Markets yet to acknowledge toxic risks

Kia ora,

Welcome to Wednesday’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 US faces a federal government shutdown as markets start to realise Trump has no problem being reckless and has no problem hurting his 'friends'..

But first, there was another Pulse dairy auction overnight. And that brought marginally weaker prices for both SMP and WMP, down a bit less than -0.5% in USD terms. In fact these prices are now at their lowest level of 2025. But because the NZD is falling, the prices achieved actually rose about the same amount in local currency.

In the US, the number of job openings in August were virtually unchanged from July at 7.2 mln as was expected.

But the Chicago PMI fell again in September, well below market expectations that it would improve. And the dip was sharp, the most in three months.

Also weaker was the Dallas Fed services sector with their retail sector retreating rather fast in an unusual move lower.

Adding to the downbeat sentiment was the September report from the Conference Board showing consumers are glummer than at any time since the start of the year. A common theme in the survey responses is the impact of rising inflation.

And the downbeat sentiment may well get worse, and quickly. The White House seems to relish a full government shutdown to start their fiscal year tomorrow with mass firings rather than furloughs. And Trump says some American cities he considers dangerous should become training grounds for American troops, proposing 'his' troops be used to fight other Americans in their home cities. It is getting toxic very fast there.

For their economy, there is a real possibility now that this weekend's non-farm payrolls release will be cancelled because the department releasing it will be closed. If that turns out to be the case, it could mask some quite weak results. Analysts now expect less than a +50,000 gain.

Financial markets are downplaying the risks of all this, mainly because there have been many 'shutdown' crises over the decades. But at least the earlier ones involved parties prepared to reach a deal. Maybe not this time.

Across the Pacific in China, their official factory PMI contracted again. But even though it is the sixth straight monthly contraction, the pace of decline was the least in that time. (Their factory PMI rose in February and March, but only by marginal levels.) Their official services PMI for September is no longer expanding. These official PMIs have been more conservative than the private surveys (RatingDog, ex Caixin) probably because they have a heavier weighting to Chinese SOEs. The private ones are more attuned to private and foreign enterprises, surveyed by S&P Global, and they report a faster expanding factory sector, and solidly expanding services sector.

Meanwhile, China has frozen imports of BHP iron ore in a pricing dispute. BHP is their third largest supplier after Rio Tinto and Brazil's Vale.

Taiwanese consumer sentiment rose in September, but to be fair the bar is low because it has been stunted since May.

In Europe, Germany said their CPI inflation edged up to 2.4% in September, marginally above the August level. But ist was a rise that was slightly more than expected.

In Australia, there were no surprises from their central bank which held its cash rate target at 3.6%. But even though this hold was all priced in, there was some surprising reaction in financial markets. Somehow the decision was regarded as 'hawkish' and the AUD rose and benchmark bond interest rates fell on the news. The strong currency remained although the bond move was later reversed. 

Air cargo volumes in August grew +4.1% globally, driven by a near +10% rise from a year ago in the Asia/Pacific region. But notably, North American air cargo volumes fell -2.1% on the same basis in August, the weakest global region. And the pattern was similar for passenger travel. Asia/Pacific and Latin America brought strong growth, underpinning a +4.6% expansion, but North America lagged here too, only up +0.5% from a year ago.

The UST 10yr yield is still at 4.14%, unchanged from yesterday.

The price of gold will start today at US$3846/oz, up +US$16 from yesterday and a new all-time high. Silver is -50 USc softer however.

American oil prices are down another -50 USc at just over US$62.50/bbl, with the international Brent price now just under US$66.50/bbl and down more than -US$1.

The Kiwi dollar is at just on 58 USc and up +20 bps from yesterday. Against the Aussie however we are down -30 bps at 87.6 AUc and a new three year low. Against the euro we are little-changed at 49.4 euro cents. That all means our TWI-5 starts today at just on 65.1, and unchanged.

The bitcoin price starts today at US$112,876 and down -0.8% from yesterday. Volatility over the past 24 hours has been low at just on +/- 0.9%.

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.