Brad Olsen: Infometrics Principal Economist on the US jobs report, the Prime Ministers trip to the UAE and oil prices rising 3% over the weekend.

The strong US jobs report is out and raising questions about further interest rate cuts.

A quarter of a million jobs were added to the market in December, causing the unemployment rate to drop to 4.1%.

As employment rose stock prices fell as a result of such strong labour market data.

Economist Brad Olsen joins the show to discuss how this will affect New Zealand, the Prime Ministers trip to the UAE and oil prices rising 3% over the weekend.

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Episode Transcript

Speaker 1 (00:09):
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Speaker 2 (00:16):
Brad Austin, Good morning, Happy new year.

Speaker 3 (00:18):
Good morning. It's a happy new year to you too, Tim.

Speaker 2 (00:21):
Excellent strong US jobs report hits the markets.

Speaker 3 (00:26):
Yes, we saw a bit of a blockbuster you come
out of the US over the weekend. Just over a
quarter of a million jobs, two hundred and fifty six
thousand new jobs springing up in December. That was far
better than forecasters had expected. Now, although that sounds like
pretty good economic news, and it certainly is, it's also

(00:47):
sort of changed the gamer bit when it's come to
further expectations for interest rate cuts. You saw the likes
of the Dow Jones Industrial average down something like one
point six percent of nearly seven hundred points. And that's
because everyone's been looking at this job's report and been
going what is the US Federal Reserve going to take
from this? And in fact, a lot of forecast is

(01:08):
now have pushed out their expectations for a further cut
in the Fed funds rate out until June. In fact,
Bank of America came out and said, look, actually we
think that the Fed's done with interest rate cuts. There
are no more, and actually there could be interest rate
rises before the end of the year. So good short
term measure, but it does highlight that for the US,

(01:28):
the economy is sort of so strong that maybe there
are still some inflationary pressures and maybe there's not quite
as much need to actually cut interest rates anymore.

Speaker 2 (01:36):
What does that mean for us in New Zealand.

Speaker 3 (01:39):
Well, and this is the tricky thing for our reserve
bank that are still looking to cut through this year.
But if the US Federal Reserve isn't, that's going to
keep international borrowing costs a bit higher. So the Reserve
Bank really does have to potentially temper how much they
cut this year if no one else is cutting quite
as much. So still expectations locally that will have interest

(02:00):
rates go down, But again that sort of caution that
maybe we're a lot closer to the end of that
cutting cycle than expected, so maybe there's not quite as
much extra omphs that's put in the economy to try
and jazz it up and make us spend more this year.

Speaker 2 (02:13):
If that won't thrill property investors or bars, will it?
Never mind, Oil prices rose three percent over the weekend.

Speaker 3 (02:21):
Yes, a large to the highest level when I think
about three months with the likes of the Brent crude
oil futures having nearly eighty dollars for the first time
in a while, and that's because we've seen new sanctions
levied by the US on Russian oil production and the
sort of entire distribution network looks like US President Joe

(02:43):
Biden trying to get in a few more restrictions before
the end of his term and almost leaving a bit
of a bartering chip there for incoming President Donald Trump
and some of those conversations around the Russian invasion into Ukraine.
But long story short, what you've then seen is that
everyone's going, well, it's going to be either a lot
more difficult or a lot more expensive to try and

(03:04):
find oil. And for some of the major takers of
Russian oil, being China and India, are going, well, I've
got to find my oil from somewhere else now, which
is putting further squeeze on supplies that everyone else was buying.
So all of a sudden, you've got more expensive oil
in the market. Some of the big players now trying
to find a bit more globally, that's pushing prices up.

(03:26):
Now that comes after a pretty subdued last couple of months.
Certainly December oil prices seemed pretty flat, but a bit
more push of a push up at the start of
this year does mean that motorists might be having to
watch those fuel pump numbers just a little bit more
closely in the next couple of weeks.

Speaker 2 (03:42):
Okay, and the pme's after the UAE for a trade
deal signing a few other things.

Speaker 3 (03:49):
Yes, the flying visit. It seems the Prime Minis has
got to be back for the funeral of the Nelson
police officer are killed on New Year's on Thursday, and
so it is a brief trip. But going for the
signing of the new trade agreement, we've got two way
trade of I think one point three billion with the
United Ara Emirates at the moment, and on day one

(04:11):
when this deal is signed, ninety eight point five percent
of all of those that goods trade that New Zealand
has with the UAE becomes TARA free. So we know
the big winners at the moment are around the likes
of dairy being the biggest export into the market, but
some real opportunities as well as we go forward for
some of our advanced manufacturing, but also the likes of

(04:32):
horticulture and meat over time as well. So definitely a
strong option given we know there is a lot of
money coming through in the Middle East, certainly through the UAE.
We've got a pretty quick deal with them. So this
is encouraging news to start the year at a time when,
let's be clear, to trade is not particularly upbeat at
the moment. There's still a lot of questions and concerns

(04:53):
around tariffs and everything else. So the fact that we're
getting a bit more of an easier ride going forward
in the UAE better news to start the year.

Speaker 2 (05:02):
Do you expect it's to make a big difference to
the exports that we're having to the UAE.

Speaker 3 (05:08):
I don't know if it's sort of going to mean
that we're going to double or triple trade into the
UAE within a couple of weeks. It's not sort of
that jump start. But I think what it does do
is it probably provides a bit of a new area
of focus for a lot of exporters. Because we've now
got this agreement with the UAE, We've worked up more stuff,
more widely in the Middle East as well with the
Golf Cooperation Council. There's a lot of money in the

(05:31):
region at the moment that we can look to have
better export opportunities from. So I think it probably more
starts to put that spotlight a bit clearer on the area,
which means that over time, as everyone starts to get
a bit more involved, gets a little bit more trade growth,
you might well see that snowball from there.

Speaker 2 (05:48):
Good on you, Hey, thanks very much, Brad. That's Brad
Olson and Metrics, Chief executive.

Speaker 1 (05:52):
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