Episode Details

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Monetization ID TFGEPGEI0LHEIJAI

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 long bond yields are falling fast today on worries about long-term growth prospects, while short term yields are holding with a much smaller pullback, kept up on expectations the Fed will hike in its battle against inflation. A bull flattening is underway. a signal that will worry bond traders even as they see the face value of their bonds rise.

Investors would rather hold US Treasuries than be exposed to AI debt in what they see as an AI debt reckoning coming soon.

US initial new jobless claims were little-changed last week, at +190,600, an increase from the prior week but all explained by seasonal factors. There are now 1.47 mln people on these benefits, down -11% from the prior year at this time as sharp qualification restrictions push people off this support.

But US inflation in their factories is leaping. Producer price inflation ran at a high +5.6% in August and was expected to ease to +5.3% in September. But in fact it came in at +6.3% in September in something of a shock. Everyone noticed, and expectations for a firm Fed response on October 29 have risen. Not doing so would be a signal that they aren't serious about tackling inflation.

And that inflationary urge helps explain why US retail sales rose +6.3% in September from a year ago - most of the increase is goods inflation. And that is bolstered by the tariff taxes they are now paying at the border. This seems slam-dunk evidence Americans are paying Trumps tariffs, not the world's exporters. The correlation between retail sales, tariffs and inflation is just too obvious.

And tariffs insulate American factories from facing global competition, giving them a false sense of prosperity - and enabling them to raise prices. The latest Philly Fed factory survey remained quite positive despite an easing in October. A key feature is the sharp rises in prices received, built on the excuse of rising prices paid. Meanwhile the New York Empire State factory survey also sees activity increasing protected by very elevated cost and price pressures due to the insulation from global pressures. The logical result will be uncompetitive industries in export markets. But that has yet to dawn on their policy-makers.

US

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