Episode Details

Kia ora,

Welcome to Monday’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 that we will be watching for China holiday demand signals, and watching how the US Fed handles new sharp political interference.

Also, this week will bring a slew of big economic announcements in many places, but not China which is starting its Lunar New Year week-long holiday after their PMI data is released (later today). Elsewhere it will be a big week of central bank policy reviews, capped by the US Fed, although they are expected to deliver no rate change. However both Canada and the ECB are expected to cut rates by -25 bps. Sweden (-25 bps?) and Brazil (no-change?) will also be meeting.

We will also get GDP results for the US (+3%?) and many key countries in the EU. Australia will release its Q4 CPI result. And of course the Wall Street earnings season results will continue.

But first, the early 'flash' release of the globally-benchmarked S&P/Markit PMI for the US for January shows that their factory sector is back expanding with a small gain to a 7-month high. But there was a notable pullback in their services sector, still expanding but quite a bit slower than in December. So the composite PMI is at a nine-month low. (In January 2024 is was even, neither expanding nor contracting. In January 2023 is was contracting.)

US existing home sales were up +2.2% in December from November to an annualised rate of 4.38 mln units, the most since February 2024 and despite mortgage interest rates over 7%. But in a long term perspective, this level is still very low, similar to what they had in the mid-1990s

There was an update to the University of Michigan sentiment survey for January out over the weekend, and it was revised lower. But the inflation tracking in this survey was unchanged at 3.3%, an eight month high.

Across the Pacific, Japanese inflation jumped to 3.6% in December from 2.9% in the November, the highest level since January 2023 and well above the 3.2% level expected. Food prices were a notable driver, up 6.4%. Their core inflation rate climbed to a 16-month high of 3%, in line with market estimates.

This bolstered the case for the Bank of Japan to raise its policy by +25 bps to 0.5% at their review on Friday, and that is exactly what they did.

Meanwhile the Japanese factory PMI contracted a bit more in January than the very minor contraction in December. But their services PMI expanded more in January than in December, and by much more than expected.

Singapore's central bank loosened its monetary policy on Friday, it’s first such move in more than four years. Rather than interest rates, their monetary policy centers on exchange rates, via the S$NEER, allowing the Singapore dollar to rise or fall against the currencies of major trading partners to stabilise prices.

In China, we should remind readers that their week-long 'Spring Festival' holiday will start tomorrow, Tuesday, January 28 and run until Mo