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 with a special eye on unpredictable American policy instability. The Trump win unhinges many things, including the path for central bank rate cuts. The ones announced today may be the last until after the direction of US fiscal policy is revealed for certain.

In the shadow of the Trump election win, a range of billionaires are lining up key roles in his administration to extract payback for their support. It is all very unseemly, but should be no surprise. The current estimate is that just six of them have gained more than +US60 bln in the first day. And that will be just the start.

The US Fed is about to release the results of its November meetings. A -25 bps rate cut is anticipated, to 4.75%. It may be too soon to expect them to have assessed how they need to prepare for Trump 2.0 policies that are expected to swell the US Federal deficit in a significant way, and re-ignite serious inflation. Their options may be discussed more at their December 19 (NZT) meeting. And that will all be clouded by Trump's expectations of subservience, although he has few options to fire Powell who is safe in the role until mid-2026, and as a governor until 2028.

Meanwhile US initial jobless claims came in at 212,300 (actual) last week, almost exactly as expected. There are now 1.65 mln people on these benefits, almost exactly as it was in the same week a year ago and back to pre-pandemic levels even though the employed labour force is now +7.5 mln people larger than pre-pandemic. The US labour market remains unchanged, and stays strong .

China is getting an export boost from orders that are anticipating a clampdown on trade with the Middle Kingdom - from both the US and the EU. Exports surged in October by +12.7% from the same month a year ago to a 27-month high, much faster than the forecasted +5% and up from a five-month low of +2.4% growth in September.

More reflective of the state of their economy, imports fell -2.3% in October from a year ago to a four month low. Imports fell from ASEAN countries, the EU, and even best-bud Russia, but grew from the US as China hoarded soybean and other grains. Imports from Australia are down -8.7% and from New Zealand -11.1% so far in 2024. Both of us are being weaned from the Chinese economy quite quickly now.

Since June, European retail sales have been rising, which you may find counter-intuitive given most of their data is dull and unimpressive. The rise in retail sales is more impressive when you realise that it is volume based, after inflation is accounted for. It was up +2.8% in September from a year ago on that volume basis. There is life left yet in the EU economy.

With CPI inflation back down to 1.7% pa, the Bank of England trimmed its policy rate by -25 bps to 4.75% overnight, its second