Episode Details

Kia ora,

Welcome to Thursday’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 long term interest rates are rising and have much further to go.

But first, American private businesses added +122,000 workers to their payrolls in December, the least in four months, compared to 146,000 in November, according to the precursor ADP Employment Report. That was below forecasts of +140,000. Hiring slowed in several industries and employment in manufacturing shrank for the third straight month. Employment growth was strong among large businesses in the West. Pay gains slowed slightly but are actually quite high, up +4.6% for those who stay in a job, up +7.1% for those who change jobs.

Meanwhile, initial jobless claims rose on the expected seasonal basis to 305,000 last week, but much less than those seasonal factors would have indicated. 2.175 mln people are on these jobless benefits now, almost exactly the same level as a year ago. (On a headline, seasonally-adjusted basis, initial claims 'fell', and by more than expected.)

Also falling were American mortgage applications, the fourth straight weekly retreat. Their benchmark 30 year fixed home loan rate almost touched 7% last week, deterring potential borrowers. Until the Trump risk goes out of long term benchmark rates, this is going to be a problem for the American housing market - and in fact all real estate transactions and other asset purchases that are valued based in yield.

And those rising yields are now extending to very long-dated maturities. The US Treasury 30 year bond auction today came in with a yield of 4.87%, up from the 4.48% at the prior equivalent event just a month ago. The auction was well supported, but less to than that earlier one.

The rise in longer term bond yields and interest rates is a global one. At its core is a demographic shift and ageing populations. But the Trump return has focused investors on the long term risks and they are back demanding a premium for that. Companies are also issuing more longer term debt, so there is a supply element to the trend. The Biden Treasury tended to prioritise shorter maturities in its fund raising, but the incoming Trump Treasury has already signaled it will go long. That will add to the supply pressure, and will spill out internationally. Pity American homeowners with 30 year mortgages.

In China, they are getting more proactive ahead of the expected Trump Tariffs, and reactive about their stuttering economy. They announced an expanded set of taxpayer subsidies for a wider range of consumer products, hoping to spur sluggish consumer spending. They have expanded the eight-category subsidy program to now twelve categories, now including dishwashers, rice cookers and microwaves, which will get a 20% discount from existing sales prices.

Overall, it is a program that has grown to NZ$2.8 bln, and still expanding.

In fact, t