Kia ora,
Welcome to Tuesday’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 chaos has consequences, but they seem to be coming faster than many thought. The giant US economy is resilient, but not immune to the consequences of misguided policy decisions.
Regular readers will know we regularly track the Atlanta Fed's GDPNow signals. Today that has suddenly sifted from expecting a +3.0% Q1-2025 expansion with the data on hand at the start of February, to a sharp -2.8% contraction as the latest data comes in for the US economy.
We have been noting the slide in the granular data over the past week or so in these reports. Today there was another from the ISM PMI for February. Specifically, new orders in their factory sector took a sharp turn into contraction as they report demand is weakening fast. The overall PMI rose in this report, but due to production and inventories. Shrinking new order levels are not going to sustained that however.
It was a different story for the internationally benchmarked S&P/Markit US factory PMI which is still reporting an expansion, and a good one. But this one isn't supported by the wider series of data over the past few weeks of weak new order levels (other than for aircraft) and rising inventories. Nor the imbalance between household spending and disposable incomes. The Atlanta Fed is signaling these are turning the US growth into reverse.
We won't actually know for some weeks yet of course, but it seems the Biden prosperity is being turned into a Trump/Musk contraction.
And more uncertainty is on the way. Congress has less than two weeks to extend a federal funding deadline, but lawmakers are arguing over whether the Whitehouse will really spend the money they approve.
The February Canadian PMI turned suddenly negative too in response to the tariff war outlook. Later today, the US is expected to impose the threatened tariffs, even though they earlier promised to delay them to the start of April. Consistency and promises are loose ideas in today's Whitehouse.
There were a wide set of early factory PMIs for a number of Asian economies and they all showed very little change (and only minor variations around the expansion/contraction fulcrum). This includes reports for Japan (49.0), Malaysia (49.7), Thailand (50.6), Vietnam (49.2) and Taiwan (51.5). The tariff war impact are yet to hit. In fact, Indonesia was a bit of an outlier, recording a very good rise (53.6), but it enabled the overall ASEAN group to record a good rise.
India's PMI's signaled a mild slowdown from their fast expansion rate.
Singapore's SIPMM PMI recorded a minor expansion in February.
The official China factory PMI came in at 50.2, an improvement for February from January's contraction. This was backed up by the independent Caixin factory PMI which came in with a slightly faster expansion (50.8) in its survey. This is consistent with the US import data for January and suggests the US import data will be very high again in February.
In Europe, their inflation rate eased to 2.4% in February, down from a six-month high of 2.5% in January but slightly above market expectations of 2.3%. But there is a wide range, from 1.4% in democratic Denmark to 5.7% in autocratic Hungary. For the EU overall it was running at 2.8%, for the euro area 2.4%.
Europe's overall PMI is still contracting, but the drivers of their contraction eased somewhat in February.
In something of a surprise, the TD-Melbourne Institute tracking of inflation and cost of living in Australia reported a -0.2% drop in February from the prior month, after a +0.1% rise in January. Most thought a rise was on the cards. But on an annual basis inflation is still running in the 2-3% range.
Also turning negative in February from January was the job ad series from ANZ/Indeed. It was down -1.4% from January, but at lease it wasn't down the -6.9% it was in February 2023 from January 2024.
CoreLogic is reporting that the Aussie housing market stabilised in February, with small but consistent house price rises in the month in almost all main centers, rolling back some of the quarterly and annual falls in some of their larger cities. The one RBA rate cut is getting the credit for the sentiment improvement.
By the way, it seems the expectation for an Australian election is narrowing to an early even, maybe on April 12
In the face of US mis-steps, policy markers from Canada to China are readying plans for a global downturn. And high on their agendas are looser fiscal and monetary policies to insulate their people from the worst effects. The US is also moving to much looser fiscal policies with large tax cuts for the wealthy, and likely ballooning deficits. We are entering the era of huge distortions, and it is unlikely to be pretty.
Today the UST 10yr yield is at 4.18%, down -2 bps from yesterday.
The price of gold will start today at just under US$2892/oz and up +US$35 from yesterday.
Oil prices are down -50 USc just on US$69.50/bbl in the US and the international Brent price is just over US$72.50/bbl. Both prices are -US$1 lower than a week ago. Lower expected demand is why this price is soft.
The Kiwi dollar is now at 56.3 USc and up +40 bps from yesterday as the USD comes under pressure. Against the Aussie however we are still little-changed at 90.2 AUc. Against the euro we are down -30 bps at 53.6 euro cents. That all means our TWI-5 starts today just on 66.2, essentially unchanged from yesterday.
The bitcoin price started today at US$90,059 and down a net +1.5% from this time yesterday. Volatility over the past 24 hours has remained high at +/- 3.0%.
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.