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 news markets are sensing that consumers are in better heart worldwide that they have been assuming.

First in the US there was a rise in mortgage applications last week, the second straight week of increase after mostly retreats in 2022. That was helped by a fall in mortgage interest rates, and its lowest since September. There is a bit of disconnect here because you will recall that the US Fed raised its policy rate by +50 bps last week.

However their existing home sales are still in retreat. They plunged -7.7% to an annual rate of 4.09 mln in November, and well below market forecasts of 4.2 mln. That is the tenth straight month of falling sales and the lowest level since May of 2020.

But the latest consumer sentiment indicator, this one from the US Conference Board, recorded a sharpish improvement, but only one reversing the November fall. It is this improvement that has energised the rise on Wall Street today.

Canadian CPI inflation inched down to 6.8% in November from a year ago which was a disappointment. Markets had expected to see a rate lower than this, with no change from October. The actual change from October was a very small increase, so the pace is definitely slowing.

There was another German consumer confidence indicator out overnight, this one from GfK, and it also recorded an easing in their negative sentiment. This confirms that Germans are a bit brighter about where things are heading.

In China, there is new evidence that they are reclaiming and building out disputed reefs, islands and land formations in the South China Sea in an exercise that is sure to alarm many countries there with overlapping claims. Over the past decade China has 'claimed' many such reefs and militarized them with ports, runways and other infrastructure.

Onshore, China is relenting and rolling out a Pfizer covid drug nationally - to overwhelming demand.

And we should note that Chinese developer bonds were sold down yesterday in an ominous move because that is despite Beijing's very expensive moves to prop up the sector. The State banks forced to support these developers are now nursing growing losses.

China and Australia have agreed to expand high-level talks by trade ministers, which could help pave the way for end to sanctions that crippled AU$20 billion worth of exports. The iron ore price rose on the friendlier development, which does seem odd given iron ore wasn't a product China sanctioned.

China’s efforts to intimidate Australia by slapping sanctions on exports discredited its credibility as a reliable trading partner, with apparently zero gain for Beijing. But perhaps the point was to intimidate others (like New Zealand?).

New Zealand recorded a November trade deficit of -$1.86 bln, widening from -$1.08 bln in November a year ago. Much higher energy costs have inflated out imports sharply. That helped propel imports up +26% from a year ago, along with new car imports. On the other hand, exports rose at a softer +18% rate year-on-year.

Our trade with China is now in deficit. In November 2021 we had a +$416 mln surplus and that has now turned to a -$61 mln deficit this year. Our small deficit with Australia a year ago has now grown to -$151 mln. Our -$111 mln deficit with the US has turned around to be a tiny +$1 mln surplus this year. But our 2021 +$19 mln surplus with Japan is now a -$355 mln deficit in November 2022. Car and fuel are all the story, although it is accentuated by flagging exports.

Spending on New Zealand credit cards was weak in November, up just +2.9% from a year ago and far less than inflation. Spending for the year to November was +7.5% above the equivalent prior year and pacing inflation, so this monthly November activity is a real sign consumers are pulling back. Meanwhile balances are +4.5% higher than a year ago, a second straight month of rising after 31 of the past 32 months had recorded paydown falls. But there is no real evidence that interest-bearing balances are rising.

The UST 10yr yield started today at 3.67%, and off -3 bps from this time yesterday. 

The price of gold will open today at US$1818/oz and down -US$2.

And oil prices start today up a sharpish +US$3.50 from this time yesterday at just over US$78/bbl in the US while the international Brent price is just under US$82.50/bbl.

The Kiwi dollar opened today at 62.8 USc and down another -½c. Against the Australian dollar we are down a full -1c at 93.9 AUc as optimism builds on its China trade. Against the euro we are little-changed at 59.3 euro cents. That all means our TWI-5 starts today at 71.2 and down another -40 bps.

The bitcoin price is now at US$16,798 and down a mere -0.2% from this time yesterday. Volatility over the past 24 hours has again been low at +/- 0.5%.

You can find links to the articles mentioned today in our show notes.

And 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.