Risk premiums rise sharply

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 start with news elevated global uncertainty is pushing up prices for key minerals sharply today. Wall Street is of two minds about the risks and opportunities.But first in the US, the ISM Manufacturing PMI contracted for a third consecutive month in December to the lowest level since October 2024 and lower than expected. Manufacturing activity contracted at a faster rate, led by pullbacks in production and inventories. Price pressures remained elevated. On the other hand, this survey shows new orders contracting less in December and new export orders staying quite low..This ISM result was much more somber than the earlier S&P Global factory PMI for the US was still expanding in December, but fell from November to its weakest expansion in the current five-month growth phase. New orders declined for the first time in a year, while exports fell for a seventh consecutive month, weighed down by the consequences to costs from tariff-taxes, and trade frictions.Staying in the US, their vaccine-sceptic Administration has opened the door to a "moderately severe" flu outbreak this year (their description). The US CDC estimates the season's toll so far at least 11 million illnesses, 120,000 hospitalisations and 5,000 deaths. In the 2024–25 season, CDC estimated at least 5.3 million illnesses, 63,000 hospitalizations and 2,700 deaths in the equivalent period.In China, the private S&P Global (RD) services PMI expanded modestly in December. But the survey also noted that business activity and sales both rose at their slowest rates in six months. Job shedding persists. Output price inflation fell for the second time in three months. This private services PMI however is more upbeat than the official version.Indonesia exports slumped in November, following smaller retreat in October and coming much worse than market forecasts. Exports to China were a key driver of the pullback, both for oil and non-oil exports. This is their steepest drop since February 2024.Singaporean retail sales were unchanged in November from October, but given November 2024 was a weak month, that means they were up +6.3% from a year earlier to be the strongest growth since February 2024.In Europe, after a two year transition, they now have the Carbon Border Adjustment Mechanism (CBAM), fully in force. That, requires importers of steel, aluminium, cement, fertilisers, electricity and hydrogen to purchase certificates to cover the carbon emissions embedded in their products. The mechanism is designed to force importers to pay the difference between the carbon price in the country of production and that in the EU, trying to prevent “carbon leakage,” when companies based in the EU move carbon-intensive production abroad to take advantage of lax standards. But countries like China or the US are not happy.In Australia, a key industry lobby group has warned the power grid is not ready for the projected growth in capacity demands for data centers. They say the consequences could be severe for homes and businesses.And staying in Australia, the large high in the Tasman Sea bringing settled weather to New Zealand is blocking cooling relief in Australia. They now say NSW, Victoria and South Australia will get searing hot days, warm nights and elevated bushfire risk later this week. The forecast is for daytime highs being eight to 16 degrees above average, and night minimums to be 10 to 15 degrees above average.We should note that copper has surged to a new record high of US$13,093/tonne. Nickel has surged recently, now at a one-year high. And we should probably should note that Chinese iron ore prices are not falling, holding at a similar level they have been at since early 2024.The UST 10yr yield is now just on 4.16%, down -3 bps from this time yesterday.The price of gold will start today at US$4442/oz, and up +US$112 from yesterday and heading back up toward it record high. Silver is up to US$76.50/oz also back near its record high, and platinum is now at US$2269 and making the same upward shift.American oil prices are up +50 USc from yesterday at just over US$58/bbl, while the international Brent price is now at just over US$61.50/bbl.The Kiwi dollar is up another +20 bps from yesterday, now at just under 57.9 USc. Against the Aussie we are unchanged at 86.2 AUc. Against the euro we are up +20 bps at 49.4 euro cents. That all means our TWI-5 starts today just under 61.9, and up +20 bps from yesterday.The bitcoin price starts today at US$94,143 and up a strong +3.1% from this time yesterday. Volatility over the past 24 hours has been modest at just on +/- 1.8%.You can get more news affecting the economy in New Zealand from interest.co.nz.Kia ora. I'm David Chaston and we’ll do this again tomorrow. Audio soundtrack opening is licensed from Shutterstock, Track 1219389 Monetization ID TFGEPGEI0LHEIJAI