The US expansion rolls on, likely bringing a tougher Fed inflation response

<p>Kia ora,</p><p>Welcome to Tuesday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.</p><p>I'm David Chaston and this is the International edition from Interest.co.nz.</p><p>Today we lead with news 'good news' on the economic front is being viewed as 'bad' for investors.</p><p>First in the US, the widely-watched <a href="https://www.ismworld.org/supply-management-news-and-reports/reports/ism-report-on-business/services/november/" target="_blank"><strong>ISM services PMI</strong></a> rose to record a healthy expansion, any by more than expected. New orders and employment both improved in a clear sign the giant American economy doesn't seem to be heading for a slowdown yet. (But to counter than enthusiasm, their internationally-benchmarked <a href="https://www.pmi.spglobal.com/Public/Home/PressRelease/af9bd2435c984707b19cb0501019743d" target="_blank"><strong>Markit services PMI</strong></a> is recoding a small contraction, something it has done for 4 straight months now.)</p><p>But supporting the ISM view, American <a href="https://www.census.gov/manufacturing/m3/prel/pdf/s-i-o.pdf" target="_blank"><strong>factory orders rose</strong></a> in October and by more than expected, and rose at a much faster pace than they did in September. It was their biggest rise in four months and they were more than +11% higher than year-ago levels, so more than inflation is at play here.</p><p>These improvements are confusing equity and bond markets. After last week's Powell guidance, markets had expected data to support the Fed's idea that the expansion pressures were waning and the central bank could ease back on their rate hikes. But this latest data is very expansionary and <a href="https://www.wsj.com/articles/fed-could-pencil-in-higher-interest-rates-next-year-while-slowing-hikes-in-december-11670208857?mod=hp_lead_pos1" target="_blank"><strong>keeps the pressure on</strong></a>. The next Fed decision is doe on December 15 (NZT).</p><p>In Canada, they did expect a bounce-back in