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 of some major emergency moves in China to reinvigorate their economy.

But first, there was a good GDT Pulse auction result earlier this morning, although the reverse of what the futures markets had signaled. There was no gain in SMP prices, holding its recent higher levels. But the important WMP price rose +2.8% from the full auction a week ago and back to levels of a year ago.

This is a good backdrop to this morning's Fonterra 2023/24 results announcement.

The expansion of American retail sales at physical stores rose +4.1% last week from the same week a year ago. That is good but a slowing from the gains since August. A year ago they were rising +3.6%.

But the widely-watched Conference Board consumer sentiment survey for September has brought a hesitation, slipping to the lower end of the narrow range it has been in for the past two years. Worries about job security seems to be a key factor here, although we probably shouldn't make too much of a range-bound shift.

Election jitters have hit the Richmond Fed's factory survey covering the mid-Atlantic states, all "battle-ground states" where uncertainty of the outcomes is pronounced.

There was a very well supported US Treasury 2 year bond auction today, delivering a median yield of 3.47%. That is down from 3.83% at the equivalent event a month ago. In both more than US$100 bln in bids went unsatisfied.

And ratings agency Moody's has warned that a downgrade for the US Federal Government is a live possibility unless it tackles its growing deficits. This comes a year after it placed the AAA rating on 'negative outlook'. Clearly it is watching this with some unease.

Across the Pacific, Japan's business activity continues to rise, largely based on a service sector that is now expanding at its fastest pace since April. Factory activity isn't expanding however, according to this PMI survey.

Taiwanese export orders rose +9.1% in August from the same month a year ago, to a nine month high.

In China, "a leading Chinese economist" and politician has called for Beijing to launch a ¥10 tln stimulus package (NZ$2.2 tln) equivalent to 8% of Chinese GDP, to tide their economy over through the rest of 2024, as credit growth and domestic demand remain drained of energy. The economist calling for this is Liu Shijin, deputy-director of the China Development Research Fund and deputy-chair of the economics committee of the Chinese People's Political Consultative Conference (CPPCC). He has been echoed by Yu Yongding.

Responding to the plea for a jolt, the Governor of the Chinese central bank said in a rare briefing that they will cut their reserve requirement ratio by 50 bps, and likely match that again before the end of 2024. Together, these will add ¥2 tln 2024 liquidity. .He also said that the seven-day repo rate will be reduced by 20 basis points to 1.5%. And there will be a -30 bps drop in their medium term lending facility. Mortgage rates will be dropped by -50 bps and the minimum deposit on a home purchase will be dropped to 15%. They did not specify exactly when these changes will go into effect however. More here.

Although these measures have more than a whiff of panic surrounding them, clearly President Xi has given his officials a rocket to act quickly to turn around an economy stuck in a rut. And equity markets responded with their own rocket.

And so did some components of the commodities market; copper, for example. We may see more commodity action today. But we should also keep in mind the program announced yesterday is very much less than what its own experts are calling for.

Yesterday, the RBA's policy review kept its rates unchanged in the face of higher than target inflation levels. It has been four years since they have had a rate cut. But inflation remains above target and is proving persistent so their room to move is limited.

The UST 10yr yield is now at just on 3.73% and down -2 bps from yesterday. 

The price of gold will start today at US$2650/oz and up +US$32 from yesterday to yet another new all-time high.

Oil prices have risen +US$1 to US$71.50/bbl in the US while the international Brent price is now just on US$75/bbl.

The Kiwi dollar starts today at 63.3 USc and up +½c from this time yesterday and its highest of the year and back to where it ended in 2023. Against the Aussie we are up +40 bps at 92 AUc. Against the euro we are up +30 bps at 56.7 euro cents. That all means our TWI-5 starts today at 70.6, and up +40 bps from yesterday and a three month high.

The bitcoin price starts today at US$63,216 and little-changed from this time yesterday. Volatility over the past 24 hours has been low at just under +/- 1.0%.

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.