Kia ora,

Welcome to Friday’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 news the down-graded Fitch rating is costing the US higher wholesales interest rates. But to be fair, the benchmark UST 10 year yield is only back to what it was in late October, but that was a post GFC high.

And perhaps we should note a comment by Warren Buffet overnight: "There are some things people shouldn’t worry about," he said. "This is one."

In fact, the latest US earnings season company reports show that there is a definite shift to reinvest rising profits in new projects rather than returning money to shareholders. This is a big shift and a positive sign, probably an indication that the collective corporate view is that they will have no recession and that opportunity abounds.

Meanwhile, US jobless claims actually fell last week but not by as much as seasonal factors would have expected. (In seasonally adjusted terms there was a reported rise.) There are now 1.836 mln people on these benefits, unchanged in a week. The number of job cuts reported in July also fell, and to their lowest level in almost a year.

Remember, we get the US labour market reports for July tomorrow, and analysts expect non-farm payrolls to grow +200,000, similar to the June expansion.

And recall yesterday we noted that the US Markit manufacturing PMI "improved" slightly (contracted less) to be basically at a steady state helped by new orders. Today we can report that the equivalent survey for their services sector slipped to a lesser expansion. This one found a slower rise in new business despite sharper uptick in exports. It also found hiring that was slowing - still rising but at a slower pace.

Meanwhile, the widely-watched local ISM services PMI slipped as well, to a very similar level to the Markit expansion, and noting similar reasons.

At the same time, factory order data was released for the US for June, and that came in much better than it has been recently. Despite that however it wasn't enough to exceed the order levels of June a year ago (-0.2%) although if you exclude orders by their military, they are rising.

In China, the private Caixin services PMI has delivered a surprise, and a positive one. The official services PMI earlier recorded a fast-slowing sector. But this alternative survey paints the opposite picture. It rose in July back to a modest-to-moderate expansion from June’s five-month low, beating forecasts of a further slip. It was the seventh straight month of expansion in services activity supported by a small uptick in new orders, and a good expansion in their payroll numbers, the fastest pace in four months. New orders growth accelerated, despite foreign demand expanding at a minimal pace that was the slowest for six months.

They aren't now getting international orders, India is.

In India, new order growth remained high in their factory sector in July although the pace softened a little bit. However, they reported a near-record upturn in services exports spurring their fastest expansion in new services business since 2010.

And China is facing some urgent challenges to its food supply. The recent deadly rains have damaged crops and their rice harvest fell, the first time it has done that in five years. At the same time India, Russia and the UAE have recently announced rice export bans. Global rice prices are rising.

The English central bank raised its policy rate by the expected +25 bps to 5.25% which is a fourteenth consecutive increase and a 15 year high for them. But they probably have more to go; this new rate is lower than the US Fed and the RBNZ, and they have much higher inflation (7.9%) than either the US (3.0%) or NZ (6.0%). They are not expecting their inflation rate to retreat to its target range until 2025.

Australia's trade surplus had another stellar result in June, although nowhere near its record. It widened to a three-month high of +AU$11.3 bln in the month from a downwardly revised +AU$10.5 bln in May, beating market forecasts of an +AU$11 bln gain, even as exports fell but they fell less than imports.

And staying in Australia, their office vacancy rate has now risen to its highest level since 1996, at 12.8%. Vacancy rates are much higher in Melbourne especially, and Sydney. The Melbourne problem is exacerbated by significant overbuilding as well.

Perhaps reflecting the 'no recession' vibe and an uptick in global trade, containerised freight rates surprised has week with an almost +12% rise. Most of this was from outbound China freight to the US and Europe. But we didn't see an equivalent rise in bulk cargo rates.

The UST 10yr yield will start today at 4.20% and up +13 bps from this time yesterday and equalling their October high. 

The price of gold will start today at US$1934/oz and down -US$3 from yesterday.

And oil prices are back up +US$2 at just over US$81/bbl in the US. The international Brent price is now just over US$85/bbl. Saudi Arabia said it might cut oil production more if the previous cuts fail to raise prices. But the world seems to need less these days, and higher prices just spur more alternatives.

The Kiwi dollar starts today slightly softer at just on 60.8 USc. Against the Aussie however we are also a bit softer at 92.8 AUc. Against the euro we are soft at 55.5 euro cents. That all means the TWI-5 has fallen another -10 bps to 69.4.

The bitcoin price is little-changed today since this time yesterday and is now at US$29,228 and up a mere +0.3%. Volatility over the past 24 hours has been low at just under +/- 0.7%.

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 on Monday.