Markets start to reassess risk in the face of policy without ethics

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 US equity markets have made a comeback from yesterday's tech rout. But it isn't a full comeback yet in the tech space. In addition, general economic sentiment is more sober about the 2025 prospects.

But first, last week's US retail sales were up +4.9% from the same week a year ago.

However, new orders for manufactured durable goods fell -2.2% in December from November, following a downwardly revised -2% drop in November and far below market expectations of a +0.6% rise. Year on year, the December month was -3.8% lower than in 2023 and that dragged the full year result lower. Basically it held until December, and then there is this unexpected drop.

Also at a level less than expected and less than the prior month is the January survey results from the Conference Board for consumer sentiment.

The regional Richmond Fed factory survey remained soft in January, and their services sector survey softened too.

And the Dallas Fed services survey also 'moderated' in January.

Things are likely to get more uncertain. Brutal dawn raids are underway on undocumented workers, and the Whitehouse has stopped almost all Federal assistance programs. At the same time, access to the OMB website that can give details on this action has been disabled. Confusion reigns. Most at risk is funding for education, disaster aid, and housing. All up, it is a war on "poor people" in support of billionaires. The US Labor Board has been eviscerated. All foreign aid is halted too as the US gifts the world to China's influence, backed up by bullying of other nation's leaders. US public policy has suddenly become an ethical wasteland.

There was a slightly less-well-supported UST 7yr bond auction today and that brought a median yield of 4.41%. That was less than the 4.49% yield at the prior equivalent event a month ago.

In China, the Spring Festival migration is underway, and they expect a mammoth 9 billion trip events over the period. It will also be a test of their facial recognition tracking system (or "ticket verification system".)

In Malaysia, inflation seems well contained. But there is a 'but'. Their PPI fell -0.4% year-on-year in November, but it rose +0.5% on the same basis in December. While both levels are low that is a month-on-month rise of +0.8%, which is on top of a quite fast month-on-month rise in November. On a producer basis, they need to keep an eye on this momentum

In Australia, the December NAB business sentiment survey remained negative, but a little less so. The same survey shows businesses think conditions are positive, and a little more so.

And staying in Australia, we should probably note that the ATO, their federal tax authority, is now targeting landlords for undeclared income. They think more than AU$1 bln is being undeclared. The NZ IRD is running a similar campaign. Both have new data-matching capabilities. But what makes the Aussie effort interesting is that because they have a means-tested age pension program, it is a magnet for hiding income so that a claim on it qualifies. It is a vulnerability that doesn't apply in New Zealand. Aussies at risk will not only have to pay back the under-declared rental income, plus interest, plus penalties, but they will also then have to pay back the super they weren't entitled to, plus interest, plus penalties. It will be a very expensive tax dodge for them.

Later today, there will be an important release in Australia on their inflation levels. They will disclose both their Q4 level, plus their monthly December level. Both are expected to ease to about a 2.5% level from 2.8% in Q3. Some think to 2.2%. An under-shoot will encourage the RBA to move by reducing their 4.35% cash rate target. But a hold (or a rise) will likely put that off the table. The RBA next reviews its policy rate on February 18.

The UST 10yr yield is lower at 4.56%, up +2 bps from yesterday at this time. 

The price of gold will start today at US$2757/oz and up +US$24 from yesterday.

Oil prices are up +50 USc at just over US$73/bbl in the US and the international Brent price is now at US$77/bbl.

The Kiwi dollar is now at 56.6 USc and down -20 bps from this time yesterday. Against the Aussie we are up +10 bps at 90.6 AUc. Against the euro we are also up +10 bps at 54.3 euro cents. That all means our TWI-5 starts today just on 67.1, and unchanged from yesterday.

The bitcoin price starts today at US$102,256 and a +2.5% partial bounceback from this time yesterday. Volatility over the past 24 hours has been modest, also at +/- 2.5%.

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.