Gears crunched in downshift global 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 the global economy seems to be settling back into a low growth phase on the back of the sharp rise in policy uncertainty in the US.

But first, in the week ahead we will get our December trade balance update and data on building permits for January. And the first of the quarterly data sets building for our March 19 GDP result for Q4-2024 will come in, this one recording the construction work completed in the quarter. All relatively minor. There will also be another full dairy auction on Wednesday.

Internationally the week will end with the US non-farm payrolls report for the US, for February (where a modest gain of +133,000 is now expected), more US PMI data plus factory order data. Tariff action may well overshadow these however. In Europe it will be all about their ECB decisions (expect a -25 bps rate cut), and inflation updates. Australia will release Q4-2024 GDP results, and trade balance data, as will Canada and China.

Over the weekend China released its February PMI data and it was not negative. Their official factory PMI shifted back to a very minor expansion (although that is probably being generous). Their services sector is also officially expanding, also minor.

And minor as well was the rise in South Korean exports, much less than expected in February. This came off the back of the unexpected January slump, one that was deeper than first reported. Although South Korean export growth been generally trending lower for about a year now, so have their imports, and that allowed them to report their second highest current account surplus ever.

India reported Q4-2024 GDP results and those came in at a +6.2% rate, better than the +5.6% in Q3, but just missing analyst estimates of +6.3%.

In the US, the widely watched PCE inflation level came in at 2.5% for January, down from 2.6% in December, and back to November's level. (The US CPI rate for January was 3.0%.) From a year ago, personal disposable incomes were up +1.8% and personal expenditures up +3.0%, so this isn't tracking in a favourable direction now. People will notice that and take household budget actions, such as increasing debt or cutting spending. When uncertainty levels are high, spending cutbacks are the more likely.

The sharp jerk in trade policy direction has brought sharp changes in American commercial behaviour. First there was a large spike in imports, up 12%, driving their merchandise trade deficit to a mammoth -$US$153 bln in January. That is an all-time record and by a country mile.

Secondly, American wholesale inventories jumped in January, especially for consumer goods which were up +2.1% from a year ago. Retail inventories rose even faster, up +5.1%.

The Chicago PMI, which was in deep contraction over the December/January period recovered in February, but it is still contracting, just less so.

The Trump administration designated importing timber a "national security issue" justifying new tariffs. They also said XRP (Ripple), SOL (Solana), and ADA (Cardano) would be in their new US crypto strategic reserve, jumping the prices of almost all cryptos including bitcoin (and their own personal wealth).

North of the border, the good Canadian data continues. This time it is their Q4-2024 GDP growth rate, up +2.6% from a year ago, better than the Q3-2024 growth of +2.2%, and much better than the expected Q4 rate of +1.9%. Driving the rise was rising household spending, rising exports, and rising business investment. Of course, things for Q1-2025 are much more uncertain, although it will be interesting to see the echo of the 'Buy Canadian, Bye Americans' movement on their GDP. Perhaps it may give a Q1 fillip?

Global air travel is rising fast. International passenger travel rose +12.4% in January from the same month in 2024. That makes it an all-time high, eclipsing pre-pandemic levels. Asia/Pacific travel rose more than +20%.

Meanwhile air cargo traffic rose +3.2% on the same basis, although up +7.5% in the Asia/Pacific region.

We should probably note that the coal price has fallen to a four year low, and back to prices it first achieved in 2016. And not only are oil prices lower, there are falls too for zinc, lead and nickel too, all core indicators of global factory demand. Lithium is also having trouble getting back up off the canvas.

The UST 10yr yield is at 4.20%, down -3 bps from Saturday at this time, down -22 bps for the week as risk aversion takes hold.

The price of gold will start today at just under US$2857/oz and up +US$12 from Saturday. A week ago it was at US$2938/oz so a -US$81 drop since then.

Oil prices are little-changed, still just under US$70/bbl in the US but the international Brent price is still just under US$73/bbl. Both prices are -US$1 lower than a week ago.

The Kiwi dollar is now at 55.9 USc and down -10 bps from Saturday. That is a -160 bps drop in a week. Against the Aussie however we are still little-changed at 90.2 AUc. Against the euro we are also little-changed at 53.9 euro cents. That all means our TWI-5 starts today just on 66.2, unchanged from Saturday, down -100 bps for the week.

The bitcoin price started today at US$91,401 and up a net +9.2% from this time Saturday on the US crypto reserve news. Volatility over the past 24 hours has been high at +/- 3.6%.

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.