levels too high for them and now standing at +6%. This brought their key rate to 4.25%.

Norway also raised its policy rate from +50 bps to 2.25%. They have an inflation rate of 6.5%. Switzerland raised its own by +75 basis points to 0.50% and get them out of a negative key rate for the first time since 2015 and their highest rate since 2009. Swiss inflation is now 3.5%.

The The Bank of England joins the queue unanimously raising their rate by +50 bps as well, to 2.25%. Their inflation rate is currently 9.9%. They also said the UK may already be in recession.

EU consumer confidence has plummeted further in August to a new all-time low since the start of this series in 2007.

Container shipping costs have dropped -10% in the past week alone because the demand in the sector is deflating very quickly now. But the same is not true for oil tankers; the cost to them has doubled over the past month. And dry bulk freight rate rise again.

The 10-year UST yield starts today at 3.70% and is up +19 basis points from the same time yesterday. It is now its highest since 2010. The UST 2-10 yield curve is less inverted at -42 bps. Their 1-5 curve is much less inverted at -19 bps. And their 30-day-10-year curve steepened further to +120 basis points. The Australian 10-year bond is up sharply, +16 bps to 3.85%. The 10-year Chinese government bond is little changed at 2.69%. And the New Zealand 10-year government will start today at 4.03%, down -2 basis points from the same time yesterday, but likely to rise later if US rates hold.

In Thursday’s trading on Wall Street, the S&P500 is down -0.7% as the revaluation of stocks continues. European overnight markets all closed down around -1.8%. Yesterday Tokyo ended down -0.6%, Hong Kong closed down -1.6% and Shanghai closed down -0.3%. The ASX200 was closed for a holiday and the NZX50 ended up +0.2%.

The price of gold will open today at US$1672/oz. This is down -12 USD from the same time yesterday.

And oil prices today start up +50 USc from yesterday at just under 83.50 USD/bbl in the US, while the international price of Brent is now slightly above 89.50 USD/bbl.

The Kiwi Dollar will open today at just 58.5 USc and more than -½ lower than this time yesterday as Fed signals take hold. Against the Australian dollar, we are slightly softer at just AUc 88 and its lowest in seven years. Against the euro, we are changing little at 59.4 euro cents. All of this means that our TWI-5 starts today at 68.4 and drops -40 basis points.

Bitcoin price is now at US$19,071 and down -1.8% from the same time yesterday. Volatility over the past 24 hours has been very high at just +/- 4.5%.

(Update: An earlier version of this article erroneously stated that New Zealand’s current account deficit was -2.7% of GDP. In fact, it’s -7.7% of GDP.)

The easiest place to keep up to date with the risks of events today is to follow our economic calendar here.”

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