Markets eye US labour market softening

Economy Watch

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.

Today we lead with news markets see a cooling US labour market in signals ahead of this weekend's August non-farm payrolls report.

But first, US mortgage applications rose by an insignificant +1.6% from the previous week in the last week of August, a low and stable situation. They are now -4% lower than the soft year-ago levels. Their benchmark 30 year fixed home loan interest rate slipped slightly to 6.35% and its lowest since May 2023.

(Yesterday, we mistakenly reported US retail sales from two weeks ago, up +5.0% at physical stores from a year ago. The actual result from this metric for last week was very much more positive, up +6.3% from the same week a year ago, its best rise since the end of 2022 when the very low year-ago base boosted results. This current result is actually quite impressive.)

US exports hit their highest level ever in July at US$267 bln. Imports rose too, but not to a record high. Their full trade deficit rose to -US$79 bln but that was well short of records set during the pandemic. This deficit continues to quite small in relation to US GDP.

US factory orders were solid in July. New orders rose by +5% from the previous month, above market expectations of a 4.7% increase. Year-on-year they are up +3.8%. Better, new orders rose by +9.8% for durable goods, lifted by transportation equipment which was up more than a third.

But there was a sharper-than-expected drop in July job openings in the US. The number of job openings fell by -237,000 to just under 7.7 mln in July from a downwardly revised 7.9 mln in June. That is the lowest level since January 2021 and below market forecasts of 8.1 mln. This is a first real sign of a cooling labour market there, although the new order data may make that a temporary dip. This is the data that has the financial market's attention today.

Meanwhile, the US Fed's Beige Book survey for August painted a modest picture of the American economy but with the balance of opinion that things are picking up from the current stable positions. This survey found little evidence of labour market stress.

Canadian exports came in little-changed in July, holding the higher levels first achieved in mid 2022.

And as expected, the Bank of Canada cut its policy rate by -25 bps earlier today to 4.25%, its third consecutive cut, saying excess supply in the Canadian economy continued to put downward pressure on inflation there which is now running at 2.5%, its lowest level in more than three years.

In China, the Caixin services PMI eased a bit but is still expanding. Incoming new business and activity remained in growth, with export business rising at a faster rate in August. Meanwhile capacity pressures were still evident, but firms reduced staffing levels amid cost concerns.

Bloomberg is reporting that China is considering cutting interest rates on as much as NZ$8.5 tln of mortgages in two steps to lower borrowing costs for millions of families while mitigating the profit squeeze on its banking system. To do that, financial regulators have proposed reducing rates on outstanding mortgages nationwide by a total of about 80 bps, part of a package that includes an accelerated timeline for when mortgages become eligible for refinancing, according to people familiar with the matter. The first cut may come in the next few weeks while the second move would take effect at the beginning of next year, said the people, asking not to be identified, they reported.

The EU said producer prices are now edging lower in July from a year ago, helped by the falling cost of imported energy.

Australia said its GDP was +1.5% higher in its June year after a smaller-than-expected +0.2% expansion in the June quarter. "Helping" keep it positive was record federal government spending on the public payroll and on the healthcare sector.

Meanwhile an August survey of the Australian manufacturing sector was particularly grim. The Ai Group Industry Index dropped sharply by 11.3 points to -30.8 in August, further deepening the contraction that has persisted for two years.

The UST 10yr yield is now at just on 3.77% and down another -7 bps from yesterday.

The price of gold will start today up a minor +US$2 from yesterday at US$2493/oz.

Oil prices have held from yesterday's lower level at just under US$70/bbl in the US while the international Brent price is still at just on US$73.50/bbl.

The Kiwi dollar starts today unchanged from yesterday at 61.9 USc. Against the Aussie we are nearly +20 bps higher at 92.3 AUc. Against the euro we are -20 bps lower at 55.9 euro cents. That all means our TWI-5 starts today at 69.9 and down -20 bps from yesterday.

The bitcoin price starts today at US$57,910 and virtually unchanged from this time yesterday. However, volatility over the past 24 hours has been moderate at just on +/- 2.5%.

You can find links to the articles mentioned today in our show notes.

You can get more news affecting the economy in New Zealand from interest.co.nz.

Kia ora. I'm David Chaston. And we will do this tomorrow.