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.

First we should note that it is a public holiday in New Zealand and markets are closed here today.

Today we lead with news the US dollar has hit a 20 year high on global recession fears, and that is causing issues around the world, including for New Zealand.

It won't make getting our inflation back under control any easier given how much is cause by the tradeables sector.

In the wider Asian region the strong US dollar will hurt. The yuan makes up more than a quarter of the weighting of Asian currency indexes. And the Japanese yen is the third-most-traded global currency, so its weakness has had an outsized impact on its Asian counterparts. 

At the same time the Chinese economy is shrinking. And it will soon take further steps to bolster consumption.

In China, home loan interest rates have dropped to record-low levels in at least 80 major Chinese cities, as financial regulators endeavour to keep the property market afloat. In September, over 80% of 103 key cities surveyed show first home loan rates have fallen to 4.1%, while second home loan rates have fallen to 4.9%.

Singapore's annual inflation rose to 7.5% in August which was above the 7.2% expected by analysts, and above the 7.0% they had in July. Generally ASEAN inflation is something to keep an eye on, and the surging US dollar won't be helping. Malaysia's inflation is rising and is at 4.7%. Indonesia is also at 4.7%. Thailand is at 7.9%.

Taiwan's inflation rate is low (like China's) and currently running at 2.8%. But their retail sales activity expanded +12% from a year ago, and their industrial production is up at record levels.

In Italy, they are voting, deciding whether to choose their most right-wing government since WWII. It's an election being followed in Europe. Giorgia Meloni leads the far-right Brothers of Italy party and is aiming to become the country's first female prime minister, allied with two other parties on the right. We will know exit poll indications tomorrow.

Staying with parties of the Right, new tax cuts and outsized public spending and subsidies in the UK seem to have crashed the British currency. What they will do for their economy is uncertain, but it is a huge 'experiment' that markets are judging will have an unhappy ending. Nouriel Roubini says this will end in an IMF bailout of the country.

There were a couple of early PMIs out over the weekend. The American one reported that private sector output fell at softer pace as new orders returned to growth in September. Their factory sector expanded in September, but their services sector didn't even if the contraction was very minor. The American economy may be doing better than the financial markets because higher interest rates cause a revaluation down of financial instruments (and cause losses) whereas the real economy responds to consumer signals, not Wall Street signals.

Canada reported retail sales activity for July overnight and it wasn't positive with both month-on-month declines (their first in seven months) and year-on-year retreats.

The early Eurozone PMI for September reported a steeper downturn as price pressures intensified. Both their factory and service sectors are contracting this month, but the quantum is quite small at this stage. The negative impacts are strongest in Germany. The French activity is positive and helping to hold up the overall results.

Early Australian PMI indexes show their factory sector expanding at a good pace in September and faster than in August. But their services sector is not mirroring that, more or less marking time.

But much of Australia is exposed to mining, and commodity prices are retreating. Now credit rating firm Moody’s has changed its outlook for the global metals and mining Industry from stable to negative as a global economic slowdown continues to soften demand.

Over the past week, the price of copper has fallen -2.8%. Over the past month it is down -8.4%. For aluminium it is -5.6% and -10.1% respectively. For iron ore it is-2.0% and -8.2% respectively. But there are others still rising, like nickel which is down -5.5% in a week but up +8.9% in a month. Then there is coal, up marginally this past week and up +4.5% in a month. Wheat is up a sharpish +6.7% over the past week and up +12.1% over the past month.

The UST 10yr yield starts today at 3.69% and marginally lower than this time Saturday but it has still been a +23 bps gain in a week. 

The price of gold will open today at US$1645/oz. This is up +US$3 from this time Saturday.

And oil prices start today still much lower at just under US79.50/bbl in the US while the international Brent price has risen about +US$1 to be just under US$86/bbl. These are still about eight month lows.

The Kiwi dollar will open today at just on 57.4 USc. This is its lowest since briefly in the first few days of the first pandemic lockdown, and prior to that 13 years ago. Against the Australian dollar we softer at just under 88 AUc and still near its lowest in seven years. Against the euro we are little-changed at just under 59.3 euro cents. Against the yuan we are down under ¥4.1 and its lowest since 2015 (except the pandemic) .That all means our TWI-5 starts today at 67.9, and down -50 bps to a seven year low (also pandemic-excepted).

The bitcoin price is now at US$18,981 and up +1.2% from this time Saturday. It has been under US$20,000 for eight straight days now. Volatility over the past 24 hours has been low at just on +/- 0.9%.

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.