Will the US Fed "go big"? And the RBNZ follow?

Economy Watch

Kia ora,

Welcome to Tuesday’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 financial markets are now expecting a -50 bps rate cut from the US Fed later in the week.

But first up in the US, the next regional factory survey came in surprisingly strong. The NY Empire State Manufacturing Index unexpectedly jumped sharply in September to its highest since April 2022. A key driver was new order growth.

Also coming in better than expected was Canada's July manufacturing levels. Oil and coal production drove that. Also probably helping was an unexpected rise in Canadian vehicle sales. But that monthly gain only limited the retreat from a year ago to -1.1%.

As regular readers will know, Canada has had longstanding housing affordability issues. Today it loosened some eligibility rules for first-home buyer access to 'insured mortgages'. But this is a demand side move. So these changes are likely to have the unintended consequence of adding more competitive pressures to already stressed markets.

In China, the typhoon that hit Shanghai yesterday has come at a tricky time for China and its financial capital. Delayed and cancelled transport connections will have undermined their Mid Autumn Festival holiday spending in the region.

In Australia, the ASX200 closed at an all-time high yesterday, fueled by bets the US Fed would cut interest rates by -50 bps on Thursday (NZT).

But the same financial market 'bets' are pushing the USD lower, along with benchmark interest rates. Falling rates are having a global effect, except perhaps in Australia where there is widespread acknowledgement that the RBA hasn't tamed inflation yet. But they may be able to hold on with unchanged policy rates as the gap with others widens over the next few months.

Interestingly, financial markets are also betting heavier that the next RBNZ rate change, on October 9, will also be -50 bps.

The UST 10yr yield is now at just on 3.63% and down -3 bps from this time yesterday.

The price of gold will start today at US$2581/oz and up +US$3 from yesterday's high.

Oil prices are up +US$2 at US$70.50/bbl in the US while the international Brent price is now just under US$73/bbl.

The Kiwi dollar starts today at 61.9 USc and up +30 bps from yesterday. Against the Aussie we unchanged at 91.8 AUc. Against the euro we are up +10 bps at 55.7 euro cents. That all means our TWI-5 starts today at 69.5, and up +20 bps from yesterday.

The bitcoin price starts today at US$57,987 and down -3.0% from this time yesterday. Volatility over the past 24 hours has been moderate at just on +/- 2.3%.

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.