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 lead with news global equity values have slumped as investors reassess valuations following the US Fed's hawkish stance on inflation.

In the US, the Dallas Fed survey of factories in the American oil patch are still struggling, even if less so. The fall-off in new orders isn't as sharp in August and the Outlook, and Business Activity scores are less negative in August than in July. Production is still expanding although at a now-small rate. But employment remains very strong. These firms are now less negative about their future than a month ago.

A new report claims the American financial system, with nearly US$23 tln in assets, "is more liquid and better capitalised than ever". Their overall Common Equity Tier 1 Capital (CET1) is now 11.0%. However for perspective, for the main banks in New Zealand that same CET1 level is 11.9% and if Kiwibank is excluded it is 12.4%. RBNZ capital-boosting efforts are paying off.

International companies are shifting to build new manufacturing capacity in the US. This is best exemplified by the rush to build EV battery capacity there, with now 14 new such ventures announced. Even Chinese companies are part of the overall shift, although they are tending to base their new facilities in northern Mexico.

A survey of American companies operating in China found them gloomy about future prospects. Optimism about the future business outlook has dropped to a record low in 2022. That said, those companies continued to report strong performance metrics for the past year, with almost 90% saying their China operations are profitable.

This separation between the world's two largest economies isn't leaving China feeling very happy at all.

China’s factory activity likely contracted again in August, an updated Reuters poll is showing, as pandemic flare-ups and a distressed property sector pummeled demand while a power crunch in southwestern China hit production.

And in a sign of some desperation, Beijing is sending high-ranking officials, including central bank governor Yi Gang and several cabinet ministers, across the country to supervise their recent stimulus policies. In advance of the upcoming Party Congress, they had better come back with 'good news'. It will be a tough gig for those sent to the provinces. They can't do much about the drought in the next few weeks. Food reserves are starting to be released from their strategic inventories, the first announced is for pork.

Singapore is still reporting very high rises in producer prices at +19%, but just not raging up as fast in August as they did in July (+28%).

Taiwanese consumer confidence was low again in August, but it has stopped falling. Recall it is at levels last seen in 2010.

In Australia, retail sales bounced back, triggered by the return of international tourists (much of which came from New Zealand) and stronger than expected local demand. Their July retail trade was up +15.8% from year-ago levels, far more than can be accounted for by inflation.

The UST 10yr yield starts today at 3.11% and up +8 bps after markets digested Powell's speech. 

The price of gold will open today at US$1738/oz and virtually unchanged from this time yesterday.

And oil prices start today up +US$3.50/bbl at US$96.50/bbl in the US while the international Brent price is now at US$102.50/bbl.

The Kiwi dollar will open today at 61.6 USc and a +¼c gain from, this time yesterday. Against the Australian dollar we still down at 89.1 AUc and a 5 year low. Against the euro we are still just under 61.6 euro cents. That all means our TWI-5 starts today at 70.8 and a small gain.

The bitcoin price is now at US$20,266 and up +1.4% from this time yesterday. Volatility over the past 24 hours has been moderate at just on +/- 2.2%.

You can find links to the articles mentioned today in our show notes.

And 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.