More US data weakness rattles bond markets

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 bond markets are increasingly worried about what will transpire from the US CPI data for August later this week, and the US Fed's reaction next week.

First today, American inflation expectations seem to be rising. In August they came in at 3.2%, their highest in three months. While that is higher than year ago levels too, some of the detail is a bit of a worry. Those surveyed say rents are expected to rise 6.0%, food by 5.5% and petrol by 3.9%. Also of some note is that job finding expectations have now fallen to a record low in a data series that started in June 2013. More than 14% of those surveyed say they are likely to lose their job in the year ahead. There is a palpable sense of fear and squeeze in these survey results. The fast-tightening labour market has many on edge.

Meanwhile, August data for American consumer debt shows it rising, up +3.8% from a year ago with revolving debt up a sharp +9.7% on the same basis. Debt levels at credit unions seem to be leading the rises. These are all three year highs and the sudden shift likely indicates rising debt stress.

The USD is falling, heading towards a three year low. Benchmark bond yields are falling and the UST 10 year is near a one year low.

Across the Pacific, Chinese exports grew by +4.4% in August from a year ago, a level many others would like to have but it is lower than the expected +5% and July's +7.2% growth. And it is the softest pace of outbound shipment growth since February. Meanwhile their imports were up +1.3% in August on the same basis, less than the expected +3% and July's +4.1% rise. But that meant that their trade balance swelled to +US$102 bln in August, better than the +US$99 expected and higher than July's +US$91 bln.

While China's exports and imports to the US eased back in August, they still ran a +US$24.3 bln monthly surplus with this strategic rival and that isn't declining materially. It's the largest surplus they run with anyone, although the combined nations of the EU ran a larger deficit with China at US$28.9 bln in August.

In Japan, Prime Minister Shigeru Ishiba resigned over the weekend and new candidates are lining up to replace him. Financial markets are buoyant there on the prospect that a new leaders may chase fiscal expansion.

And in France, their prime minister has lost a confidence vote.

In Germany, their exports came in slightly weaker than expected in August when a rise was anticipated. But it was still a good gain on a year ago, and helped them maintain a healthy trade surplus. Meanwhile German industrial production came in much better in July than expected, bouncing back from a weak June.

The UST 10yr yield is now under 4.05%, down -4 bps from yesterday at this time. 

The price of gold will start today surging to a new high at US$3,633/oz, up +US$47 from yesterday.

American oil prices are a bit firmer, up less than +50 USc at just under US$62.50/bbl with the international Brent price also firmer just on US$66/bbl.

The Kiwi dollar is now at just over 59.3 USc and up +40 bps from yesterday. Against the Aussie we are up +20 bps at 91.1 AUc. Against the euro we are also up +20 bps at 50.5 euro cents. That all means our TWI-5 starts today at just under 66.7, up +30 bps from yesterday.

The bitcoin price starts today at US$112,282 and up 1.1% from this time yesterday. Volatility over the past 24 hours has been low at just under +/- 1.0%.

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.