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 investors are getting nervous about their exposure to office buildings in the commercial real estate sector.

But first, after retreating over the past year, average new home prices in China's 70 major cities were unchanged year-on-year in June. There were rises, including in Beijing, Chongqing, Shanghai, and Tianjin. But there were falls in both Shenzhen and Guangzhou, along with 40 other large cities. Prices for home resales went backwards with only 6 of the 70 recording any gains or standstills. But the official falls are nothing like New Zealand's retreat. The worst Chinese city is only recording a -7.5% year-on-year fall.

Later today we will get the PBoC 1yr Medium-term Lending Facility rate announcement and that may give clues of new stimulus for the Chinese economy, one that may be helpful to the property development sector.

We should also note that some zombie property developers are now being delisted from local stock exchanges. And things are not getting any easier for commercial landlords there either. In Shanghai, overbuilding means vacancy rates are rising and rents are dropping for this tier-1 city.

In the US there has been a surprisingly positive shift in consumer sentiment. The widely-respected University of Michigan survey improved for a second month in July to its highest level since September 2021, and well above the anticipated outcome. Both current economic conditions and consumer expectations improved, largely because of the slowdown in inflation along with stability in their jobs markets. To be fair though the overall level is still low, but it is well off the mat now.

Singapore’s GDP grew by +0.7% in Q2-2023 from year-ago levels, quite tepid levels again for an 'Asian Tiger' economy but it was stronger than a final +0.4% growth in Q1. This was the 10th consecutive quarter of increase however, but the second smallest. On a quarter-on-quarter seasonally adjusted basis, their GDP grew +0.3%, reversing a -0.4% contraction in the first quarter. So no recession there either.

Also in Singapore, their anti-corruption body has moved against a minister and a major property/hotel tycoon. Both have been arrested. It is their most serious graft case to be prosecuted in more than 35 years.

In Europe, their heat wave is getting worse and it is deadly serious for the people involved (Athens hit 39oC earlier today for example, Rome might hit 42oC early this week, Madrid too). And about a third of Americans are also facing deadly heat extremes (Dallas is touching 40oC now as well). These follow the heat dome that hurt northern China last week but hasn't really gone away; Beijing is expected to swelter in 37oC+ heat for most of the next week. We would be wise to start preparing for high summer temperatures here.

And one consequence may come from the insurance industry. In the US major insurers are pulling back on homeowner policies from California to Florida, in many cases declining to renew existing policies. Climate change consequences are becoming uninsurable. And with reinsurance companies doing the same, agencies like our EQC and other government-supported programs could find their long-term futures threatened. In the US, high premiums aren't enough to entice insurers to offer any coverage in many places.

In Australia, one of their largest real estate investment trusts (REIT) has had to limit redemptions in a fund that specialises in office properties. It's a AU$2.5 bln fund and it received redemption requests equal to 15% of its equity, and only paid a quarter of what was requested in February (the latest disclosure). It is unlikely to be the only large commercial real estate fund to run into liquidity trouble. The problem for the industry is that this type of 'temporary difficulty' (when managers won't sell assets to fund redemptions because they believe 'real value' is way above what the market values their asset) is just the type of reaction to spook investors, who then rush to redeem to protect their capital.

And staying in Australia, their government named Michele Bullock as governor of the Reserve Bank of Australia, making her the first woman to take the role. Treasurer Jim Chalmers announced that Bullock, currently deputy governor, would head the central bank for a seven-year period starting in mid September, a day after incumbent Philip Lowe's term ends. In the end Lowe was sacrificed in the name of 'change', but Bullock isn't expected to change monetary policy direction. Her initial focus will be on internal reorganisation that has been earlier flagged (and making it a bit more like the RBNZ).

The UST 10yr yield will start today at 3.83% and unchanged from Saturday. 

The price of gold will start today at US$1954/oz and down -US$5 from Saturday.

And oil prices are unchanged from Saturder at just over US$75/bbl in the US. The international Brent price is now at just on US$79.50/bbl.

The Kiwi dollar starts today little-changed from Saturday at just under 63.7 USc. Against the Aussie we are unchanged at 93.2 AUc. Against the euro we are firmish at 56.8 euro cents. That all means the TWI-5 is now still at 71 but up +70 bps from a week ago.

The bitcoin price has risen slightly in its recent yoyo pattern and now is at US$30,399 and up +0.7% from this time Saturday. Volatility over the past 24 hours has been low at just on +/- 0.6%.

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.