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 stock markets are roaring today after the US Fed rate cut, many, including Wall Street, powering up to record highs. And interest rate curves are steepening.

But first, the actual number of people making initial unemployment benefit claims in the US dropped from the previous week to 185,000 last week, significantly lower than the expected 230,000, and a 4-month low. There are now 1.68 mln people on these benefits, also a decrease.

Meanwhile the Philly Fed factory survey reported improved conditions in the rust-belt states in September. Although the new orders component didn't rise, the sentiment indexes for the future all did.

But not rising is their real estate market. Existing home sales fell -2.5% in August from the previous month, the fourth decline of the year. It was down -4.2% from the same month a year ago. The fall happened despite the drop in mortgage rates in the period. And the median existing-home sales price fell too, to US$416,900 (NZ$670,000). The inventory of unsold housing rose rose to 18 weeks of sales at the latest rate, rising from 15.6 weeks in the prior month.

But one thing the Fed rate cut did was suddenly drop home loan interest rates, falling more than -25 bps in the first day to 6.09% for their benchmark mortgage. It is likely to go sharly lower tomorrow again.

The US current account deficit widened slightly to -3.7% of GDP in Q2-2024. That is entirely manageable, especially as the USD is still the world's reserve currency. (For comparison, the New Zealand current account deficit is running at -6.7% of our GDP - and we are certainly not a reserve currency.)

Overnight there were central bank rate decisions in both Taiwan and England. Both made no changes. Perhaps the Taiwanese one was a bit of a surprise because they tend to follow the US Fed's moves. Later today Japan will also review rates, and no change in their rate is expected either. But markets will be looking for signals about when the next rise is coming.

Will the start of the rate easing cycle trigger an economic upside? Certainly some commodities markets think so. And they also expect China to come to the party soon with new emergency stimulus, which would be another boost.

In Hong Kong, a man was jailed for 14 months for wearing a t-shirt with a protest message.

In Australia, their number of workers without a job fell by -10,500 to 627,000, or an unchanged 4.2% of their workforce. Even though employment rose by much more than the expected +25,000, the number of new