Kia ora,

Welcome to Monday’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 the fizzling Chinese economy is looking for a big policy boost from Beijing.

In Beijing, they said that at 4pm today (NZT) a senior official will announce new measures "to restore and expand consumption" in the government’s latest effort to engineer a revival in their economy. There have been a number of measures announced over the past few months with nothing effective so far, and all have fizzled against a backdrop of people prioritising savings as they turn cautious about their future. If this one is to be a game-changer, it would have to be pretty dramatic.

Emphasising their problems China, new data released for the June quarter showing that household mortgage balances were lower than in March as borrowers prioritised paying down this debt and took out much fewer new home loans. That is the first time that has ever happened. Rising household saving and aggressive deleveraging will make it harder for their economy to expand. When households lack confidence to invest and expand, it is then all down to the private, and especially the government sectors. Their "dual circulation" strategy is failing. The pressure is on Beijing.

And staying in China, we all know the north of the country has suffered through heat-dome conditions recently with its extreme temperatures. In the South it has been very heavy rain. Now new rains are hitting the north and they have issued 'red' alerts.

Taiwan said its economic activity (GDP) rose +1.5% in Q2-2023 to be +7.0% higher than a year ago. These results were better than expected, and interestingly outshone the mainland China results.

The Bank of Japan tweaked its monetary policy framework on Friday, providing more flexible bandwidth for government bond yields to fluctuate. Long-term interest rates rose sharply in the bond market ahead of the policy announcement, with the 10-year yield crossing the BOJ's ceiling of 0.5% for the first time in more than four months. But they claimed the move was a not a step toward giving up its ultra-lax monetary policy.

Over the weekend, the parallel inflation measure the US Fed prefers shows that inflation is easing there, but also not yet back to its target range. Core PCE prices, which exclude food and energy, went up by +0.2% in June from May and in line with market expectations. The annual rate rose by +4.1%, the lowest since September 2021 and less than market expectations of +4.2%. When including food and energy costs, the PCE price index rose +0.2% from the previous month and +3.0% from June a year ago, the lowest increase in 27 months. The headline rate fell far faster than the core rate because oil prices decreased sharply.

Meanwhile personal income rose +5.5% from year ago levels, and personal spending rose +3.7% on the same basis. Household savings rose. They seem to be in a goldilocks period.

EU sentiment continued its decline in July, with both consumer and business sentiment easing. Employment expectations are down too.

German economic activity was unchanged in the June quarter after falling -0.1% in the prior quarter. Technically that isn't two consecutive quarters of decline so no 'recession'. But it isn't a great result and Q2-2023 has ended down -0.6% from the same quarter a year ago so no way can you say that is progress.

In Australia, cost of living pressures are being felt in their retail trade, with retail sales unexpectedly falling in June and by -0.8% which was enough to mean that there was no gain in retail trade in Q2-2023. And they were only up +2.3% from a year ago. This means, because they have inflation at 6.0% there are 'real', volume reductions in retail turnover there.

Australian producer prices rose at just a +2.0% rate in Q2-2023 from Q1. Year on year they were up +3.9%, which is a fast slowing from the +5.2% in Q1 on the same basis. That confirms the recent shift lower.

The UST 10yr yield will start today at 3.96% and unchanged from Saturday. 

The price of gold will start today at US$1959/oz and down -US$1 from Saturday, but very similar to levels both one and two weeks ago

And oil prices are up another +50 USc at just over US$80.50/bbl in the US. The international Brent price is now just over US$84.50/bbl. But these levels are +US$3.50 above week ago levels (+3.9%).

The Kiwi dollar starts today little-changed at just on 61.6 USc and very little different to week-ago levels. Against the Aussie we are firmer at 92.7 AUc. Against the euro we unchanged at 55.9 euro cents. That all means the TWI-5 has held 69.7. A week ago it was at 69.5 so a mere +20 bps higher than then.

The bitcoin price has firmed very slightly again since this time Saturday, still in its long yoyo pattern. It is up +0.3% and now is at US$29,397. A week ago it was at US$30,023. Volatility over the past 24 hours has remained low, also at just over +/- 0.3%.

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.