What will the US Fed do?

Economy Watch

Kia ora,

Welcome to Tuesday’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 we are now on the eve of some large central bank interest rate announcements, and the size of those rises will tell a story about how they see 2023's economic prospects.

First it will be the US Fed, followed by the ECB. Then smaller central banks like the RBA and the BofE will also chip in.

Markets are picking more restrained rises even if inflation levels haven't yet pulled back.

But before that, the next regional factory survey in the US is from Texas where they report flat conditions and weaker new order levels. And that makes it eight months in a row new orders have declined in America's oil patch. This region's results are a drag on the overall results.

In China, and in a somewhat odd announcement, Chinese officials are pushing students to enroll quickly at overseas universities, or their course "will no longer be certified". This will involve a rush for visas and flight bookings, and pressure on overseas universities to confirm enrollment. It isn't entirely clear why they are pressing their young students to act so quickly. Their attempt to explain themselves isn't very helpful.

Health authorities in China's southwestern province of Sichuan will allow unmarried individuals to raise a family and enjoy benefits reserved for married couples, in the latest effort to bolster a falling birth rate.

Taiwanese consumer confidence stayed very low in January, but at least it rose marginally from December which was their lowest since 2010.

In India, Adani Group shares extended their sharp falls as their 413-page rebuttal of an American short-seller's criticism failed to pacify investors. As expected, they framed it as an "attack on India". The unconvincing rebuttal drove share market losses for these companies to almost -NZ$110 bln over just three days.

This comes as the Indian Federal government is about to release its 2023 Budget, and Adani will be an unwelcome distraction. Inside India there is very muted reporting of the Adani woes. But now UAE royals are moving in and buying up positions cheaply.

In Europe, economic sentiment rose from a month earlier in January, to its highest level since June and well above market expectations. This is the third consecutive month it has improved and comes amid easing inflation and an improved economic outlook.

But despite those improvements, including in broad German sentiment indicators, the German economy shrank marginally in Q4-2023. However they revised their Q3 result up. Together they flattened the 2022 expansion it just +1.1%. However the Q4 contraction in Europe's largest economy was mainly led by a small dip in household consumption as those households prioritised saving.

The UST 10yr yield starts today at 3.55%, and up +4 bps from this time yesterday.

The price of gold will open today at US$1924/oz and down -US$5 from this time yesterday.

And oil prices start today low at just under US$79/bbl in the US which is more than a -50 USc dip from yesterday. The international Brent price is now below US$85.50/bbl.

The Kiwi dollar is little-changed, still at 64.8 USc. Against the Australian dollar we start today at 91.7 AUc and that is firm by more than +¼c. Against the euro we are still at 59.7 euro cents. That all means our TWI-5 starts today at 71.6 and little-changed from yesterday.

The bitcoin price is softer today, now at US$23,166 US$23,631 and down -2.0% from this time yesterday. Volatility over the past 24 hours has been moderate at +/- 2.1%.

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

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

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