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 we lead with news necessity is moderating China's "wolf warrior" diplomacy - even though the original 'wolf warrior' is back as the Chinese foreign minister.

Late last week China announced that they will drop its tariffs on Australian barley imports that have been in place for three years. In response, Australia said it will suspend its case at the WTO. It was widely expected that China would lose the case. China had already lifted its block on importing Australian coal. But don't forget China still has a blockade on Australian wine imports. Until that is lifted, the Australian prime minister won't visit Beijing, a stance that is said to annoy the Chinese leadership.

Staying in Australia, their competition regulator has knocked back ANZ's AU$4.9 bln takeover of Suncorp Bank. It is not a complete surprise, with others working to merge Suncorp Bank with Bendigo Bank. The ACCC is also promoting that 'solution'. But the problem with the alternative is that would be two weak institutions combining, and it wouldn't necessarily result in any strength improvement. However, the ACCC said “We are not satisfied that the acquisition [by ANZ] is not likely to substantially lessen competition in the supply of home loans nationally, small to medium enterprise banking in Queensland, and agribusiness banking in Queensland. ... Second-tier banks such as Suncorp Bank are important competitors against the major banks, especially because barriers to new entry at scale into banking are very high”. ANZ said it isn't giving up and will appeal the ACCC ruling.

Separately, the RBA released its Monetary Policy Review and trimmed its 2023 growth expectation from +1.2% at its last MPR to +0.9% now, as higher interest rates and inflation bite. A year ago, the RBA expected the Australian economy to grow +2% so the change since then has all been quite negative. It sees widespread "trading down" by households (p 33) as a key driver of the waning growth. In fact it might be slowing fast enough that even +0.9% is optimistic. Higher nominal wages are also driving a very much higher tax take.

Singapore said its retail sales are struggling, down -0.8% in June from May and only up +1.1% from a year ago. The key drag was from car sales, but the non-car sales activity isn't that flash either.

In the US on Saturday, the rise of their non-farm payrolls came in less than the +200,000 expected, up only +189,000 in July from June in seasonally-adjusted terms. This was very similar to the June rise of +185,000. But it was far less than the +568,000 surge they had in July 2022. There are now 156.1 mln people employed by 'establishments', up +3.25 mln from a year ago.

Regular readers will know that we also look at the household survey because this broader view brings in the self-employed and unincorporated workforce. That shows (on the same basis) the number of people in jobs was up +268,000 in July from June, and that is +3.0 mln more than a year ago at 161.3 mln.

It is mid-sized and smaller firms still hiring strongly; large firms actually shrank their payrolls even if it was only minor.

Overall, their headline jobless rate held at 3.5%. Their participation rate held at 62.6%. Average hourly earnings rose +4.4% in July from a year ago, exceeding their CPI rate of 3.0% in the same period.

This overall outcome in July from June was significantly lower than the precursor ADP Employment Report of private payrolls indicated, and for a second consecutive month. But it is still an expansion, and the year-on-year increase of people in paid jobs remains impressive. And the ADP report also showed these private payrolls +3.1 mln more than a year ago, so very similar overall.

Two Fed officials said the slower job gains suggest the US labour market is now better balanced, arguing they may soon need to focus on how long to hold interest rates at elevated levels. (There are however twelve voting members making these decisions, not just these two.)

North of the border, Canadian employment actually slipped very slightly, down -6,400 when a +21,000 rise was expected and the June rise was an impressive +59,900. But it was a fall-off in part-time jobs that skewed this result. Full-time jobs held little-changed.

Across the Atlantic, German factory orders came through with encouraging results for June however. They were expected to fall -2% from May but in fact they rose an impressive +7.0%, building on the very good +6.2% rise in the prior month. If they keep this up, it can really move the German economy's dial. They were up +3.0% in June from a year ago, and remember this is 'real', inflation-adjusted data.

The UST 10yr yield will start today at 4.04% and unchanged from Saturday but a -16 bps pullback from Friday triggered by the US jobs report. 

The price of gold will start today at US$1943/oz and up +US$2 from Saturday. But it is down -US$17/oz from a week ago.

And oil prices are still just under US$82.50/bbl in the US. The international Brent price is just under US$86/bbl. A week ago these two prices were US$80/bbl and US$84/bbl.

The Kiwi dollar starts today slightly softer at just on 60.9 USc and -20 bps slip from Saturday. A week ago it was at 61.5 USc so -½c down from then. Against the Aussie we are little-changed at 92.9 AUc. Against the euro we are still at 55.4 euro cents. That all means the TWI-5 has basically held at 69.4 which is -30 bps lower than a week ago.

The bitcoin price is virtually unchanged again today since this time Saturday and is still at US$29,050 and down -US$17. A week ago it was US$29,318 so down -0.9% since then. Volatility over the past 24 hours has been very low at just over +/- 0.2%.

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.