Central banks stand back on looming trade chaos

Kia ora,

Welcome to Thursday’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 it’s a big day of data locally with our Q4-2024 GDP result out later this morning, preceded by the Fonterra half year result. Either may have market-moving implications.

But a few minutes ago, the US Fed released its latest monetary policy review and projections, the dot plot indications and forecasts, which suggest they see higher inflation in the year ahead (now 2.7% from 2.5% and a smaller economic expansion (1.7% from 2.1%). They also expect a higher jobless rate.

They see two rate cuts this year. Nine of the 19 policymakers expect it to be in the 3.75%-4.00% range by the end of 2025.

But at this meeting there was no policy rate change.

In contrast, the AtlantaFed's GDPNow tracking suggests the US economy is now contracting at a -1.8% rate. Apart from the pandemic period, that would be their worst since the GFC.

After two strong weeks of mortgage application growth, but mostly driven by refinance activity, last week there was a pull back with volumes falling -6.2%. But with the rise in US benchmark interest rates, and the consequent rise in the 30 year home loan rates (their first rise in nine weeks), perhaps this isn't much of a surprise. Still, overall activity is now +6% higher than year-ago levels.

Tariffs and tariff threats are raising prices for basic commodities. For example, American steel is up +27% just from February 7, 2025. There is no way that won't have an inflationary impact there. Thinks cars. Interestingly with international steel diverted, these costs will be lower elsewhere, so the core competitiveness of American-made products are probably going to weaken noticeably. Chinese steel prices are back to where they were in 2017.

Across the Pacific, Japanese exports rose +11.7% in February from the same month a year ago and this was the second best rise since December 2022 and much better than the +7.8% rise in February 2024. Still it wasn't quite as strong as expected.

Japanese machinery orders rose +19.8% in January from the same month a year ago (up to ¥3.27 bln from ¥2.73 bln in January 2024.)

The Bank of Japan kept its key short-term interest rate at around 0.5% during its March meeting, maintaining it at its highest level since 2008 and in line with market expectations. It was a unanimous decision and a cautious stance, focusing on assessing the impact of rising global economic risks on Japan’s fragile recovery. They noted ongoing uncertainties in the domestic economic outlook, including trade policies and global conditions.

The central bank of Indonesia held its benchmark interest rate at 5.75% during its March 2025 meeting, as expected. They have had only one -25 bps rate cut in 2025 which took their policy rate back to where it was for most of 2023. Recently their inflation rate fell to only +0.8%. And there was a sell-off on their stock exchange earlier in the week. So this 'hold' may be their last. The financial instability in Indonesia is a bit of a worry, especially for its neighbour, Australia.

In Turkey, their autocratic president is feeling increasingly vulnerable. He has moved against his main rival with trumped-up charges and the instability has caused the Turkish currency to dive - again. Inflation is running at 39% still but it is falling. And their central bank keeps cutting their policy rate, now down to 42.5%.

The World Meteorological Organisation's latest report, for 2024, is a sobering read. New Zealand may be situated in a climate sweet-spot but that isn't the case for almost all our trading partners. CO2 levels in the planet's atmosphere are now at an 800,000 year high. The future won't be like the past. The main way it will hit our pockets is through insurance costs.

The UST 10yr yield is now at 4.28%, up +1 bp from yesterday at this time.

The price of gold will start today at just on US$3034/oz and down a net -US$2 from yesterday.

Oil prices are up +50 USc from yesterday at just on US$67.50/bbl in the US and the international Brent price is at just over US$71/bbl.

The Kiwi dollar is now at 57.9 USc and down -30 bps from this time yesterday. Against the Aussie we are unchanged at 91.4 AUc. Against the euro we are also unchanged at 53.2 euro cents. That all means our TWI-5 starts today just on 67.2, and -10 bps softer.

The bitcoin price starts today at US$84,613 and up +3.3% from this time yesterday. Volatility over the past 24 hours has again been moderate at +/- 2.1%.

Join us for the Q4-2024 GDP result at 10:45 am this morning. And before that, we will have the Fonterra half year update.

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.