Waiting for the Fed

<p>Kia ora,</p><p>Welcome to Thursday’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 the big news of the day, the one markets are waiting for, is the US Fed review and its policy re-positioning. But that isn't released until 8am NZT, so this section of our report will be updated when these details are released, on our website. Markets are now expecting them to raise their policy rate by +25 bps, which is a downshift from the recent pace. That will take the upper bound to 4.75%.</p><p>But before that, there is other important data out today in the US.</p><p>First, there were two parallel PMI reports out overnight for the American factory sector. The widely-watched <a href="https://www.ismworld.org/supply-management-news-and-reports/reports/ism-report-on-business/pmi/january/" target="_blank"><strong>ISM</strong></a> one slipped slightly further into contraction, but the new orders component was particularly weak. The internationally benchmarked <a href="https://www.pmi.spglobal.com/Public/Home/PressRelease/065bcb34ca03491889e869481da229f5" target="_blank"><strong>Markit</strong></a> one reported that same decline, but this is a sharpish recovery for this survey. They say new order flows only softened slightly. For both reports, that is now three months of contraction.</p><p>US <a href="https://www.mba.org/news-and-research/newsroom/news/2023/02/01/mortgage-applications-decrease-in-latest-mba-weekly-survey" target="_blank"><strong>mortgage applications</strong></a> resumed their downward track last week, falling -9% to be -41% lower than a year ago. There was little change in mortgage interest rates last week.</p><p>This weekend we get the next US non-farm payrolls report and that is expected to show +185,000 rise which will be less for January than December. Today, the precursor <a href="https://adp-ri-nrip-static.adp.com/artifacts/us_ner/20230201/ADP_NATIONAL_EMPLOYMENT_