Hints of a stagflation future noticed by financial markets

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.And today we lead with news that while Trump is playing Putin's puppet, his lieutenants are setting the stage for a new global bout of stagflation - higher tariff-induced costs for little or no economic expansion. Wall Street is starting to price in what is increasingly likely to lie ahead. The USD fell.US jobless claims came in lower last week than the week before, with all the decrease accounted for by seasonal factors. Markets had expected an even lower level from those seasonal factors, so this result was a disappointment. There are now 2.2 mln people on these benefits, a rise, when a season decrease was expected. For most of 20025 this level has been tracking higher than in 2024.The regional Philly Fed factory survey expanded in February, but at far less a rate than in January. A fall-off in the new order component explains most of the change.Meanwhile, the Conference Board tracking of leading index metrics shows a larger fall-off than expected and a negative outlook.Also lower (than a month ago) is the Atlanta Fed's GDP Now tracker.And we should also probably note the -6% fall in the Walmart share price overnight. It is dawning on markets that the new public policy settings are fertile ground for stagflation - inflation with no real growth. Retailers like Walmart are in the front line of that, and their latest outlook really disappointed markets even as they reported improved current results.Canadian producer prices rose rather sharply in January from December, and were +5.8% higher than year-ago levels. To be fair, some of this is base effect (January 2024 fell -3%) but the recent trend is higher too.Taiwanese export orders fell in January from December and came in -3% below year-ago levels. Analysts had expected them to hold at last year's level. But to be fair, they did rise in local currency; it was the USD change that showed them dragging.In the EU, the consumer mood is improving, largely around the expectation that ECB interest rate cuts will continue. Their sentiment tracking shows it at its best level in four months and this survey came in much better than observers were expecting. But despite all that, it is still net negative as it has been 'forever'.China kept its February Loan Prime Rates unchanged at their record low levels.In Australia, their employed workforce grew by +44,000 in January, above what was expected (+20,000), but less than the December gain (+60,000). But there was a virtuous twist to the January levels with a shift to full-time roles, with +54,000 more of them, and part-time roles shrank -10,000. Average weekly earnings rose +4.6% from a year ago. But high tax rates and inflation at 3.0% will mean most workers felt they just stayed even. (For perspective the NZ jobless rate is 5.1%.)And staying in Australia, the SA State Government and the Federal Government have "seized control" of the Whyalla steelworks - essentially nationalising it. And they are having to tip in AU$2.5 bln to keep it afloat. Its British owner has had a very chequered history.And we should probably note that key Aussie pillar bank NAB has seen its share price fall -15% in a week. CBA is down -6.5%, Westpac is down -11% and ANZ is down -8.0% over the same period. Aussie bank shares are being re-rated lower, and because they are very widely held in Aussie superannuation and KiwiSaver portfolio's savers will notice.Container shipping freight rates fell -10% last week as the puff goes out of global trade, especially on trans-Pacific routes. These overall rates are now -26% lower than year-ago levels, even if they are still double pre-pandemic levels. But with weak trade out of China, these rates will likely fall much further, and quite quickly. Although they remain historically low, bulk cargo freight rates rose +16% last week, although remain -48% lower than year-ago levels.The UST 10yr yield is at 4.50%, down -6 bps from yesterday at this time.The price of gold will start today at just under US$2943/oz and up +US$15 from yesterday, and again close to its all-time high of US$2955/oz.Oil prices are up +50 USc at just under US$73/bbl in the US and the international Brent price is unchanged at US$76.50/bbl.The Kiwi dollar is now at 57.6 USc and up +50 bps from yesterday. Against the Aussie we are also up +10 bps at 90 AUc. Against the euro we are up +20 bps at 55 euro cents. That all means our TWI-5 starts today just over 67.2, but unchanged from this time yesterday.The bitcoin price starts today at US$97,763 and up +1.7% from this time yesterday. Volatility over the past 24 hours has again been modest at +/- 1.4%.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 again on Monday. Audio soundtrack opening is licensed from Shutterstock, Track 1219389 Monetization ID TFGEPGEI0LHEIJAI