Inflation kicks up a gear

Kia ora, 

Welcome to Friday's Economy Watch where we follow the economic events and trends that affect New Zealand.

I'm David Chaston and this is the International edition from Interest.co.nz.

Today we lead with news the chaos at the Kabul airport has cast a pall over markets today.

But elsewhere, positive economic news is generally being reported however. And Powell's Jackson Hole speech is close now.

Actual US jobless claims fell again last week to under +300,000, the first time it has been below that level since the start of the pandemic. (Seasonally-adjusted it is being reported as +353,000, an unchanged level.) That takes the actual number of people on these claims to just under 2.8 mln, also the lowest since the start of the pandemic.

The US also reported its second estimate of Q2 GDP and this has been revised higher to a +6.6% pa rate, and a slight rise above the initial estimate of +6.5%. The final Q1 rise was +6.3% pa. Estimates vary for what Q3 will bring, but most see a +7% pa rise.

The latest regional Fed factory survey, this one from the Kansas City Fed, shows a solid expansion continuing in that district. Just like the other surveys, price movements remain very elevated with this one reporting that "prices received" rose to a survey high in August. However, at the same time, 20% of these firms noted that activity was falling away due to the impact of delta Covid.

The South Korean central bank raised its policy rate yesterday by +0.25%, the first Asian central bank to do so, and in fact the first central bank of any developed economy to do so since the start of the pandemic. Their new rate is 0.75%. A "sound recovery" and rising inflation were the prompts there. They are also concerned about fast-rising consumer debt levels there.

Hong Kong reported strong export growth for July. While the rise above July 2020 was always going to show a good result, in fact the rise above July 2019 was equally impressive. Buyer wariness about getting goods during the global shipping woes is drawing activity forward so these high levels may not be all they seem.

But while there may be a sense that the Baltic Dry Index is topping out, as a measure of the cost of ships for the bulk trade, there is certainly no relief on the cost of container freight. The cost of container freight out of China rose another +4% just last week. The only softness is being seen in trans-Atlantic rates. Unless you are now prepared to spend more than NZ$14,000 per container trip, you are unlikely to find a shipping line willing to take your order. For popular routes like Shanghai to Los Angeles, it is more like NZ$16,500/one-way trip. Bidding wars are underway in this frenzy.

And now there are reports that the Chinese authorities are concerned about these huge distortions and seeing what they can do at their end to alleviate the problem, one that could well squash their export trade.

German consumer sentiment is no longer improving, according to a widely-watched survey. German spending impulses fell and their saving impulses rose as concerns over the impact of the delta strain widens.

In Australia, the economic news is mainly around NSW's surrender to delta COVID. But its citizens seem wary of the opening up plans despite record infection rates, so the economic boost they are seeking may end up being quite limp.

The UST 10yr yield is little-changed at 1.34% and holding its recent rise. 

The price of gold is little-changed today, up +US$3/oz from this time yesterday, and now at US$1792/oz.

Oil prices have slipped slightly by about -50 USc, so in the US they are now just under US$68/bbl, while the international Brent price is just over US$70.50/bbl.

The Kiwi dollar opens today slightly softer at 69.5 USc. Against the Australian dollar we are marginally firmer at 95.9 AUc. Against the euro we are little-changed at 59.1 euro cents. That means our TWI-5 starts today fractionally softer at 72.8 and in the middle of the 72-74 range of the past ten months.

The bitcoin price has fallen -3.9% from this time yesterday to US$47,041 and it is actually now at its lowest point in more than a week. Volatility in the past 24 hours has been highish at just over +/- 3.2%.

You can find links to the articles mentioned today in our show notes.

And get more news affecting the economy in New Zealand from interest.co.nz.

Kia ora. I'm David Chaston and we’ll do this again on Monday.