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 that China's recovery has stalled, and that is affected many trading partners linked closely to it.

But first, Moody's has cut the credit ratings of ten mid-sized American banks and said it may yet downgrade some of the US's largest lenders. It said it is concerned about impending lower earnings, and the risks to bank funding. They have an eye on how lending on commercial property may need to be written down. This downgrade action is contributing to a wider sell-off by investors in bank shares.

Meanwhile, American household debt was largely unchanged in the June 2023 quarter primarily because mortgage debt isn't rising. But credit card debt is, and although the rise was modest, it did hit US$1 tln for the first time. Total American household debt is now 63.6% of US GDP. That is down from 64.0% a year ago and down from 66.8% ten years ago. (New Zealand household debt is 92.4% of our GDP.)

US exports of both goods and services in June held steady from May although they came in -4.3% lower than year ago levels. American imports however were down -7.8% from year-ago levels. Their trade deficit shrank to its lowest in three months.

US retail sales rose marginally last week at brick & mortar stores ending a run of declines. But the improvement was still less than inflation's bite.

In China, their Customs authorities said their exports were down -14.5% from July a year ago, a deeper dip that the -12.4% from a year ago in June. It was their worst fall since the pandemic. De-risking and reshoring by international firms is gathering speed. It is being felt on the factory floor. Exports to the US were down more than -23% from a year ago. Exports to New Zealand were down more than -16% (which is a bit surprising given the amount of Tesla's we import from the Shanghai factory). China's imports from us were down -13%. Their imports from Australia were up +9.5%.

Taiwanese exports were down -10.4% in July from a year ago and imports fell -21%, which were much smaller levels than they recorded in June. In fact their exports rose a rather remarkable +19.8% in July from June.

In Europe, Italy has approved a surprise one-off 40% windfall profits on banks they earn from higher interest rates and said it will use the proceeds to help mortgage borrowers. Italian bank shares plunged more than -NZ$16 bln in a move that could threaten viability for some of the weaker ones.

In Australia, the Westpac-Melbourne Institute consumer sentiment survey index remained in deeply pessimistic territory in August. They found the RBA’s rate hike pause again did little to boost confidence. Inflation still dominating consumer sentiment, driven by recent fuel and energy price rises. Housing sentiment is mixed: deeply negative on purchase, but bullish on prices. (Surging migration, a tight rental market and relatively low supply of homes have combined to send prices flying higher across the country.)

Meanwhile the NAB business confidence survey for July showed resilience around Australian business conditions and a small rise in business confidence .Both measures are above long-run levels. This survey noted a pickup in retailer confidence, which is surprising given the consumer sentiment levels.

Australia will have its attention to what, if anything, China does to try and undo the stall their economy is clearly in.

Global passenger air travel recovered by more than +30% from June a year ago, but is still lower than pre-pandemic levels. Domestic travel has fully recovered, and more, but international travel is still -12% lower than pre-pandemic levels and in the Asia/Pacific region it is still almost -30% lower. It is very noticeable from this data that Chinese travellers are holidaying at home.

The UST 10yr yield will start today at 4.01% and down -7 bps from yesterday. 

The price of gold will start today at US$1925/oz and down another -US$11 from yesterday.

And oil prices are up +50 USc and now at just over US$82/bbl in the US. The international Brent price is little-changed at just over US$85.50/bbl.

The Kiwi dollar starts today almost -½c softer at just on 60.6 USc. Against the Aussie we are soft at 92.7 AUc. Against the euro we are also soft at 55.3 euro cents. That all means the TWI-5 has slipped to 69.2 and down -30 bps in a day.

The bitcoin price is higher today since this time yesterday and now at US$29,799 which is up +3.1% and a two week high. Volatility over the past 24 hours has been modest at just under +/- 1.5%.

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.