Yellen sees rate rises soon

Kia ora,

Welcome to Wednesday'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 stimulus and strong trade growth may spark rate rises, and that is according to Janet Yellen.

But first, today's dairy auction has produced some mixed signals, although it is generally positive. The event organisers reported overall prices are "-0.7%" lower, at an average prices of US$4,162/MT. But they reported the previous event average price at US$4,110/MT. So today's result is actually +1.2% higher than that. This makes more sense when you know that the dominant WMP price rose +0.7% and the also-large SMP rose +2.0%. Dragging the result lower was Butter which slumped 12.1% and Cheddar Cheese down +4.5%. But the relative volumes sold of those two are pretty small. Anyway, in NZD terms, this has resulted in a dip of just -0.1%.

US factory orders for March disappointed. They came in +1.1% higher than for February and that was much less growth than analysts had expected. New orders for Capital goods actually fell -3.2% on that basis. (Recall, the year-on-year data suffers from pandemic base effects, so is not a reliable indicator at present.)

US Treasury Secretary Yellen commented overnight that inflation could well rise as a result of the Biden recovery and stimulus programs. Rates may have to rise "to prevent overheating". She is no lightweight and markets took notice. Meanwhile she plans to borrow nearly US$1.3 tln extra over the next two quarters as federal spending picks up under those recovery plans.

Canadian building permits were a bright spot, rising strongly in March from February reflecting a booming residential building sector there.

In the EU, the cost of carbon is racing higher, now above €50/tonne (NZ$84). For comparison, the New Zealand price is currently NZ$37/tonne.

International trade is recovering strongly. The Baltic Dry Index as a measure of demand for ships for trade, is now above the 3000 index level. Global air cargo volumes reached an all-time high in March amid an improving macroeconomic backdrop. Industry-wide cargo-tonne kilometres picked up by +4.4% compared with the pre-crisis level in March 2019. Asia/Pacific volumes were flat on that same basis however. Globally, domestic air travel is recovering (especially in China), but international travel is still in the doldrums.

In Australia, new home loan commitments for housing rose +5.5% in value in March to a new record high of AU$30.2 bln in the month. Lending to investors accounted for more than half of the March rise in housing loan commitments. The number of first home buyer loan commitments fell.

The RBA kept all its policy settings unchanged at its monthly review late yesterday, but it has upgraded its growth forecasts to +4.75% over 2021, up from +3.5% in its February statement.

The UST 10yr yield starts today at 1.58% and down -3 bps overnight as the slide by equities bolsters the price of bonds. 

The price of gold starts today at US$1778/oz and that is down -US$14 since this time yesterday, and giving up most of Tuesday's jump.

Oil prices are up +US$0.50 today at just over US$65/bbl in the US, while the international Brent price is up a bit more at just under US$68.50/bbl.

The Kiwi dollar opens today at 71.4 USc and down almost -3/4c since this time yesterday. Against the Australian dollar we are little-changed at 92.7 AUc. But against the euro we are down at 59.4 euro cents. That means our TWI-5 is now at 73.4.

The bitcoin price is now at US$54,215 and down a very sharp -6.6% since this time yesterday. We are back at a level we first reached in mid-February. Volatility in the past 24 hours has been very high at +/- 4.5%.

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 tomorrow.