Kia ora,

Welcome to Wednesday’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.

And today we lead with both the US and China are both back from holiday breaks - to lackluster prospects.

But first, the GDT dairy auction earlier today resulted in little overall change (+0.5%), although the strengthening NZD did push the result in local currently lower (-1.1%). This auction did record a big drop in the cheddar cheese price (-7.6%) but a good rise for mozzarella (+5.3%). SMP also rose (+1.3%) but the key WMP price fell (-1.8%. Today's result does not interrupt the general trend of rising prices that started in September last year and is probably an inconsequential hesitation at this point. No farm gate payout prices are likely to be affected by this even if it is the weakest result since November.

In the US, the Conference Board's index of leading indicators slipped again in January. It has been slipping slightly for a while, but this update was the least in the series.

The FT is pointing out that large banks have more commercial property bad debt than they have reserves for it. The steady discounting of commercial property values as interest rates rise is catching out even the majors now. Their analysis shows that the average reserves at JPMorgan Chase, Bank of America, Wells Fargo, Citigroup, Goldman Sachs and Morgan Stanley have fallen from US$1.60 to 90 cents for every dollar of commercial real estate debt on which a borrower is at least 30 days late, according to filings to the FDIC.

Canadian CPI inflation fell to 2.9% in January from 3.4% in December. The Bank of Canada has a formal target to keep inflation at the 2% midpoint of a 1% to 3% range. The move lower is seen as a positive development in their battle against inflation.

The Chinese central bank has surprised markets somewhat with its Loan Prime Rate moves. They didn't change their one year rate, holding it at 3.45% when a -15 bps cut was expected. But they did cut their 5 year LPR by -25 bps when a -15 bps cut was expected. That is the biggest cut they have ever made to this rate. The five year rate underpins their home loan market. The one year rate is more of a reference for other consumer and business lending. These changes show that Beijing's worries about their failing property sector are front-of-mind. However, despite its boldness the moves met with yawns in the market.

Prices for steel reinforcing bar (rebar) fell in China yesterday, and sharply to their lowest level of the year. These buyers have not returned from their New Year break in a positive mood, it seems. The retreat isn't overly large but it does essentially wipe out the gains built up in the expectation of major new infrastructure stimulus.

The UST 10yr yield starts today at 4.26% and down -7 bps from this time yesterday. 

The price of gold will start today up another +US$11/oz from yesterday at US$2027/oz.

Oil prices are -US$1.50/bbl lower at just on US$77/bbl in the US while the international Brent price is down a bit less to US$81.50/bbl.

The Kiwi dollar starts today at just on 61.7 USc and up +¼c and it’s highest in more than a month. Against the Aussie we are also firmer at 94.2 AUc. Against the euro we are still at 57.1 euro cents. That all means our TWI-5 starts today at just on 71.1 and up another +20 bps from yesterday.

The bitcoin price starts today at US$51,608 and down a minor -0.6% from this time yesterday. Volatility over the past 24 hours has been modest at +/- 1.8%.

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

You can 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.