US-China trade truce cements China's growing strength

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 benchmark bond rates are on the move higher as the bond market passes its judgment on the geopolitical trade situation and the US Fed's signals.

Basically they are pricing in risks where American inflation risks are not contained, and there is no real resolution to the trade tensions triggered by Trump.

The Trump/Xi meeting ended with Trump claiming it was "an amazing meeting" with "all issues resolved". Markets discounted the hubris seeing the outcome actually making little practical progress. But at least it seems to be a truce. If there is any progress, it will come after further negotiations. Basically it was a photo op resulting in an invitation for Trump to visit Beijing where his ego can be stroked.

The meeting brought China more time to finesse its position with the US, and more broadly, it made clear just how much stronger China has become since Xi and Trump last met. And interestingly, neither country has yet bothered to release a readout of the leaders meeting.

In Japan, their central bank kept its benchmark short-term rate unchanged at 0.5% in October 2025 and extending a pause since the last hike in January. It was the market-expected decision, bit it was a split 7-2 result, with two members pushing for a rise to 0.75%, as they had at the prior meeting.

Japanese share erased losses after the central bank boss gave his press conference review, but the yen dipped.

In Europe, with inflation under control and its economy humming along at a modest level, but near potential, the ECB left all their settings unchanged, both interest rates (at 2.15%) and their balance sheet run-down pace. It has been a long time since they can claim their objectives are running as they would like.

Meanwhile, overall economic sentiment is picking up in the EU, consistent with the improving economic data. Both industry and consumer sentiment are up in October and expectations are back to long-term averages, a position they haven't been in since early 2022.

So it will be no surprise to know the Q3-2025 EU GDP rose from Q2 to be +1.5% higher than a year ago

In Germany, their October inflation rate inched lower to 2.3% from 2.4% in the prior month. But this wasn't quite as bigger move as the 2.2% rate expected. Energy costs there are falling and food prices are up only a modest +1.4% within the overall result.

Globally, passenger air travel rose +3.6% in September from a year ago, with international travel up +5.1%. This was led by Asia/Pacific's +7.4% increase and trailed by North America's +2.5% rise. US domestic travel stood out with its -1.7% fall, the only region to record a shrinkage.

Container freight rates rose another +4% last week, as China-USWC, and China-EU rates picked up notably. Overall they are now -41% lower than year-ago levels.

Bulk freight rates fell -4.9% last week to now be +42% higher than year-ago levels.

The UST 10yr yield is now at 4.10%, up +7 bps from yesterday after the Fed announcement and after the US-China talks. 

The price of gold will start today at US$3999/oz, up +US$6 from this time yesterday.

American oil prices are unchanged from yesterday at just on US$60.50/bbl, with the international Brent price just on US$65/bbl.

The Kiwi dollar is now at just on 57.5 USc, and down -30 bps from this time yesterday. Against the Aussie we are unchanged at 87.7 AUc. Against the euro we are also little-changed at 49.7 euro cents. That all means our TWI-5 starts today at just under 62.1 and down -30 bps from yesterday.

The bitcoin price starts today at US$108,076 and down another -2.8% from this time yesterday. Volatility over the past 24 hours has again been modest at just on +/- 1.9%.

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 Monday.