Inflation up, jobs down. The US Fed has to choose a policy direction

Kia ora,

Welcome to Monday’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 fighting inflation may well be a downgraded objective in the face of political pressure. The consequences could be long-lasting and global.

For financial markets, this week will be all about the US Fed's Thursday rate decision where now a -25 bps cut is widely anticipated, to try and weigh against the softening US labour market. The same day the Canadians will review their policy rate too where a similar -25 bps cuts is expected.

And there will be central bank reviews in Japan this week (no change), Indonesia (no change), England (no change), and Brazil this week too.

China will also review its key rates and no change is expected there either. And China will release a lot of August economic data too, including FDI data.

Australia will release its August labour market update and a modest +25,000 rise in employment is anticipated. Our balance of payments data will be released on Wednesday (expect a larger deficit), and Q2-2025 GDP will be released on Thursday (expect a decline). And before that we will get the August REINZ data and a full dairy auction.

But back in the US, the pessimistic turn continues. The widely-watched University of Michigan consumer sentiment survey delivered downbeat results in September, sharply lower from August and well below what analysts had expected. They had expected a turn lower but not by this much. Declines were strongest among lower- and middle-income households because concerns grew over business conditions, jobs, and inflation. Both short and long term sentiment fell back. This index is more than -20% lower than year-ago levels.

Meanwhile, year-ahead inflation expectations held steady at 4.8% while the five-year expectations moved up for the second straight month to 3.9% from 3.5%.

Canadian building consents were unchanged in July from June but down -8.2% from a year ago. But most of this was due to non-residential work; residential consents were up, especially in Toronto.

We should probably note that there are trade talks going on in Madrid between the US and China.

In China, August data for new yuan loans came in well below what was expected although expectations weren't high. It was the lowest amount of bank debt for an August since 2011, extending the current period of weak credit demand amid the weakening consumer debt demand and the prolonged crisis for housing. The debt appetite dropped despite central bank efforts to loosen monetary conditions and stimulate borrowing.

In India, consumer inflation rose, as expected, but only to 2.1% and ending a ten month period where it fell consistently from 6.2% to 1.6% in July. Food prices were little-changed and had no effect on the overall result.

In France, Fitch has downgraded their credit rating to A+ from AA- on Friday, citing political turmoil and rising debt.

We should probably note that copper prices are basically back to levels they were at five years ago, which is double what they were ten years ago. At current production levels the USGS estimates that existing mines will be able to operate for the next forty years, and proven resources will last about 200 years. (But there are expected to be much larger resources yet to be discovered.) We will look at some aspect core mineral resources weekly, going forward. (H/T PDK)

The UST 10yr yield is now at 4.06%, little-changed from Saturday.

The price of gold will start today at US$3,641/oz, down -US$7 from Saturday. That is up +US$48 from a week ago. Silver had another spurt, now up over US$42/oz.

American oil prices are unchanged at just on US$62.50/bbl, with the international Brent price firmish just under US$67/bbl, both up +US$1 for the week.

The Kiwi dollar is at just under 59.6 USc and unchanged from Saturday but up +70 bps from a week ago. Against the Aussie we are also unchanged at 89.6 AUc. Against the euro we are holding at 50.8 euro cents. That all means our TWI-5 starts today at just over 66.7, little-changed from Saturday but up +50 bps for the week.

The bitcoin price starts today at US$115,666 and down -0.6% from this time Saturday. Volatility over the past 24 hours has been very low at just on +/- 0.4%.

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.