Episode Details

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.

Today we lead with news it is Friday the 13th, so don't expect too much from the day.

The actual number of American jobless claims last week were +178,000, a one year low, taking the total number of people on these benefits to 1.71 mln, a nine month low. But the seasonally adjusted level reported was +230,000. It is unclear why the variance is so large this week.

Meanwhile, American producer prices rose +1.7% in the year to August, the lowest in six months, easing from a downwardly revised +2.1% gain in July and below market expectations of +1.8%. Their 'core' PPI rose +2.4% however emphasising the role much cheaper energy costs are playing in keeping inflation down.

The September USDA WASDE report confirmed global wheat and rice production will be higher than expected earlier in the year, coarse grains slightly less. They also say American beef imports will rise on rising demand. American milk production is expected to slip on lower local production.

There was another well-supported US Treasury 30 year bond auction overnight delivering a 3.95% median yield. That is down sharply from the 4.22% yield at the prior equivalent event a month ago.

India's inflation rate rose to 3.65% in August from an upwardly revised 3.60% in July (which was the lowest since August 2019). But the August level was above forecasts of 3.55%.. However, these levels are below the RBI's targets, and while food prices are still rising at a +5.7% rate, that is down from year-ago levels of +9.9%. It is this base effect change that is making overall price increases look low.

Meanwhile, India's July industrial production was up +4.8%, about the average level it has been for all of 2024.

In China, markets are expecting some significant cuts for interest rates for home loan borrowers soon. These were signaled earlier, but are now imminent. At the same time Beijing is rounding up investment bankers, taking passports, and investigating them for 'corruption'. Despite all this, their government bond sector is rallying sharply today in defiance of Beijing's efforts to calm matters. Equity prices are falling, also on the uncertainty, and in contrast to what is happening in other global markets.

As expected the ECB cut its policy rates but they varied a lot this time by type of facility. The deposit rate was cut by -25 bps to 3.50%. But the main refinancing operations rate and the marginal lending facility rate were lowered to 3.65% and 3.90%, both from 4.00%, so these cuts are larger. They see a better inflation outlook and "better transmission of policy". They are also facing a weaker level of economic activity in the bloc. Their balance sheet reductions continue at an unchanged pace.

It seems the Australian central bank is right to be sceptical inf