American instability takes another turn

foreign investors, both friends an foes, are quitting their exposure to the new Russified US.

But first up, the Redbook tracking of American retail sales shows they were up +6.3% last week from the same week a year go. This is a heady gain outside the seasonal shopping windows. Buyers may be trying to insulate themselves ahead of the inflation that will flow from impending tariffs. Last week's gain was twice what it was a year ago, and also higher than the same week two years ago. Some of this defensive "doom spending" is being done with higher credit card debt.

They aren't spending on new housing. American housing starts slumped -9.8% in January from the prior month and are also lower year-on-year. The rise we noted in December was an outlier over the past year, not sustained.

And they aren't spending on switching houses either. Mortgage applications fell by -6.6% last week from the previous week, the sharpest decline so far this year. Mortgage interest rates are staying close to the 7% mark - plus there is rising uncertainty over the future status of Fannie Mae and Freddie Mac. The new Administration wants to sell these two mortgage infrastructure behemoths to their billionaire supporters. Borrowers supported by such loans, common in the US, may be facinging an unwelcome future surprise. American 30 year fixed mortgages, only possible because of Fannie Mae and Freddie Mac, have an uncertain future.

There was a well-supported, but relatively small US Treasury 20 year bond auction earlier today and that brought a yield of 4.77%, down -9 bps from the median yield of 4.86% at the equivalent auction a month ago.

Foreign holdings of US Treasury paper is falling. December data was released overnight, showing total holdings are now US$8.5 tln, down from US$8.6 tln just before the election. Japan, the largest holder and only one holding more than US$1 tln, cut its exposure -5% from a year ago. China cut theirs -7% to its lowest level in more than 15 years.

And the more the US President talks up Russian propaganda points, the more unstable this is likely to become. The locals are worried.

Across the Pacific, Japan's core machinery orders fell -1.2% month-on-month in December, the worst reading in four months. The latest reading also reversed from a +3.4% rise in November. Markets had expected a slight +0.1% gain.

China’s new house prices in 70 cities fell -5.0% year-on-year in January, but that was an easing from a -5.3% drop in the previous month. It was also the smallest decline since last July. But prices in icon cities like Beijing are falling faster now. However Shanghai was an exception with prices there rising.

In Indonesia, as expected their central bank kept its policy rate unchanged at 5.75%. Inflation is under control there (under 1%) and their currency is stable, still at the same level it was in mid 2024.

In the UK, inflation is rising, hitting 3.0% in January, up from 2.5% in December in a jump that wasn't expected. A year ago it ran at 4.0%, so a fall from then.

The UST 10yr yield is at 4.56%, up +2 bps from yesterday at this time. The key 2-10 yield curve is steeper at +26 bps. Their 1-5 curve is steeper at +16 bps. And their 3 mth-10yr curve is also steeper at +23 bps. The Australian 10 year bond yield starts today over 4.58% and up +3 bps from yesterday. The China 10 year bond rate is now at 1.69% and down -1 bp. The NZ Government 10 year bond rate is now over 4.69%, up another +3 bps from yesterday.

Wall Street is marginally lower in its Wednesday trade. Overnight European markets all fell ranging from Frankfurt's -1.8% to London's -0.6%. Tokyo ended its Wednesday trade down -0.3%. Hong Kong was down -0.1%. Shanghai however rose +0.8%. Singapore ended up +0.2%. The ASX200 ended its Wednesday trade down another -0.7%, whereas the NZX50 ended down only -0.1%.

The price of gold will start today at just under US$2928/oz and down -US$3 from yesterday.

Oil prices are up +US$1 at just over US$72.50/bbl in the US and the international Brent price is now at US$76.50/bbl.

The Kiwi dollar is now at 57.1 USc and up +10 bps from yesterday. Against the Aussie we are also up +10 bps at 89.9 AUc. Against the euro we are up +20 bps at 54.8 euro cents. That all means our TWI-5 starts today just over 67.2, and up +30 bps from this time yesterday, also partly helped by a gain against the yen.

The bitcoin price starts today at US$96,136 and up +1.4% from this time yesterday. Volatility over the past 24 hours has been modest at +/- 1.8%.