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.

Today we lead with news the downturn in China is something that could quickly spread regionally.

But first up today, the rise in retail sales at physical stores in the US was +4.7% last week, off the pace of the prior week's +5.1% gain, but still a healthy economic sign, and still well above inflation's level.

Speaking in inflation, American producer prices rose less than expected in July from June to be +2.2% higher than year-ago levels. These muted increases raised bets of a softer CPI result tomorrow, backing expectations of a Fed rate cut next month. Equity markets responded like this.

And the NFIB Small Business Optimism Index in the US jumped in July from June to its highest since February of 2022. It is recovering fast from quite low levels earlier in 2024, and is now +2% higher than year-ago levels.

Japanese machine tool orders rose +8.4% year-on-year in July 2024, slowing from a +9.7% growth in the previous month. This was built on the almost +18% jump in orders from export customers.

In China, their official media is talking up a story that says Beijing should provide additional direct support to consumers worth at least ¥1 tln (NZ$230 bln) either in cash or as vouchers for the rest of 2024 to "effectively address the pressing challenge of lackluster domestic demand".

And overnight China released its July new yuan loan data and it was especially weak. Bank customers are wary of borrowing in their stunted market, despite top-down pressure on banks to push out loans. Chinese banks extended just ¥260 bln (NZ$60 bln) in new yuan loans in July, the least since October of 2009. For a country the size of China, that is an amazingly low level.

We don't often report on South Africa, but today we probably should note that their unemployment rate rose to 33.5% in Q2-2024, the highest in two years, up from 32.9% in the prior period. That was a surprise deterioration because analysts had expected it to ease to 32.3%. The number of workers jobless rose by +158,000, reaching 8.4 mln, marking the highest figure since comparable records began in 2008. They are in a tough spot.

In Europe there was a sharp and unexpected fall in overall economic sentiment in August according to the widely-watched ZEW survey. But that is off a recent surge, taking it back to 2021 levels.

In Australia, the Westpac-Melbourne Institute Consumer Sentiment index rose by +2.8% from the prior month to a six-month high of 85.0 in August, although this is still quite a low level. Views on family finances bounced back from last month but remain weak. But there were some clearer signs of support from tax cuts and fiscal measures. Consumers seem less worried about further interest rate increases than last month, and Australians are still untroubled by jobs outlook. However, home-buyer sentiment sank to new lows as price expectations cooled noticeably.

Australian business sentiment is still positive even if it did ease in July and June's positive reading was revised down a bit.

The UST 10yr yield is now at just on 3.86% and down -5 bps from yesterday. 

The price of gold will start today down a minor -US$3 from yesterday at US$2465/oz.

Oil prices are -US$1 softer at just under US$77.50/bbl in the US while the international Brent price is now just on US$80.50/bbl. This pullback comes after the IEA warned of a looming crude oil surplus.

The Kiwi dollar starts today up +½c from this time yesterday at just on 60.7 USc. Against the Aussie we are up +20 bps from yesterday at 91.6 AUc. Against the euro we are up +20 bps at 55.3 euro cents. That all means our TWI-5 starts today at 69.2 and up +30 bps.

The bitcoin price starts today at US$61,392 and up +3.5% from this time yesterday. Volatility over the past 24 hours has been moderate at just under +/- 2.6%.

Join us at 2pm today for our coverage of the RBNZ's Monetary Policy Statement and the latest on the Official Cash Rate.

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.