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.

Today we lead with news a slowing pace of the global economic expansion is leaving the debt overhang as a more serious problem in many countries.

But first up today there was another dairy auction, and on the face of it, it was a lackluster affair. Overall prices were up +0.6% in USD terms, a smaller rise than the +2.4% at the last event. This is consistent with the FAO monitoring. WMP prices were unchanged, but SMP and cheese both rose about +1.7%. However things were undermined in NZD. Overall prices dropped -2.0% in local currency as the NZD continues its puzzling rise. That means in local currency prices are down -15% over the past two months, compared to the equivalent -9% drop in USD. None of this shows were are getting on top of our deteriorating current account deficits.

Also falling away are US retail sales. Last week they rose less than +6% from the same week a year ago on a same-store basis. This comes at the start of the important year-end retail season and these results show they are no longer keeping up with inflation. Retail sales volumes are declining in the US.

Meanwhile, the American commercial real estate sector is facing some rejection by investors. Big and small investors are queuing up to pull money out of real-estate funds, the latest sign that the surge in interest rates is upending their commercial-property sector.

Also easing has been supply chain pressures, and by quite a bit. Their Logistics Managers Index (LMI) fell to only a modest expansion, the slowest since early in the pandemic (April 2020). Of note, managers are now making real progress in winding back inventory levels that had blown out during the supply chain shocks.

And confirming a slower pace, the American trade deficit in both goods and services in October wasn't as negative as expected. Their exports were up +13.6% year-on-year, while their imports were up +13.9% on the same basis. That added -US$10 bln to their year-on-year deficit, but it was less than markets had assumed, so the result has been ignored.

On the other hand, Canadian exports rose and their imports held unchanged allowing them to report a larger trade surplus in October.

In China, debt as a percentage of its economy hit a fresh high at the end of June, with local authorities borrowing heavily to hold together an economy weighed down by the central government's pandemic policy. Their debt now exceeds US$52 tln, or almost 300% of China's GDP. The same data pegs New Zealand at 218% and Australia at 232%. The US is 263% and Japan is 426%! (These debt levels are easier to sustain when their are essentially in local currency.)

German factory orders rose more than expected on October from September recovering somewhat from the prior month's retreat. But it still left them -3.2% below year-ago levels.

In Australia, their central bank raised its cash rate target by the expected +25 bps to 3.10% which is a ten year high. Banks have already responded with equivalent mortgage rate hikes. The RBA is on track for two more such rises in 2023 to 3.85% by May 2023 because both wages and inflation will probably leave them little option but to keep tightening.

The UST 10yr yield starts today at 3.56% and down -6 bps from this time yesterday. 

The price of gold will open today up at US$1771/oz and down -US$1.

And oil prices start today down -US$4.50 from this time yesterday at just on US$74.50/bbl in the US while the international Brent price is down to just over US$79.50/bbl. The Russia price cap is biting just as global demand softens, which will annoy producers and cheer consumers.

The Kiwi dollar will open today at 63.4 USc, and a little firmer than this time yesterday. Against the Australian dollar we are -½c firmer at 94.4 AUc. Against the euro we are at 60.3 euro cents and up slightly. That all means our TWI-5 starts today at 71.9 and up +30 bps overnight.

The bitcoin price is now at US$16,972 and down -0.4% from this time yesterday. Volatility over the past 24 hours has low at just +/- 0.7%. Overnight the JP Morgan boss called crypto tokens "pet rocks".

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.