Rate cut revival in the US, dashed in Australia

Kia ora,

Welcome to Friday’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.

And today we lead with news that despite it rising to its highest since June - to +2.9% and fourth monthly increase - financial markets have concluded US inflation is under control and Fed rate cuts are imminent. The key benchmark rates are easing back now.

But first, although seasonal factors push up American jobless claims at this time of the year, they actually rose more than those factors can account for last week. On a seasonally adjusted basis, initial jobless claims rose last week to 217,000 and above expectations of 210,000 and well above the 11-month low touched in the first week of January. There are now 2.3 mln people drawing these benefits now and well above the 2.1 mln at this time last year.

US retail sales were up +3.9% in December from the same month a year ago, and the fourth consecutive month-on-month rise. That takes it to US$795 bln for the month, a new record high for any month.

Yesterday we noted the unusually large drop in the New York Empire State factory survey. Today we can note an unusually large rise in the Philly Fed factory survey, the outsized surge driven by new orders and the biggest jump since June 2020 and the pandemic distortions. Prior to that, it is the biggest one-month jump ever, taking the level to its highest since 1984 so a 40 year high.

In Canada, December housing starts came in at a disappointing level and undershooting the 2024 average.

The Bank of Korea unexpectedly held its key interest rate steady at 3% during its January 2025 meeting, defying market expectations of a -25 bps cut. This decision followed back-to-back rate cuts in previous meetings, made in response to a slowing economy, moderating inflation, decelerating household debt growth, and growing political uncertainty. The move also occurred against the backdrop of a weak currency.

In China, leading property developer during China's boom years, Country Garden has now taken a place among the largest money losers in the country and the world, marking another grim milestone in their real estate meltdown. They have finally just reported their 2023 loss as -¥174 bln (NZ$43 bln) - although to be fair that is 'minor' compared to the giant -¥476 loss (-NZ$115 bln) that Evergrande reported in 2021.

The December labour force data for Australia brought a +56,000 gain in jobs. But there was apparently a tough twist. +80,000 of these were part time, and full-time jobs shrank -24,000. But these are the seasonally-adjusted numbers. In actual fact, total new jobs (actual) were +119,000 with +72,000 full-time and +46,000 part-time. So on the ground there was actually no backsliding and many more people were actually in paid employment. Their jobless rate ticked up to 4.0% s.a. and 3.8% actual. The strength of this data has some doubting they will ever see an RBA rate cut.

And Australia said that in the year to October (their latest update), +161,000 permanent and long term people arrived into the country. That is +12.3% more that the same 2023 year. But another 149,300 citizens returned in the year, although that was more than -6% less that the year before.

Containerised freight rates slipped -3% last week with the heat right out of the China to USWC trade now that the new US Administration with its threatened tariffs is about to take office. Bulk cargo rates rose +8% in the week to be -22% lower than year-ago levels. They seem to be settling in at an historically low level.

The UST 10yr yield is now at just on 4.61%, and down another -5 bps from this time yesterday.

The price of gold will start today at US$2719/oz and up +US$31 from yesterday, and moving back toward its record high of US$2790 it reached at the end of October.

Oil prices are little-changed from yesterday at just under US$79/bbl in the US while the international Brent price is now just over US$81.

The Kiwi dollar starts today just on 56.2 USc and up +10 bps from this time yesterday. Against the Aussie we are unchanged at 90.3 AUc. Against the euro we are down -10 bps at 54.5 euro cents. That all means our TWI-5 starts today just on 66.9 and down -10 bps from yesterday.

The bitcoin price starts today at US$99,264 and up a mere +0.2% from this time yesterday. Volatility over the past 24 hours has been modest at +/- 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 on Monday.