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.

And today we lead with news global trade is in the spotlight.

The run of dairy price rises ended in today's Global Dairy Trade auction today. Overall prices fell -0.7% in USD terms, down -1.2% in NZD terms. The key WMP price fell -2.7% in a key shift, but one signaled by the weekly GDT Pulse events although today's price was actually higher than last week's Pulse result. Keeping the dip limited were rises for SMP, up +2.3% and for Cheddar cheese, up +4.5%. These two suggest better demand from the food service sector, especially in China.

In the US their logistics managers index (LMI) rose and quite sharply, indicating rising demand for these key distribution services, although freight rates actually decreased in this survey.

Meanwhile the US September trade result (for goods and services, that is, on a balance of payments basis) came in with a modest but continuing deficit. Overall exports rose +2.2% which overall imports rose +2.7%. This involved an increase in the goods deficit of $1.7 bln to -$86 bln and a decrease in the services surplus of $1.2 bn to +$25 bln. But still, this is the third lowest trade deficit since 2021.

Last week, the rising retail sales gains evaporated. Their weekly Redbook index of retail sales at brick & mortar outlets on a same store basis was up only +3.1% from the same week a year ago, barely beating inflation. Although to be fair, much of this was an unusual rise in last year's base.

Overnight we also got an update on US household debt levels and they actually changed very little in September from the prior quarter, mainly because housing debt rose very little. Year on year, housing debt is up +4.2% but non-housing household debt is up +6.4%, mainly credit card debt.

In Canada, September exports rose +2.7% in September to the highest since June 2022 and the third consecutive monthly increase. Imports rose +1.0% to their highest since January. That meant they recorded a +C$2 bln surplus, twice what was expected.

The IMF has been reviewing China's economy and now says it will expand by +5.4% in 2023, up from an earlier forecast of a +5% rise. Most of the extra is down to Beijing support initiatives, they say. For 2024 they say China will expand +4.6%.

In China, exports fell -8.1% in October from September to be down -6.4% from October in 2022. Meanwhile imports fell -1.4% from the prior month even though they were up +3.0% from a year ago. As the West de-risks from China, (exports down -15% to the US, down -10.6% to the EU and down -8.6% to Japan) clearly selling more to Russia (up +52%) isn't going to save them. Only Africa (+8.0%) is the other region they made gains. China's exports to New Zealand are down -14.9% and to Australia down a much lesser -4.2%.

China's foreign exchange reserves at the end of October were marginally lower at US$3.1 tln, as expected.

Meanwhile Taiwanese exports fell rather sharply in October, down -4.5% from year ago levels. A small rise was expected. Imports fell very sharply, down more than -12% although this was pretty much as expected.

In Europe, data for industrial production in Germany for September came in lower than expected, down -3.7% from the same month a year earlier.

In Australia, and in an about-face the Reserve Bank of Australia is no longer standing on the sidelines as inflation turns back up. It has pushed through a new +25 bps rate hike to 4.35% and markets are thinking a December rise may come too

The UST 10yr yield is down from yesterday as bond prices rise again, now at 4.57% and a drop of -8 bps. 

The price of gold will start today at US$1964/oz and down another -US$18/oz from this time yesterday.

Oil prices have fallen overnight, down a very sharp -US$3.50 to be just under US$78/bbl in the US. The international Brent price is now just over US$82/bbl. These are three and a half month lows. In fact it first reached this level 16 years ago, so after inflation it is now unusually cheap.

The Kiwi dollar starts today at 59.3 USc and down -½c from this time yesterday, dragged lower by the Aussie dollar. Against the Aussie we are slightly firmer however at 92.3 AUc. Against the euro we are little-changed at 55.5 euro cents. That all means our TWI-5 starts today at just on at 69.1, down only -10 bps.

The bitcoin price starts today at US$34,665 and down -0.8% from this time yesterday. Volatility over the past 24 hours has been low too at just on +/- 0.9%.

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.