Cutting costs and raising prices

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 cost cutting and raising prices are key themes in US business at present - sure to challenge the Fed's policy path.

First in the US, there was an outsized jump in the number of people making initial jobless claims, +310,000 for the week. That pushed up the number of people on these benefits to 1.94 mln. Employers now seem emboldened to cut staff before the holiday season with the incoming Administration likely to be very permissive on employment policies.

US producer prices also came in higher than expected, rising in November from October, and from year-ago levels, but more than expected, up from +2.6% year-on-year in October (which was also the November expectation) to +3.0%. Inflation isn't beat.

Canadian building consents were expected to fall back in October from the big September jump - and they did, although not by as much as expected.

Key data from India came in pretty much as expected. Their November consumer inflation rate was 5.5% and a small reduction, and their October industrial production rose +3.5%, also a slowing. Food prices are rising much more than the overall level, but they are responsible for the most of the decline in the November rate.

China's vehicle sales jumped by almost +12% to 3.3 million units in November from a year ago, accelerating sharply from a +7% rise in October. Beijing incentives seem to be working as intended, although they might be at the cost of spending in other sectors.

China intends to ramp up economic support next year including measures to boost domestic consumption, as it braces for a fresh trade war with the U.S., a closely watched leadership meeting signaled on Thursday.

At their annual Central Economic Work Conference, which sets the tone for the coming year's agenda, China's leaders pledged to "implement more proactive macro policies" and "expand domestic demand". Their statement listed supporting consumption and investment as top priorities for the economy next year. It is bracing for a fresh trade war with the US, and starting the adjustment now.

As expected, the ECB cut its policy rates by -25 bps overnight, the fourth time this year, on a more favourable inflation outlook - their disinflation "is well on track".

Meanwhile the Swiss central bank cut their policy rate by double that - by 50 bps - in an unexpectedly large cut. This marks the fourth straight rate reduction and the steepest since January 2015, bringing borrowing costs to their lowest since November 2022, returning them to just 0.5%.

In Australia, their employment rose by +35,600 in November from October, up +334,500 in a year. That is a +2.1% annual rise. Monthly, full-time employment rose +52,600 while part-time employment fell -17,000. These gains were enough to push their jobless rate down from 4.1% to 3.9%, and unexpected improvement. (New Zealand's jobless rate was 4.8% in September.) For some, this is a good-news-is-bad-news item because it probably pushes back an RBA rate cut even further. The ASX200 fell on the news.

Meanwhile, Australia's population rose +2.1% in the year to June, adding +552,000 and taking the total to 27.2 mln. Victoria, Queensland and Western Australia all rose faster than the national average. Victoria grew the most, up +165,000 to just shy of 7 mln. NSW was next, growing +143,000 to 8.5 mln. 

Bulk cargo freight rates fell another -5% last week from the prior week. And container freight rates were largely unchanged last week. Meanwhile, air cargo volumes grew almost +10% in October from the same month a year ago. International airfreight rose more than +10%, with Asia/Pacific volumes up more than +13%.

The UST 10yr yield is now at just on 4.31%, uup +7 bps from this time yesterday.

The price of gold will start today at US$2681/oz and down -US$33 from yesterday.

Oil prices are down -50 USc to just on US$69.50/bbl in the US while the international Brent price is up +50 USc to now just under US$73/bbl. Following OPEC, the IEA is warning of a potential supply overhang in 2025 as demand remains modest and energy efficiency rises.

The Kiwi dollar starts today at just under 57.9 USc and down -10 bps from this time yesterday. Against the Aussie we are down -30 bps at 90.6 AUc. Against the euro we are down -10 bps at 55.1 euro cents. That all means our TWI-5 starts today at just over 67.7 to be down another -10 bps from yesterday.

The bitcoin price starts today at US$101690 and up +1.1% from this time yesterday. Volatility over the past 24 hours has been high at +/- 1.4%.

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 on Monday.