Kia ora,

Welcome to Monday’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 markets are ending the year mired in uncertainty.

So markets are looking for signals, especially about inflation's track. Ahead this week, there will be more indications from the November PCE measures in the US, along with sentiment indicators from the Conference Board, and separately from the University of Michigan survey. Both will give updated indications of inflation expectations.

In the meantime, an economic slowdown is coming. The first of the December PMIs are now available, on a 'flash' basis, and the American factory sector is now at its lowest ebb in 31 months, and now contracting. Their giant services sector is actually shrinking at a faster pace. The demand retreat the Fed wants is here.

And there are signs inflation is easing too.

American petrol prices are falling noticeably now. From a year ago, this week's national average price is -3.8% lower. More importantly for consumers there it is -15% lower than just a month ago. 

Import activity at some key US west coast ports are down sharply. There were steep declines in November and they are extending into December too. The US import engine is stuttering and many economies across the Pacific will feel the impact in an outsized way.

There were flash PMIs out for other countries too. In Japan, the Markit survey shows factory activity is now contracting at a similar rate to the US. But they still have an expanding services sector, and interestingly a faster expansion than in November. That may surprise a few analysts.

In the EU, everything is still contracting however. Their factory sector is shrinking at a lesser rate however, and their services sector is shrinking at a lesser rate too. These 'improvements' weren't expected. Germany provided the moderation here, a turnaround from November when it was France, but France is weakening faster now.

The German central bank sees a mild recession in 2023, and a moderate recovery after that. For them, it will be a soft landing, they say.

In Australia, private sector activity slowed amid higher interest rates in December. The service sector is still contracting and the wind has gone right out of the expanding factory sector, and that expansion has disappeared now.

In China, the week ahead will bring a central bank review of their loan prime rates.

Meanwhile, Beijing policymakers suggested that anti-pandemic restrictions could be loosened further as the government seeks to stabilise flagging growth. At their Central Economic Work Conference officials said they will "optimise and adjust" pandemic control policies. But cities are grappling with the consequences of very fast spread now. The streets of key cities are eerily quiet and people stay home, either to self- quarantine, or avoid infection. New supply chain chaos is coming. Foreign investors see a very tough 2023 ahead in China, especially American investors.

And that negative view is showing up in the Chinese government bond market. Foreign holdings of yuan-denominated bonds traded in China's interbank market declined further in November, marking the 10th consecutive month of outflows.

In Japan in the coming week, their central bank will review its policy positions. Now that inflation seems to be building there, these reviews have more interest. Japan will also release updated inflation data this coming week.

Locally, we will get November trade data (sure to be weak) and business confidence data for December, which may not be too flash either.

The UST 10yr yield started today at 3.49%, and up +1 bp from this time Saturday and re-building after the recent big drop. 

The price of gold will open today at US$1793 and up +US$3 from Saturday.

And oil prices start today little-changed from this time Saturday at just under US$75/bbl in the US while the international Brent price is just over US$79/bbl.

The Kiwi dollar opened today at 63.8 USc and little-changed. A week ago it was at 64.1 USc. Against the Australian dollar we are holding up at 95.4 AUc. Against the euro we are at 60.3 euro cents and also folding firm. That all means our TWI-5 starts today at 72.6 and back to week-ago levels.

The bitcoin price is now at US$16,695 and down 0.7% from this time Saturday. Volatility over the past 24 hours has been low at just +/- 0.4%.

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.