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.

And today we lead with news it is the same story continuing, benchmark yields are still pushing higher.

But first, after the prior week's rather unexpected surge, American mortgage applications fell last week, reverting to the negative trend we have seen since May 2023. The usual culprit was responsible; mortgage interest rates rose again, this time to 7.41% plus points, their highest level since December 2000.

And staying in the US, new orders for durable goods rose +0.2% in August from July, a minor recovery from the -5.6% slump in July. But the result was better than market forecasts of a -0.5% fall. This leaves overall August orders +3.0% higher than a year ago. Capital goods orders are +2.5% higher than a year ago on the same basis, but they did slip -1% in August from July.

Meanwhile, American household bank deposits fell for the first time in data going back to 1994, according to FDIC data. Total deposits slipped -4.8% in the year through June to about US$17.3 tln as customers pulled out money to invest in higher-yielding alternatives. In a country as large as the US, that involves a movement away from banks of -US$900 bln. The main beneficiaries were money-market funds.

In China, they released August industrial profits data yesterday. That shows profits fell by -11.7% from a year earlier in the first eight months of 2023, amid weak demand at home and abroad and persisting margin pressures. The decrease followed a -15.5 % slump in the prior period and a -4% fall in 2022. In August alone, profits rose +0.8% from the same month a year ago, far less than inflation, but the first such rise in three months. In July, they fell -1.4% from a year ago, so things may be bottoming out.

China has put the boss of Evergrande under effective house arrest. Evergrande is teetering on bankruptcy, so this may be a move to prevent him fleeing when that comes. Its restructuring plans look like they will fail, so a full formal collapse seems the next step.

In Europe, bank lending to households rose just 1% in August from a year ago, the lowest growth rate since 2015, as a result of the continued slowdown in credit demand from the ECB's policy tightening measures. Lending growth to companies slowed sharply to just +0.6%, representing its lowest level since December 2015.

Australia has a monthly "CPI indicator" series, tracking inflation between their main quarterly assessments. For August that came in at 5.2%, up from 4.9% in July. In June the rate was 5.4% although the overall Q2 official Aussie CPI was 6.0%.

Australia released job vacancy data but it is on a delayed basis and the latest is for May. That shows job vacancy levels slipping away - quite quickly, and down -10% from a year ago. It would have been worse without a +14% rise in public sector job vacancies. The private sector saw their vacancies fall by more than -12% from a year ago in May. With their labour market softening, perhaps it is no surprise that Australia's retail turnover is very lackluster, hardly growing in current dollar terms and nowhere near enough to account for inflation.

But the main overnight news continues to be the rise and rise of benchmark interest rates. The UST 10yr yield starts today up another +9 bps from yesterday at 4.64% to yet another recent high. Curves are flattening. 

The price of gold will start today at just on US$1875/oz and down -US$26 from yesterday. This is its lowest level since February 2023, all driven by the sharply rising yields.

And oil prices are moving up today, +US$3 firmer at just under US$93/bbl in the US. The international Brent price is just over US$94.50/bbl. This takes them back to levels we last saw in July 2022.

The Kiwi dollar starts today at 59.2 USc, down -¼c from this time yesterday. But against the Aussie we are up to 93.1 AUc. Against the euro we still at 56.4 euro cents. That all means our TWI-5 starts today at 69.4 and down just -10 bps.

The bitcoin price has moved fractionally lower from this time yesterday, and it is now at US$26,216 and is down only -US$31 from then. Volatility over the past 24 hours has been modest at just under +/-1.4%.

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.