China's stimulus rally stumbles

Economy Watch

Kia ora,

Welcome to Thursday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.

I'm David Chaston and this is the international edition from Interest.co.nz.

Today we lead with news commodity prices go into reverse as the Chinese post-holiday rally stumbles after only a brief shine. It is an ominous sign.

But first in the US there was a sharp fall in mortgage applications last week, down -5.5% from the prior week. That was because interest rates moved sharply higher after the strong non-farm payrolls report. But current application levels are running +55% higher than a year ago.

Those higher interest rates also showed up in the latest (well supported) US Treasury bond auction, this one for their ten year bond. The median yield came in today at 4.01% and well above the 3.61% at the prior equivalent event a month ago.

Hurricane Milton is about to hit just south of Tampa and Florida more generally. Analysts say it could cause US$60 bln in insurance losses apart from the far greater uninsured damage. Milton and Helene may be trigger events for widespread change in the way insurance cover is offered. Risks are rising fast for those who underpin these coverages.

US Fed minutes for their September 19 (NZT) meeting were released earlier this morning and they show the Fed's -50 bps rate cut was well supported (page 9) and seen as a quicker way to align it with the progress on inflation and their labour market. It suggests this was a one-off move and future moves will be more 'regular'. Remember, the September CPI data for the US will be released tonight and it is expected to slip from 2.5% to 2.3%.

Japanese machine tool orders rose in September from the weak August level but they remain -6.5% lower than year-ago levels - which it should be noted were unusually high at the time.

Taiwanese inflation fell to near its lowest since the pandemic, down much more than expected to a 1.8% rate.

In India, their reserve bank also reviewed its policy rate yesterday and left it unchanged at 6.5%, as expected. They see their economic expansion continuing and inflation broadly in line with the midpoint of their target rate of 4%. Inflation is currently running at 3.65%. However, their commentary does open the door for the next move to be down, which would be their first rate cut since May 2020.

In China yesterday, the Shanghai stock market lost steam rapidly after the post-holiday euphoria. It was down -6.6% on the day as scepticism grew about what Beijing is doing - and not doing - to recover China's expansion mojo. It is a telling signal.

In Australia, they reported Q2 dwelling commencement data yesterday and it continues to retreat as apartment building remains especially weak. Of course, low supply coming onstream isn't helping housing affordability. Rent inflation is still running at over 7% there.

The UST 10yr yield is now at just on 4.07% and up +4 bps from yesterday.

The price of gold will start today at US$2609/oz and down -US$2 from this time yesterday.

Oil prices are -50 USc lower at just over US$72.50/bbl in the US while the international Brent price is now just over US$76/bbl.

The Kiwi dollar starts today at 60.6 USc and down -60 bps from this time yesterday. Against the Aussie we are also down -60 bps at 90.2 AUc. Against the euro we are down -40 bps at 55.4 euro cents. That all means our TWI-5 starts today now at 68.9, and down -50 bps from yesterday at this time.

The bitcoin price starts today at US$61,782 and down -1.1% from this time yesterday. Volatility over the past 24 hours has been low at just on +/- 0.7%.

You can find links to the articles mentioned today in our show notes.

You can get more news affecting the economy in New Zealand from interest.co.nz.

Kia ora. I'm David Chaston. And we will do this again tomorrow.