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.

And today we lead with news the banking crisis has shifted to Europe, and investors are betting big on the Fed not changing rates next week. Oddly, some key UST yield inversions are being wound back sharply at the same time.

But first, we start with news that American mortgage applications had another good rise last week, rising +6.5% from the prior week, the sixth rise in the past twelve weeks. Mortgage rates are unchanged.

American retail sales were expected to post a small slip in February from January and they did. Year-on-year they are up +5.4% nominal so not keeping up with inflation. It is car sales that are the drag.

Producer prices were up +4.6% in a year in February, a sharp reduction from the January rise. They fell month-on-month. Wholesale inflation is leaking away quite quickly now. The year-on-year rise hasn't been this low since early 2021. On a quarterly basis, producer prices are back to levels last seen in 2015/16.

US business inventories were essentially stable in value in January, and that allowed their inventory-to-sales ratios to retreat slightly - and for the first time in a year. The Americans don't really have an excess inventory problem.

The New York state factory survey was grim reading for Wall Street. Activity under its nose is leaking away sharply now.

China's February data came in pretty much as expected for their first full opening-up month. Retail sales rose +3.5% in a no-surprise result, good but not that strong really. Industrial production was up +2.4%, a tad less than expected. Real estate development is not falling anywhere near as fast as it did in 2022, but it is still falling.

And while we are talking about China, we should note that its youth unemployment level has surged recently, now topping 18%. A year ago it was 12%.

In Argentina their inflation has topped +100% year-on-year again. They haven't had it at this gruesome level since their ugly hyper-inflation of the early 1990s when it reached 20,000%.

Disappointingly, Indian exports were lower in February from a year ago, down almost -9%.

But Indonesia's trade surplus increased to +US$5.5 in February and much higher than the same month the previous year and beating market expectations. It was their largest trade surplus since last November, as exports rose +4.5% while imports fell -4.3%.

German producer price inflation fell to +8.9% in February, the lowest rate since April 2021. But the food component was still up +17% with milk and dairy up a staggering +25% in a year. German inflation is still being pressured by high and rising wholesale prices. But they can take comfort that they hardly changed between January and February.

In Zurich, the Credit Suisse share price fell a disastrous -24% yesterday alone, and is now down -42% for the year and down -76% in a year, down -98% since its pre-GFC peak. It's toast. But it is taking a very long time to die. The Swiss National Bank declined to comment or support what is Switzerland's second-largest bank, (UBS is the largest) even after an appeal for help from the bank, after its largest investor, the Saudi National Bank with 10%, said it could not provide Credit Suisse with more financial assistance because of regulatory constraints.

Other large European banks took a share market beating too. Deutsche Bank fell -9% yesterday to be down -12% for the year. BNP Paribas fell -10% overnight to be -5% lower for the year. And HSBC fell -5% on the day, although it is up +9% so far in 2023. Banco Santander fell -7% overnight, but is still up +13% for the year after that. UBS fell -9% yesterday.

The UST 10yr yield starts today at 3.47% and down a risk-off -14 bps from this time yesterday. (Recall, its recent peak was 4.08% on March 3, 2023.) But the UST 2-10 rate curve is very much less inverted and now at -40 bps. 

The price of gold will open today at US$1933/oz and up +US$24 from this time yesterday.

And oil prices start today down very sharply, down -US$7 at just on US$66/bbl in the US. The international Brent price is now just under US$72/bbl. For oil, these are very large daily retreats.

The Kiwi dollar has fallen away against the greenback on the risk-off sentiment, now at 61.8 USc and down almost -½c. Against the Aussie we are firmer at 93.6 AUc and a new high for the year. Against the euro we are firm too at 58.6 euro cents and up +½c. That keeps the TWI-5 at up 70.5 and little-changed from week-ago levels.

The bitcoin price is sharply lower today, now at US$24,228 and down -5.6% from this time yesterday. And volatility over the past 24 hours has been very high at +/-4.0%.

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’ll do this again tomorrow.