Forced distortions a new economic threat

Kia ora,

Welcome to Friday’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 we are living in a new world of imposed distortions. Ethical politics or business dealing is out the window. Trust is being replaced by force. It is hard to see how this will end well. After all, business relies on trust, honesty and integrity. Without it, why would you make a deal? The result can only be higher risk premiums.

First, the annual Davos meetings are underway, and today they were dominated by US Presidential bluster where we claimed he would force interest rates down, force the oil price down, and force other countries to "put America First". He also threatened any country who challenged the American FANGs with taxes on their activities in their own countries. Billionaires don't see the need to pay taxes - their fair share, or any share - to anyone.

US jobless claims fell back sharply from last week's big seasonal increase. But the fall was not as much as seasonal factors would have anticipated. On a seasonally-adjusted basis they rose. There are now 2.24 mln people on these benefits, which is actually the highest since the last Trump Administration. (Interestingly, the new US-DOL leadership 'hid' this data, shifting it to a 'new' location.)

In the regions, the December factory survey from the Kansas City Fed revealed a further contraction. New order levels were low, and despite improved manager sentiment, they actually don't expect new order levels to rise much.

In Canada, retail sales rose much more than expected in December, their best December rise since 2019, and the biggest any-month gain since May.

Japan said its exports rose +2.8% in December from a year ago, meaning that eleven of the past twelve months recorded export growth. Only nine of the past twelve recorded import growth.

And all eyes turn to the Bank of Japan and their expected +25 bps rate hike, later today.

A rise in South Korean business sentiment in January comes after authorities there reported a quite soft Q4-2024 GDP growth outcome.

Singapore's CPI inflation was up +1.6% in December, the same as November and slightly more than the +1.5% expected.

Taiwanese retail sales rose +2.9% in December with a modest performance. But Taiwanese industrial production surged +20% in December from the same month a year ago which itself wasn't especially soft.

In China, they are directing insurers to buy equities, a move designed to put a floor under the pressure on those markets.

After 'peaking' in October at their long-run average, the EU consumer sentiment survey has slipped to be more net-negative since. But the latest January 2025 survey essentially held the December level to be almost 2 percentage points better than year-ago levels.

In Turkey, their central bank claimed overnight that inflation there is under control at 44% and heading in the right direction. So it cut 2.5% from its policy interest rate taking that benchmark down to 45%.

Driven by rates out of China, container shipping freight rates fell a sharpish -11% last week, although they are still 140% higher than pre-pandemic levels. The Baltic Dry index for bulk cargoes fell a sharp -16% in the past week, now at the very lower end of its long-run average level since 1969.

The UST 10yr yield is up at 4.65% with a +4 bps rise from this time yesterday.

The price of gold will start today at US$2757/oz and down -US$1 from yesterday.

Oil prices are down down -US$1 at just over US$75.50/bbl in the US and the international Brent price is now under US$78.50.

The Kiwi dollar is now on 56.8 USc and up +20 bps from this time yesterday and more than a one month high. Against the Aussie we basically unchanged at 90.3 AUc. Against the euro we are up +10 bps at 54.5 euro cents. That all means our TWI-5 starts today just on 67.2 and also essentially unchanged from yesterday. A fall against the Yen offset the USD rise.

The bitcoin price starts today at US$106,275 and up +2.6% from this time yesterday. Volatility over the past 24 hours has been moderate at +/- 2.8%.

Monday is the Auckland Anniversary holiday, and Australia Day, so the newsflow will be light. But we will have continuing regular service on Monday.

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 on Tuesday – Monday is a public holiday in much of New Zealand.