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 a sense of dread you might get looking at financial markets from the outside isn't being reflected in the activity of those markets.

But first the worrying news. We should note that American benchmark mortgage interest rates topped 7.5% last week for the first time since November 2000. 8% rates seem in sight. So it will be no surprise to learn that mortgage applications were weak there last week, down a sharp -6% from the prior week, and down -22% from the same week a year ago.

Holding that weaker theme, and after rising +180,000 in August, the pre-cursor ADP Employment Report of private payrolls was expected to rise +153,000 in September. But it rose just +89,000 which is a negative signal ahead of Saturday's US non-farm payrolls report. Weakness was shown in factory jobs, employment in the South, and by large firms. Analysts are expected the non-farm, payrolls to grow a modest +170,000 but there seems to be downside risks. At least the US Fed will like to see an easing. And equity and bond markets responded in that way with stocks up and benchmark bond yields easing back.

But not every indicator out today is negative. The closely-watch ISM services PMI shows no such weakness for September. Yes it eased slightly, but it is just off its six month high and expanding at a healthy clip. Employment held up, but if there is a weakness it is a sag in the new order expansion levels.

Having noted that, the new factory order data in the US for August came in much better than expected and reversing the slip in July. They were up +1.2% from the prior month, although only up +0.5% from a year ago.

American crude oil stocks fell again last week, but petrol inventories jumped sharply. This surge has seen crude oil prices fall rather sharply today. The Saudi-Russian 1 mln bbl/day supply cut isn't having the impact they had hoped.

And apart from oil, some other commodity prices are sharply lower today, notably for coal, and for wheat. All up, inflation relief.

In Japan, the Markit services PMI was revised higher to 53.8 in September from 53.3 in the flash estimates, a 13th consecutive month of good expansion in their service sector. In South Korea, their latest factory PMI improved nicely as well, almost taking them out of contraction. It was an improvement that wasn't expected. Despite deep-seated cultural rivalry, it helps Korea that Japan is doing much better these days.

In China however, office vacancy rates are now higher than they were under the country's severe zero-COVID restrictions, delivering a further blow to the nation's struggling property sector. They now top 27% in tech hub Shenzhen, 21% in Guangzhou, and a still-high 18% in Beijing. It was running 16% in Shanghai. New projects will be a very tough sell when vacancy rates are so high.

Global passenger air travel is still recovering fast and is back to 96% of 2019 pre-pandemic levels. But the gains are uneven, dominated by radical changes in the nature of Chinese air travel, huge jumps in domestic travel there, and offset by very large falls in their international travel. The Chinese have become stay-at-homers. Asia/Pacific travel has a very long way to go yet to return to pre-pandemic levels.

The UST 10yr yield starts today down -7 bps from yesterday at 4.74% as a correction sets in. 

We follow the Fear & Greed Index weekly, but we should perhaps note that it has jerked suddenly in the 'extreme fear' mode yesterday and today.

The price of gold will start today at just on US$1820/oz and down another -US$4 from yesterday. This is another new low since February 2023.

Oil prices have slumped -US$5 lower at just on US$84/bbl in the US. The international Brent price is just on US$86.50/bbl.

The Kiwi dollar starts today at 59.2 USc and up +20 bps from yesterday. Against the Aussie we are softish however, now at 93.5 AUc and down -20 bps. Against the euro we have slipped marginally to 56.3 euro cents. That all means our TWI-5 starts today at just over 69.4 and down -10 bps.

The bitcoin price has moved marginally higher today from yesterday, and it is now at US$27,524 and up a minor +0.4% from yesterday. Volatility over the past 24 hours has been low at just on +/-0.8%.

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.