The bond market doesn't like what it sees

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 the the cost of the Trump capricious bulldozing is going to be much higher interest rates - and the bond market have a key signal today.

But first, US mortgage applications were virtually unchanged last week, up only +0.1% to be +2% higher than the same weak week a year ago. Mortgage interest rates eased very slightly but they are still above 7% so a six month high. No sign here that some political enthusiasm in part of their community extends to the residential real estate sector.

And the current US retail impulse extended its more modest tone last week, up +4.5% from the same week a year ag, basically holding last week's pullback. This expansion level is near the bottom of the range compared to all weeks in 2024.

And also falling back post-election is the Conference Board's Leading Index survey tracking series for December. It actually is quite a big move from November.

The bond market got another chance to price long term US Treasury yields, again in the shadow of federal debt authorisation stress. This morning's tender for the UST 20 year bond was again well supported but that showed a sharp rise in the median yield at 4.86%. This was notably higher than the 4.62% at the also well-supported prior equivalent event a month ago. And it is a shift that will undoubtedly move the secondary market later today. The bond markets are worried.

Uncertainty is at the heart of what the Whitehouse is doing. Yesterday, the President announced a US$500 bln AI initiative to be funded by billionaires. Today, it seems clear that the project "might" be US$100 bln, but then one of the billionaires, Elon Musk, said none of them have the funds for the announced initiative.

Meanwhile, Canadian producer prices rose less than expected in December from November, but it still means Canadian PPI is +4.1% higher than year ago levels.

Korean consumer confidence took a hiding in December in the midst of their political crisis (one that is still playing out). But the latest survey has consumer sentiment bouncing back - not quite to the pre-crisis levels (and still net negative) - but a notable recovery anyway. We will get their updated survey of business sentiment later today.

In Australia, they are getting a small uptick in economic activity. While the growth signal from the Westpac-Melbourne Institute Leading Economic Index is not particularly strong, it has shown a clear improvement from the persistently negative, below-trend reads recorded over the previous two years.

And staying in Australia, new data out today for the September 2024 quarter shows that residential dwelling construction is rising. New dwellings commenced rose in Q3 from Q2 at an annualised rate of +4.2%, driven by new house building, up +5.2%. Overall these dwelling starts were almost +14% higher in Q3-2024 than in Q3-2023. But their rental market "has well and truly past the peak". Real estate offices that specialise in the rental market are hurting now. Overall inventory for sale is up sharply and investors are quitting, especially in Victoria. A lot of the investor sales are to FHBs there.

And we should probably note that today the prices of many commodities are falling and under pressure from building economic uncertainty.

The UST 10yr yield was at just on 4.61% prior to the US Treasury tender, and up +3 bps from this time yesterday. 

The price of gold will start today at US$2758/oz and up +US$10 from yesterday.

Oil prices are down another -50 USc at just over US$75.50/bbl in the US and the international Brent price is now just on US$79.

The Kiwi dollar is now under 56.6 USc and little-changed from this time yesterday and holding its recent gain. Against the Aussie we also unchanged at 90.3 AUc. Against the euro we are up +10 bps at 54.4 euro cents. That all means our TWI-5 starts today just under 67.2 and up +20 bps from yesterday.

The bitcoin price starts today at US$103,539 and down -1.7% from this time yesterday. Volatility over the past 24 hours has been modest at +/- 1.9%.

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.