Kia ora,

Welcome to Thursday’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 high and rising inflation in Australia is leaving their central bank with some ugly choices.

But first, US mortgage applications rose last week from the prior week, a third week of improvement, while mortgage interest rates remained largely unchanged. But year-on-year the variations still remain very negative.

The Canadian central bank raised the target for its overnight rate by +25 bps to 4.50% as expected, and signaled the end of its current aggressive tightening phase. But it is continuing its sell-down of bonds

China might be on holiday this week, but their weather is becoming a story there. Temperatures have dived - and that has caught out their energy system to supply enough heating in some key regions and cities. Local governments starved for cash after enormous spending on their “zero Covid” measures cannot afford to keep up adequate supplies of natural gas. And they are in no position to bring in subsidies which have been a strategy in the past to make heating and cooking affordable in winter. As the pandemic spreads illness, the cold is adding to the misery of millions. These are problems China doesn't need right now.

Singapore said its consumer inflation rate rose by 6.5% in December 2022, which was less than the 6.7% it recorded in November. And the annualised rate from November to December rose at just a +2.5% rate.

Yet another sentiment indicator from Germany reports recovering conditions, this one for business sentiment from Ifo. Bolstering these surveys, the German Government said its economy will not fall into recession in 2023, which given what is going on, on its borders, is an impressive achievement.

EU corporate earnings are surprising some with their staying power, and also dispelling fears a recession is imminent there.

In Australia, their CPI rose +7.8% in the year to December. That was above market expectations and its highest since 1990. The most significant price rises were domestic travel (+13.3%), electricity (+8.6%), international travel (+7.6%). Food prices rose +9.2% there. The RBA next reviews its cash rate target on Tuesday, February 7, 2023. It is more likely to be a substantial rise now to be followed by more big ones - and that in turn may affect the RBNZ thinking for its February 23, 2023 MPS review.

The RBA seems to be at an inflection point, with tough choices. Either go hard and risk recession or hold off and risk a wage-price spiral.

And staying in Australia, their new home market is retreating faster. Sales of new homes fell by -4.6% in December leaving sales in the final quarter of 2022 a remarkable -42% lower than at the same time in 2021. Anecdotal data in New Zealand suggests a similar pattern is developing here in 2023.

The UST 10yr yield starts today at 3.46%, and little-changed from this time yesterday. 

The price of gold will open today at US$1936/oz and up another +US$5 from this time yesterday.

And oil prices start today up +US$1, at just under US$81/bbl in the US while the international Brent price is little-changed at US$86.50/bbl.

The Kiwi dollar has fallen by -½c from this time yesterday, now at 64.6 USc. Against the Australian dollar we start today down a full -1c at 91.3 AUc. Against the euro we are down -½c at 59.3 euro cents. That all means our TWI-5 starts today at 71.2, and down -70 bps from yesterday.

The bitcoin price is a little lower again, now at US$22,622 and down -1.0% from this time yesterday. Volatility over the past 24 hours has remained modest at +/- 1.6%.

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 will do this again tomorrow.