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.

Today we lead with news

China is facing a very tough period trying to fix its broken pandemic response.

But first, new US jobless claims were little-changed last week at 248,000 with 1.6 mln people on these benefits out of a total workforce of 165 mln people.

The final Q3 GDP growth measure for the US came in at +3.2%, topping earlier estimates and topping analysts expectations. Driving this revision was more actual consumer spending activity that earlier estimated. You may recall that prior to the first estimate, there were fears Q3 would show a decrease, but the facts proved the pessimists wrong. Of course they have turned their pessimism to the future and ignore their prior error.

This strong data, along with the continuing strong labour market, means the US Fed is far from finished with its rate hikes and there is likely to be more monetary tightening. This conclusion has caused Wall Street to retreat rather sharply today. The Nasdaq is particularly hard hit.

After a historically low rate of change between 2020 and 2021, the American population increased by +0.4%, or 1,256,003, to 333,287,557 in 2022. Basically this is because they welcomed 1 mln immigrants this year. For reference, the New Zealand population is growing by +0.2%.

In Japan, the bond market has begun to price in the consequences of the Bank of Japan's decision to give interest rates more freedom. Yields on two-year Japanese government bonds -- the most sensitive part of the yield curve when it comes to monetary policy expectations -- moved into positive territory on Wednesday for the first time in seven years. On Thursday, they held at 0%.

While the bank's officials insists this week's policy decision is not a rate hike, many observers see the move as a step toward the end of Japan's negative interest rate era.

The market consequences for homeowners in Japan may come as a bit of a shock if they have a mortgage.

In China, a Shanghai hospital has told its staff to prepare for a "tragic battle" with COVID-19 as it expects half of the city's 25 mln people will get infected by the end of next week, while the virus sweeps through China largely unchecked.

China probably has 1 million Covid infections and 5,000 deaths every day. The current wave may see daily cases rise to 3.7 million in January. Even so, the country is said to be planning to cut quarantine requirements for overseas travelers. The situation is confusing everyone, including policymakers, and so much so, China's online censors don't know what to do.

Separately, prices for solar panels are now falling very fast. On Wednesday, the average prices of two key types of wafers each fell by -10% or more in the past week. Their prices were down -18% and -25% respectively from a month before.

Turkey left its official policy rate at 9%, even though inflation is now up to 84% and their currency has devalued -44% in 2022. There is no evidence yet that the Erdogan policy is anywhere near working.

In Australia, a Parliamentary review of their central bank's performance has been sharply critical of the way the RBA uses the 'blunt instrument' of interest rates. In a unanimous report, it said the RBA needed to better consider which households were driving demand-side inflation and whether raising interest rates would affect consumption in a way that curbs it. The parliamentarians don't want consumers facing intensifying cost-of-living pressures and challenging work and business conditions to be impacted by RBA policy decisions. They seem to not want any measures to fix those pressures to hurt anyone. They insist on solutions without pain or consequences. The whole thing is quite extraordinary.

Global shipping container freight rates were unchanged last week, interrupting a long string of retreats. However bulk cargo rates rose sharply at the same time.

In New Zealand as at the end of November, housing loans outstanding rose +$1.3 bln from October to $344 bln, a rise of +4.8% from the same month a year ago. That is the smallest year-on-year rise since January 2015.

Interestingly, loans to businesses rose +$1.4 bln from October, a rare time the banks business book has grown faster than their housing book.

At the same time, total bank deposits rose +$3.4 bln in November from October to a record $436 bln. Household deposits rose +$1.0 bln but were up $1.5 bln for term deposits after a fall in transaction and savings account balances. Household term deposits rose to more than $100 bln in November for the first time since July 2020. (Their record high was $104 bln in August 2019.)

The UST 10yr yield started today at 3.66%, and down -1 bp from this time yesterday. 

The price of gold will open today at US$1795/oz and down -US$23.

And oil prices start today marginally lower from this time yesterday at just under US$78/bbl in the US while the international Brent price is just over US$82/bbl.

The Kiwi dollar opened today at 62.5 USc and down another -¼c. Against the Australian dollar we are little-changed at 93.8 AUc. Against the euro we are lower at 59 euro cents. That all means our TWI-5 starts today at 71 and down another -20 bps.

The bitcoin price is now at US$16,636 and down -1.0% from this time yesterday. Volatility over the past 24 hours has again been low again at +/- 0.7%. In the US, the SEC is raising the scrutiny of the work audit firms do for cryptocurrency companies and warned investors to be wary of claims made by crypto companies.

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 on Wednesday after a short break.