The major economies separate into two growth blocks

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 the global expansion seems to be getting more uneven.

In the US, the good economic data keeps on coming. They reported a healthy PMI expansion in September, driven primarily by their service sector which is now expanding its fastest since March 2022.

And the Chicago Fed's National Activity Index surprised with an unexpected gain in August.

And because there is now less than a week until the end of Q3-2024, the estimates now see an expanding economy rising at between a +2 and +3% rate 'real', and keeping up the pace of expansion that shows no sign of slacking. On a 'real', inflation-adjusted basis, the Trump economy grew +2.8% in his four year term. On the same 'real' basis the Biden economy has grown just on +10% during his 3½ years so far.

So it may seem a bit odd that the heads of the regional Fed banks in Chicago, Minneapolis, and Atlanta all said, at a conference yesterday, they recommend more rate cuts.

India's economy is still expanding fast in September, according to the same PMI survey results. However, the pace isn't quite as fast as they had in August.

Singapore said its August inflation rate fell to 2.2% in August from 2.4% in the prior two months, matching market forecasts and notching the lowest level since April 2021, as food prices stayed at their lowest in over two years.

China's September PMIs aren't released until next week. But they may not be great.

China's car dealers are pleading for government help as demand softens fast.

So in China yesterday, their central bank unexpectedly lowered the 14-day reverse repurchase rate by -10 bps to 1.85% yesterday. They also injected ¥75 bln in liquidity into the banking system. And they pumped in up to another ¥160 bln via 7-day reverse repos, but kept the rate unchanged at 1.7%.

And in another unusual step, their central bank said its boss will give a unique briefing later today on "financial support for economic development".

Also not great were EU PMIs. Their service sector is still expanding, but not as fast and service activity is now at a 7 month low. Their factory sector is actually contracting and at a nine month low. Leading them down is Germany.

The flash Australia Manufacturing PMI fell further into contraction in September, an eighth consecutive month of contraction in manufacturing activity and at the fastest drop since May 2020. New orders and production also fell at the quickest pace in 52 months amid softening demand conditions. Their service sector expansion has almost evaporated, according to this same survey.

And staying in Australia, their competition regulator is taking on the two dominant and giant supermarket chains (Coles & Woolworths), alleging that ‘Prices Dropped’ and ‘Down Down’ claims and the like are actually misleading.

The UST 10yr yield is now at just on 3.75% and up +2 bps from yesterday.

The price of gold will start today at US$2628/oz and up +US$7 from yesterday to a new all-time high again.

Oil prices have dipped -50 bps to US$70.50/bbl in the US while the international Brent price is now just under US$74/bbl.

The Kiwi dollar starts today at 62.8 USc and up +40 bps from this time yesterday and near its highest of the year. Against the Aussie we are unchanged at 91.6 AUc. Against the euro we are up +½c at 56.4 euro cents. That all means our TWI-5 starts today at 70.2, and up +30 bps from yesterday.

The bitcoin price starts today at US$63,245 and +0.3% from this time Saturday. Volatility over the past 24 hours has been modest at just on +/- 1.8%.

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.