Kia ora,

Welcome to Thursday’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 of a settling of the global economy after some big announcements by China. So far, little seems to have changed, other than investors now think they can't lose with Chinese equity investments.

But first, the surge in American mortgage applications we noted last week has extended. Last week they soared +11% from the prior week, extending the earlier +14.2% gain to lift mortgage application volumes to their highest since June 2022, and now above year-ago levels. It's been a sudden shift. In fact this is the best two-week period in their housing market since late 2015. The upswing in home loan demand came as benchmark mortgage rates fell to a two-year low of 6.13%.

So far it has not shown up in the purchase of new homes. Sales of new single-family homes fell -4.7% in August to an annual rate of 716,000 units. While this drop partially offset the revised +10.3% surge from the previous month, it was still marginally more than market forecasts. This market has been on a slow recovery since August 2022. But the mortgage application surge may well change this momentum in September.

There was more evidence today that the US Government is having no problem attracting investors for its debt. The Treasury 5 year Note was well supported again with US$100 bln more in bids than available and the median interest rate came in at 3.46%, down from the 3.59% at the prior equivalent event a month ago.

Taiwanese retail sales were subdued in August, rising only +1.1% from the same month a year ago. But their industrial production was up more than +13% on the same basis.

After China's big signals of substantial monetary stimulus (and yesterday's follow-through of a -30 bps cut to the MLF rate to 2.0%, its biggest cut ever) you might have thought that commodity prices would have risen in anticipation of a meaningful market reaction. But they haven't - yet anyway. The copper price rose prior to the official announcements, but haven't kicked on today. Iron ore has stayed subdued. Other key metals have had conspicuously little reaction. This may all mean markets have been quite unimpressed with the scale of this stimulus effort. No-one is actually gearing up for 'the recovery'. Local investors still think they are however. But Aussie investors are very sceptical.

Staying in China, an overnight announcement revealed a one-off cash handout to the poor will happen early next week. The amount of the gift wasn't revealed however.

Overnight the Swedish central bank cut its key policy rate by -25 bps to 3.25% following a similar move in August and in line with market expectations. They signaled further cuts in the two remaining monetary policy meetings of the year.

We don't often look at the French economy, Europe's second largest. But an overnight survey is worth noting. French consumer confidence rose more than expected in September and way above market expectations. This is the highest reading since February 2022. Consumers were less pessimistic about the outlook on both their financial situation and their standard of living. And their saving intentions rose. Tax rises for the rich seem to be on their agenda now.

In Russia, the rise of their industrial production is slowing and quite fast. War is giving no meaningful boost to their output. Even corporate profits are struggling, down -6.5% from a year ago.

In Australia, August inflation as monitored monthly was expected to fall to +3.1% from 3.5% in July. But in fact it fell far more sharply, down to 2.7% in August from a year ago. The RBA will be relieved as this is the first indication they wanted to see of it within their 1-3% target range. But, a lot of this was due to falls in the cost of petrol and electricity. And that came from a one-off impact of the start of their Commonwealth Energy Bill Relief Fund rebates, and the State Government rebates in Queensland, Western Australia and Tasmania, which drove the largest annual fall in electricity prices on record, down almost -18%. These rebates will last through 2025. Staying high however are rents, still rising about +7% pa.

The UST 10yr yield is now at just on 3.79% and up +6 bps from yesterday. 

The price of gold will start today at US$2661/oz and up +US$11 from yesterday to yet another new all-time high.

Oil prices have fallen -US$2 to US$69.50/bbl in the US while the international Brent price is now just over US$73/bbl. Libyan supply is on its way back.

The Kiwi dollar starts today at 62.7 USc and down more than the ½c it gained yesterday. The spike was brief. Against the Aussie we are down -20 bps at 91.8 AUc. Against the euro we are down -40 bps at 56.3 euro cents. That all means our TWI-5 starts today at 70.3, and down -30 bps from yesterday.

The bitcoin price starts today at US$63,112 and down a minor -0.2% from this time yesterday. Volatility over the past 24 hours has been modest at just under +/- 1.4%.

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.