Economy Watch

Kia ora,

Welcome to Friday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.

I'm David Chaston and this is the holiday edition from Interest.co.nz.

Today we lead with news the expected global recession in 2023 seems a way off yet

Although the headlines in the US are all about how many job cuts are coming, especially from Big Tech, in fact the December data did not show that as significant. First, the December layoff report said there were -43,600 cuts in December, -43% less than the 76,835 announced in November. But that is up sharply from the 19,000 cuts announced in the same month in 2021.

Second, the precursor ADP Employment Report ahead of tomorrow's official non-farm payrolls report said private payrolls expanded +235,000 in December and well above the +150,000 expected. Large companies in the West did reduce payrolls, but that was more than made up by a hiring surge in the South. Forecasts for the December non-farm payrolls gain are currently +200,000.

Initial jobless claims were surprisingly low last week as well. They rose for seasonal reasons, but by far less than expected. There are now 1.7 mln people on these benefits.

These strong labour market indicators are driving equity markets lower as investors realise the Fed will be emboldened to stay fully engaged in the inflation fight. High and rising payrolls are not a sign the Fed has done enough yet to cool the American economy to get on top of inflation. And the IMF thinks the Fed still has a long way to go before they succeed.

In more American labour market news, their Federal Trade Commission is proposing to outlaw non-compete clauses in employment contracts. Calling the practice "exploitative", the agency is moving to ban the clauses, which would allow workers to take jobs with rival companies or start competing businesses without the threat of being sued. They say it could increase workers earnings by +US$300 bln per year. This proposal will generate an almighty fight with business.

Meanwhile, the US trade deficit narrowed to -$62 bln in November, the lowest since September 2020, and below forecasts of a -$73 deficit for the month. It reflects a sharp decrease in the goods deficit and an increase in the services surplus. Total exports were down -2% while total imports fell more than -6%. Their trade deficits with both China and the EU both shrank. For the year to November, the American trade deficit ran at -US$965 bln or -3.8% of GDP. New Zealand's equivalent deficit is -4.8% of GDP.

American petrol prices are back to the same level they were a year ago, so no inflationary impulse there.

In housing markets, Auckland isn't the only big city turning in weak December real estate results. Things are just as tough, even tougher, in Toronto.

And the top end of the Chinese market also experienced a sharp downturn last year.

In Japan, consumer sentiment remained low in December but it did rise off its recent lows. The same survey revealed that almost everyone still thinks prices will rise, a view that has been almost universal in 2022.

In Australia, universities there have reported huge demand from foreign students, with visa applications +40% above pre-COVID levels, driven by demand from India. A survey of prospective Indian international students found that 29% listed Canada as their preferred destination followed by Australia (21%), the UK (18%) and the US (17%).

Container freight rates were little-changed again last week, with the main weakness being in the outbound China trade. Bulk cargo rates fell sharply, and heading back down to pre-pandemic levels again. One shipping boss said ocean shipping is heading for a 'great recession'.

The UST 10yr yield started today at 3.72%, and little-changed from yesterday. 

The price of gold will open today at US$1833/oz and down -US$23 from yesterday.

And oil prices start today unchanged from yesterday's levels at just under US$74/bbl in the US while the international Brent price is just over US$78.50/bbl and still near its yearly lows.

The Kiwi dollar has fallen back almost a full -1c to 62.2 USc on a surging greenback. Against the Australian dollar however we are firmish at 92.3 AUc. Against the euro we are softish at 59.1 euro cents with a -¼c dip. That all means our TWI-5 starts today at 70.6, down a net -40 bps from yesterday.

The bitcoin price is now at US$16,824 and a mere -0.4% lower than this time yesterday. Volatility over the past 24 hours has remained very low at just +/- 0.4%.

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 on Monday.

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 holiday edition from Interest.co.nz.

Today we lead with news the US Fed seems to want ‘more evidence’ of easing inflation and it backs fresh rate hikes in 2023, unlike what markets have assumed.

But first we should note than American companies, from tech majors to consumer firms, are bracing for a potential economic downturn by shrinking their employee base to get ready for what they see coming. An updated list compiled by Reuters gives an indication of the scale involved; not massive, but significant.

On a same-store basis, American retail sales held up well last week, rising far more than inflation from year-ago levels (+10%).

US retailers used the holiday sales period to try to reduce inventories. That meant that warehouse pressures remained elevated but that transportation pressures eased sharply. We are unlikely to see a replenishment inventory build in Q1-2023.

The widely-watched local PMI showed their manufacturing sector contracted in December. It was a result broadly in line with the internationally-benchmarked factory PMI we noted yesterday. There is a broad pull-back underway in America's factories.

The data for November shows that job openings and new hires stayed at good levels, but probably things have moved on from there now.

US mortgage applications fell sharply over the Christmas period as you might expect. But they remain more than -40% lower than year-ago levels so still in the doldrums. Meanwhile American mortgage rates are back rising again and that won't help going forward either.

The US Fed released the minutes of its mid-December meeting, and those revealed they thought financial markets were misreading their signals. They are concerned because monetary policy only works when markets interpret their policy directions properly, and a misreading undermines their targets. Markets had been assuming the Fed will ease off in early 2023 and then start to reverse its rate hikes. But that doesn't seem to be what the Fed intends. It still isn't convinced it is on top of the inflation threat. Still, there was no immediate reaction in financial market pricing.

In China, the World Health Organisation says data there shows no new coronavirus variant has been found - it's just omicron - but the Chinese data under-represents how many people have died in the fast spreading outbreak. Essentially, China is being caught out by low vaccination rates. The costs may be high and they may be late, but they are getting the message.

New Zealand stands out by not requiring special testing requirements from China.

Meanwhile, Hong Hong retail sales are in real trouble it seems. They were down -4.2% on a value basis and down -5.3% on a volume basis in November.

In Australia, there are signs that their trade relationship with China may be about to thaw. There are rising expectations that some export bans may be lifted. But a major beneficiary will likely be the Aussie coal industry and a major boost for investors who ignore the climate and ESG trends that have been gaining traction elsewhere. It will make it hard for investors committed to those trends to compete.

And staying in Australia, the level of unsold properties is rising fast now, up +15% over 2022 and the fastest rise in a decade. Older suburban homes are especially harder to sell in the present market environment. They are calling this a 'stale stock' problem.

The UST 10yr yield started today at 3.72%, and down another -7 bps from yesterday. 

The price of gold will open today at US$1856/oz and up another +US$18 from yesterday. But that is a six month high.

And oil prices start today down -US$4 from yesterday's levels at just under US$74/bbl in the US while the international Brent price is just over US$78.50/bbl. These levels take it back close to its yearly lows.

The Kiwi dollar has recovered +½c to 63.1 USc after yesterday's drop. Against the Australian dollar however we fell another -¾c to 92.1 AUc. Against the euro we are firm at 59.5 euro cents and almost a +½c gain. That all means our TWI-5 starts today at 71, up a net +40 bps from yesterday.

In the US, regulators have issued a joint warning to banks over the risks in the cryptocurrency market. They told banks to be wary of potential fraud, legal uncertainty and misleading disclosures by digital asset firms. They also said there is "contagion risk" from the sector. The bitcoin price is now at US$16,887 and +1.6% higher than this time yesterday. Volatility over the past 24 hours has been low at just +/- 0.9%.

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.

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 holiday edition from Interest.co.nz, and our first for 2023.

Today we lead with news that 2023 is starting with wobbles.

China's pandemic stresses are growing and are the primary cause of the year starting with downbeat notes.

But first up today, the first 2023 dairy auction was another retreat, down -2.75% from the prior event on December 21, which itself was down -3.8%. This time, 33,478 tonnes were sold, the most at one of these events in more than two years. Butter (-2.8%), cheese (-2.7% and SMP (-4.3%) were the hardest hit this time, probably a reflection of stuttering demand out of China's food service industry. WMP fell -1.4%. This time, the currency came to the rescue to some extent, limiting the overall decline to -1.6% in NZD.

Dairy prices aren't the only commodity in retreat.

Perhaps this is what we are going to have to expect in 2023. The head of the IMF said the new year is going to be “tougher than the year we leave behind. Why? Because the three big economies – the US, EU and China – are all slowing down simultaneously,” she said.

She is not wrong.

The internationally-benchmarked American manufacturing PMI reports are sharpish contraction in their factory sector, with operating conditions deteriorating at their fastest rate since May 2020. Output fell at a sharper rate amid faster drop in new orders. Inflationary pressures ease notably however and the US Fed will have picked up on that fact. Employment rose only fractionally.

In China, their official PMI's were weaker than the weak ones anticipated. Their factories are contracting sharply now, but their service sector businesses are in very bad shape, especially their retail sector. It is nationwide and will have severe consequences on the global economy if it doesn't pick up soon with their new pandemic relaxations. From this data it is easy to see why our dairy auction sagged.

Their unofficial private sector factory PMI however, didn't paint anywhere near as dismal picture as the official survey. In this one, factories are contracting at only a minor rate - and less than the US retreat.

And the EU remains in contraction territory, even if inflation is easing slightly there.

In Germany, their inflation rate is retreating, falling to to 8.6% in December from 10% in November and below market forecasts of 9.1%. It was the lowest rate since August, but we should also note that their government paid December natural gas bills for some households and businesses, which will have impacted these results. In December alone, inflation actually fell -0.8% from November.

But not everywhere is in the doldrums. In India the picture is actually quite bright. Their factory PMIs report stronger December increases in factory orders and production. Output growth reached a 13-month high. They have their fastest rise in new orders since February 2021.generating job creation and boosting input purchasing.

And the world's third largest economy, Japan, is managing to hang in there, even if their overall expansion is hard to see at the moment. Their factory sector may be contracting, but their service sector is still expanding.

In Australia, their PMI slipped to be now barely expanding. Output and new orders fell in December. Buying activity and input inventories declined. Input cost and output price inflation rates dropped. This is a decline that has lasted nine months and doesn't look like it is about to end.

At least the Australian factory sector is doing better than their housing sectors. For all of 2022, house prices slipped -5.3%, more in the main centers. Annual value falls were the most significant in Sydney (-12.1%) and Melbourne (-8.1%) where conditions peaked early in the year. But what is eye-catching about this data is that in December, national prices fell at a -13% annualised rate.

The UST 10yr yield started today at 3.79%, and down -9 bps from the end of 2022. 

The price of gold will open today at US$1838/oz and up +US$17 from its ending 2022 trade.

And oil prices start today down -US$1 from Saturday's levels at just under US$78/bbl in the US while the international Brent price is just under US$83/bbl. European natural gas prices are now lower than before the Russian invasion of Ukraine.

The Kiwi dollar has started the year down a whole -1c at 62.5 USc from where we left it on New Year's Eve. Against the Australian dollar we fell another -½c to 92.8 AUc. Against the euro we are at 59.1 euro cents and a minor dip. The Japanese yen has appreciated sharply over the New Year break. That all means our TWI-5 starts today at 70.6, down -80 bps from New Year's Eve.

The bitcoin price is now at US$16,628 and barely changed from either this time yesterday or where we left it on New Year's Eve. Volatility over the past 24 hours has remained low at just +/- 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.

Kia ora,

Welcome to Friday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.

I'm David Chaston and this is the holiday edition from Interest.co.nz.

Today we lead with news that the year is ending on some quiet notes. The year's crescendos have all happened, as we seem to look forward to a tame 2023. A soft landing is the most likely.

Many global economic indicators point to slower growth or minor contraction as central banks continue to raise policy interest rates in the battle against inflation. Growth projections are being trimmed as challenges grow, including policy tightening, inflation, Russia’s invasion of Ukraine, and ongoing disruptions related to the pandemic. Global GDP growth will be about +3.2% in 2022 and slow to +2.7% in 2023 according to the IMF. For the major economies in 2023, they say China will recover with +4.4% growth while Germany will contract -0.3%. The US economy is expected to expand by +1% in 2023. Australia can look forward to +1.3% and New Zealand also +1.% they say. That is all consistent with a soft landing while the central banks tackle inflation.

Meanwhile, American jobless claims rose last week to +271,000 which was about the expected seasonal rise. Despite that, they remain near historic lows. There are now a bit less than +1.6 mln people of these benefits.

And after about two months of easing mortgage interest rates, these turned higher last week for American borrowers. They end the year at almost double the APR rate than where they started.

Italy, Taiwan, Japan, India and Malaysia have all now joined the US is requiring clear PCR tests from travelers arriving from China. But the EU, and notably France and Germany, say the situation does not yet warrant imposing such a restriction. Australia isn't imposing PCR tests either. It is worth noting that international airlines are not lining up to restart flight to China; only PRC airlines are flying out.

South Korean industrial production rose in November from October in a surprise gain. Another fall was anticipated. This recent improvement is their best in five months, although they are still running behind year-ago levels.

South Korea retail sales however weren't flash as consumers haven't yet changed their dour mood. They ran -1.8% lower in November than October in a grim retreat, and are also well lower than year-ago levels.

In China, the market for baby formula is contracting, as sales fall sharply amid the pandemic and a declining birth rate while raw materials get costlier. Prices are rising, suppressing demand too.

Hong Kong exports slumped badly in November, down -24% from year-ago levels. That follows a -10% fall their prior month and is the sharpest fall in almost 70 years! It is grim for them. Low demand from both China, Taiwan and Japan was especially notable, and especially for electronic equipment.

We should also note that Vietnam says its GDP rose more than +8% in real terms in 2022. That rate of growth slowed in Q4, but it is still a stellar +6% higher than the same period a year ago.

The UST 10yr yield started today at 3.83%, and down -6 bps from yesterday. But it started the year at 1.5%. 

The price of gold will open today at US$1818/oz and up +US$12 from yesterday. But at the beginning of 2022 the gold price was US$1820, so essentially no net change.

And oil prices start today virtually unchanged from yesterday's levels at just under US$78/bbl in the US while the international Brent price is just over US$82.50/bbl. You may recall we started the year with the international price at US$76, so the net change is a rise of +8%.

The Kiwi dollar opened today at 63.5 USc and up another +½ from this time yesterday. We started the year at 68.3 USC so a net -7% devaluation since then. Against the Australian dollar we are up too at 93.7 AUc. Against the euro we are firm at 59.5 euro cents. That all means our TWI-5 starts today at 71.6 and up +20 bps. But we started the year at 72.8 so that devaluation is only -1.6% on a trade-weighted basis.

The bitcoin price is now at US$16,627 and virtually unchanged from this time yesterday. Recall we started 2022 at US$47,128 so it has dropped by two-thirds since then. Volatility over the past 24 hours has again been low at just under +/- 0.6%.

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 and Happy New Year. I'm David Chaston and we will do this again on Wednesday next week.

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 holiday edition from Interest.co.nz.

Today we lead with news that now the rules have been eased, Chinese travelers are rushing to book international trips.

But first up, American retail sales in the week before Christmas were good, being nearly +10% higher than the same week in 2021 on a same-store basis. That probably means there was real, inflation-adjusted growth.

However the residential real estate market in the US is showing no reals signs of recovery, with November pending homes sales down again, down -4% from October when no fall was anticipated. That puts them still -38% lower than year ago levels.

But away from housing, the factory sector is mixed. In Texas, their manufacturing surveys are weakish. But in the Mid-Atlantic states they show unexpected improvement, even if it was modest.

However, both districts also reported on their service sectors, here and here, and neither had outlooks that were particularly flash. Not bad, just blah.

Japanese industrial production dipped in November, but only down by -0.1% from the prior month. However this was the third straight month it retreated and has now turned negative on a year-on-year basis, down -1.3%. Machinery and other capital goods are the weak sector. Still, the forecast for December is positive, although less so for January.

And an influential but informal adviser to the Bank of Japan's governor says the unexpected decision to raise its ceiling on government-bond yields could be the first step toward a long-awaited monetary-policy normalisation, despite official statements to the contrary. After all, there is good reason to think that their inflation will remain above target in 2023

And staying in Japan, their police have broken the grip on some ransomware blocks, enabling companies to recover access to all their data without paying the ransom.

In China, the number of people intending to buy homes in the next three months has dropped to a six-year low as those who believe prices will fall outnumber those who think they will rise, according to the findings of a quarterly central bank survey.

The change in lockdown policies has sharply increased the demand for foreign travel there. But many countries are now racing to place restrictions on travelers from China. One flight to Europe reported that more than half the passengers had Covid when they landed in Milan. Let's hope Chinese travelers don't see this.

Internationally, ship insurers said they are cancelling war risk cover across Russia, Ukraine and Belarus, following an exit from the region by reinsurers in the face of steep losses. (Also here.) It may not get easier for the giant Russian gas exporter whose CEO said their exports are down -40% in 2022. Such admissions can have consequences.

In Turkey, the financial pressures are building and their currency has reached another record low. Their central bank has informally instructed its banks not to process fx transactions until next year. Turkey has an inflation rate of 84% pa.

The UST 10yr yield started today at 3.89%, and up another +4 bps from yesterday. 

And while we weren't looking, we should note that local wholesale swap rates are also racing higher again. The 2 year swap rate has raced up to 5.42% today. The one year swap rate is now over 5.50%. These are levels we last had in November 2008, fourteen years ago. 

The price of gold will open today at US$1806/oz and down -US$8 from yesterday.

And oil prices start today down almost -US$3 from yesterday's levels at just over US$78/bbl in the US while the international Brent price is just over US$83/bbl.

The Kiwi dollar opened today at 63 USc and up -+½ from this time yesterday. Against the Australian dollar we are up almost +½c too at 93.5 AUc. Against the euro we are up a similar amount at 59.4 euro cents. That all means our TWI-5 starts today at 71.4 and up +40 bps.

The bitcoin price is now at US$16,621 a mere -0.2% lower than this time yesterday. Volatility over the past 24 hours has again been modest at just under +/- 1.3%.

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.

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 holiday edition from Interest.co.nz.

Today we lead with news China is at a pandemic turning point, forced on them by a stuttering economy. It is not necessarily a positive turn.

We are ending the year with fallout from the growing stresses over China's new pandemic management. China will no longer require visitors to quarantine from January 8. They are emerging from three years of self-imposed global isolation under their Covid Zero policies, policies that hurt their economy and caused widespread public frustration.

With demand at home tanking, Chinese manufacturers are prioritising exports. But with Western supply chains full, and a fast-growing reluctance to rely on supply from China, the options for these suppliers are closing on them. Some are getting desperate. And prices for Chinese supply are falling very fast, even on a weekly basis.

Competitors in Asia and beyond are facing Chinese suppliers cutting prices hard. And that is making their life a misery. Trading rules (about dumping) can't respond fast enough. Prices for plastics and steel prices are at the forefront of this shift. Places like India, Vietnam, South Korea and Japan are feeling the brunt of the desperation. Chinese steel exports have risen +28% while prices have fallen -40%. The squeeze is intense. The story is similar for many grades of industrial plastics with prices down -25%. Solar panel component prices fell by -10% in just the past two weeks.

Also not helping is that the global car industry is cutting its sourcing from China, and rather quickly. The changed visitor policies are unlikely to reverse the trend.

This shift is very sudden, and as competitors respond, prices fall and availability rises. This is sure to put sharp downward pressures on producer prices, and renew the possibility of deflation returning.

The grim trade pressures are mirrored by grim pandemic measures at home. Beijing city is under threat and orders have gone out to protect the center of power. Several provinces have sent medical teams to the capital, despite criticism from local health officials and workers that they, too, are stretched to their limits. That is sure to continue resentment in a cascading series of what citizens see as missteps.

In their economy, China reportedforeign direct investment growing less than +10% from November a year ago, which is a fast reducing pace. They are calling it 'stable".

And China's industrial profits fell further in official data to November. They had suspended this reporting for the three prior months, and that catch-up is hardly believable. It is likely that the real situation is worse as State Owned Enterprises borrowed heavily to meet Beijing's requirements to mitigate the impact of the slowing economy.

Meanwhile, Taiwanese industrial production is under pressure from the full-court press by the Beijing team, and came in down -4.9% from the same month a year ago. Beijing's economic freeze is taking its toll, and now China's natural demand pull is softening fast too.

Taiwanese retail sales are losing out as well as their citizens grow worried about the China grip. They are now barely above year-ago levels and not even making inflation's expansion now.

So it is little surprise that Taiwanese consumer sentiment is very weak.

Japanese inflation rose to 3.8% in November, its highest in more than 40 years. Their price rises are broadening and will pressure the Bank of Japan to ease off on its long-running and massive stimulus. In fact the Japanese government bond yield turned solidly positive at the end of last week in a building trend that markets see a change in policy coming. Then again, events are moving fast for them. That trade pressure from China may involve yet a new calculus. Meanwhile, Japan is tightening controls on visitors from China.

Across the Pacific the giant American economy is ending with mixed economic signals, but consistent with the easing inflation pressure the US Fed is trying to manage consistent with a 2023 soft landing. Certainly the American economy is in far better shape than most analysts and pundits had assumed, both at the start of 2022, and even just three months ago. The resilience is impressive. But will it last?

US durable goods orders however came in much lower than expected. They were down -2.1% in November from October and their worst month-on-month result since the 2020 pandemic shock. However they are ending the year +6.3% of year-ago levels and keeping up with inflation. Capital goods orders were up +4.6% on that same basis and not quite keeping up.

Retail inventories were unchanged in November from October, but wholesale inventories picked up sharply, up a full +1.0%. Partly that is because consumers are buying less electronics. And it was also despite an unusual fall in imports, delivering a sharply reduced trade deficit in November. American exports did grow however.

Meanwhile inflation's impulse seems to be moderating there. Their widely watched PCE price index was up +5.5% in November, a notable reduction from the +6.1% rate in October. "Better" still, the month on month rise was at an annualised +1.5% rate, the least in four months and well below the annualised +5% rate in October from September. In November, incomes are still rising at a +5% annualised rate, so faster than expenditures. Overall, these trends are positive.

Also positive was the rise in new home sales in November, up +5.8% from October when a fall was expected. But that can't hide the fact that they are running substantially slower than year ago levels, about -15%. Still, there was an unusual boom over the pandemic, so they are really just lack to pre-pandemic levels again.

And the final University of Michigan consumer sentiment survey not only confirmed the rising mood, it came in above their flash result. Although it is not back to year-ago levels, it seems to be on its way. Helping are the American petrol prices which continue to edge down. And at this time of year heating oil prices are important for many families and they too are now well off their June highs and back to February 2022 levels. Administration management of these pressures seems impressive in hindsight.

The massive spending bill just approved by Congress (8% of GDP) will flow through their economy in 2023, much of it in local industrial production, not insignificantly because to get Republican support, an outsized part was for the Pentagon. There will be international flow throughs however, not the least being enhanced support for Ukraine's defence.

In Germany the mood is brightening as we have reported earlier in the week, partly because the weather is cooperating. But there remain questions about whether this will translate into higher personal spending in the face of threats on their borders. The German savings instinct may crimp their economy.

We should also note that insurers are now pulling back from covering ships that trade with Russia, and this is likely to roil oil and gas markets.

The war on Ukraine is about to heat up. The winter has been milder there than usual, meaning the mud has stayed longer than expected. When if freezes allowing heavy military vehicles to move, both side are gearing up for new attacks and counter-attacks. Things will be tense until the Spring thaw as Russia throws men into the southern and eastern meat-grinder battles. The inability of the Russians to change tactics as they suffer enormous losses is striking.

The UST 10yr yield started today at 3.85%, and up another +10 bps from Christmas Eve. 

The price of gold will open today at US$1814/oz and up +US$16 from yesterday.

And oil prices start today up +US$1 from pre-Christmas levels at just under US$81/bbl in the US while the international Brent price is just under US$86/bbl.

The Kiwi dollar opened today at 62.4 USc and down -¼c from this time yesterday. Against the Australian dollar we are a little softer too at 93.1 AUc. Against the euro we are just under 59 euro cents. That all means our TWI-5 starts today at 71 and down -20 bps.

The bitcoin price is now at US$16,653 and down -1.5% from this time yesterday. Volatility over the past 24 hours has again been modest at just under +/- 1.5%.

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.

Kia ora,

Welcome to Friday’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

China is facing a very tough period trying to fix its broken pandemic response.

But first, new US jobless claims were little-changed last week at 248,000 with 1.6 mln people on these benefits out of a total workforce of 165 mln people.

The final Q3 GDP growth measure for the US came in at +3.2%, topping earlier estimates and topping analysts expectations. Driving this revision was more actual consumer spending activity that earlier estimated. You may recall that prior to the first estimate, there were fears Q3 would show a decrease, but the facts proved the pessimists wrong. Of course they have turned their pessimism to the future and ignore their prior error.

This strong data, along with the continuing strong labour market, means the US Fed is far from finished with its rate hikes and there is likely to be more monetary tightening. This conclusion has caused Wall Street to retreat rather sharply today. The Nasdaq is particularly hard hit.

After a historically low rate of change between 2020 and 2021, the American population increased by +0.4%, or 1,256,003, to 333,287,557 in 2022. Basically this is because they welcomed 1 mln immigrants this year. For reference, the New Zealand population is growing by +0.2%.

In Japan, the bond market has begun to price in the consequences of the Bank of Japan's decision to give interest rates more freedom. Yields on two-year Japanese government bonds -- the most sensitive part of the yield curve when it comes to monetary policy expectations -- moved into positive territory on Wednesday for the first time in seven years. On Thursday, they held at 0%.

While the bank's officials insists this week's policy decision is not a rate hike, many observers see the move as a step toward the end of Japan's negative interest rate era.

The market consequences for homeowners in Japan may come as a bit of a shock if they have a mortgage.

In China, a Shanghai hospital has told its staff to prepare for a "tragic battle" with COVID-19 as it expects half of the city's 25 mln people will get infected by the end of next week, while the virus sweeps through China largely unchecked.

China probably has 1 million Covid infections and 5,000 deaths every day. The current wave may see daily cases rise to 3.7 million in January. Even so, the country is said to be planning to cut quarantine requirements for overseas travelers. The situation is confusing everyone, including policymakers, and so much so, China's online censors don't know what to do.

Separately, prices for solar panels are now falling very fast. On Wednesday, the average prices of two key types of wafers each fell by -10% or more in the past week. Their prices were down -18% and -25% respectively from a month before.

Turkey left its official policy rate at 9%, even though inflation is now up to 84% and their currency has devalued -44% in 2022. There is no evidence yet that the Erdogan policy is anywhere near working.

In Australia, a Parliamentary review of their central bank's performance has been sharply critical of the way the RBA uses the 'blunt instrument' of interest rates. In a unanimous report, it said the RBA needed to better consider which households were driving demand-side inflation and whether raising interest rates would affect consumption in a way that curbs it. The parliamentarians don't want consumers facing intensifying cost-of-living pressures and challenging work and business conditions to be impacted by RBA policy decisions. They seem to not want any measures to fix those pressures to hurt anyone. They insist on solutions without pain or consequences. The whole thing is quite extraordinary.

Global shipping container freight rates were unchanged last week, interrupting a long string of retreats. However bulk cargo rates rose sharply at the same time.

In New Zealand as at the end of November, housing loans outstanding rose +$1.3 bln from October to $344 bln, a rise of +4.8% from the same month a year ago. That is the smallest year-on-year rise since January 2015.

Interestingly, loans to businesses rose +$1.4 bln from October, a rare time the banks business book has grown faster than their housing book.

At the same time, total bank deposits rose +$3.4 bln in November from October to a record $436 bln. Household deposits rose +$1.0 bln but were up $1.5 bln for term deposits after a fall in transaction and savings account balances. Household term deposits rose to more than $100 bln in November for the first time since July 2020. (Their record high was $104 bln in August 2019.)

The UST 10yr yield started today at 3.66%, and down -1 bp from this time yesterday. 

The price of gold will open today at US$1795/oz and down -US$23.

And oil prices start today marginally lower from this time yesterday at just under US$78/bbl in the US while the international Brent price is just over US$82/bbl.

The Kiwi dollar opened today at 62.5 USc and down another -¼c. Against the Australian dollar we are little-changed at 93.8 AUc. Against the euro we are lower at 59 euro cents. That all means our TWI-5 starts today at 71 and down another -20 bps.

The bitcoin price is now at US$16,636 and down -1.0% from this time yesterday. Volatility over the past 24 hours has again been low again at +/- 0.7%. In the US, the SEC is raising the scrutiny of the work audit firms do for cryptocurrency companies and warned investors to be wary of claims made by crypto companies.

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 on Wednesday after a short break.

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.

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 that bond markets are showing the pressure today with heavy selling and rising yields, in a sign that markets accept that central banks are serious in their inflation fight commitments. Yesterday's Bank of Japan moves aren't helping either.

But first up today we have the final dairy auction for the year and it is also ending on a low note, down -3.8% from the prior event and down -18% from the same event a year ago. In between it peaked +20% in March, and bottomed -18% at this latest event, so finishing in the dumps. WMP fell -4.0% from two weeks ago, and SMP fell -4.8%. The exchange rate has moved little over the past two weeks, so the -3.5% result in NZD is little different to the USD result.

With the milk flow easing off, the combined effect of lower prices on lower volumes will not help our export trade, nor our current account balance. But with borders open and international tourism and education slowly building back, at least there are forces mitigating the hurt this would otherwise cause.

US retail sales bounced back last week, up on a same store basis from the same week a year ago and by a bit more than inflation.

American housing starts were little-changed in November from October and maintaining the expected level. But building consents for residential construction fell away rather sharply, to a rate not seen since June 2020. A small fall back was expected, but they got a rather large fall-back in November. That takes them to pre-pandemic levels as higher interest rates start to bite this sector.

Maybe one reason is that new research shows that American rents are falling fast now, after a fast run-up earlier would have encourages multi-unit housing construction. The usual CPI-version of rents lags new-transaction data because if includes the vast cohort that is stable in their rent situation. This new data focuses on rents for the latest transactions. (see page 20.)

Canadian retail sales recovered in October from the September retreat, and by the level expected. But it is expected to soften again in November.

Bond yields jumped and the yen surged after the Bank of Japan surprised investors by raising the cap on benchmark 10-year government bond yields. They held its key short-term interest rate at -0.1% and that for 10-year bond yields at around 0% during its December meeting by a unanimous vote, but tweaked its yield curve control tolerance range from the current +/- 0.25 percentage points to +/- 0.5 percentage points. This is all aimed at their yield curve management.

But it wasn't expected. It is a doubling down by the central bank, rather than the expected easing off now that inflation is re-emerging in Japan. But clearly they think the recent inflation is only transitory.

Meanwhile, the share of Japanese government bonds held by the Japanese central bank has now topped 50% on a market value basis for the first time, new data showed.

In China, their central bank left its loan prime rates unchanged.

Meanwhile, Taiwanese export orders slumped badly in November, diving -23% from the same month a year ago as the nation feels the effect of the cold shoulder from China.

The Europe, the latest survey of EU consumer sentiment is little-changed, but it remains deeply negative, less so in the euro area.

German producer prices fell more than expected in November, slipping -3.9% from October which was a similar shift the month before. These prices are now 'only' +28% higher than a year ago, a sharp retreat from +34% in October. Recall they maxed out at +46% up in August, so the retreat is turning out to be as fast as the original build up.

The UST 10yr yield started today at 3.70%, and up another +12 bps from this time yesterday. 

The price of gold will open today at US$1820/oz and up +US$31 and aided by the Japanese move.

And oil prices start today down -US$1.50 from this time yesterday at just over US$74.50/bbl in the US while the international Brent price is just under US$79/bbl.

The Kiwi dollar opened today at 63.2 USc and down -½c. Commodity currencies are out of favour today. Against the Australian dollar we are unchanged at 94.9 AUc. Against the euro we are more than -½c lower at 59.4 euro cents. We should also note that we are a massive -4.8% lower in a day against the Japanese yen That all means our TWI-5 starts today at 71.6 and down another -80 bps.

The bitcoin price is now at US$16,839 and up +1.2% from this time yesterday. Volatility over the past 24 hours has again been moderate at +/- 2.3%.

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.

The Reserve Bank ought to move faster to offload the government bonds bought during its 2020-21 quantitative easing programme to unwind the distorted effect this has on the financial system, says John McDermott.

McDermott, Executive Director of economic and policy research institute Motu is also a former Reserve Bank Assistant Governor. 

He says quantitative easing (QE) via the Reserve Bank's large scale asset purchase programme has proven problematic.

"I think we'll reassess history and decide QE turns out to be a really bad idea, apart from [during] the really emergency settings."

"Under normal times central banks should not be doing this and they should be repairing the balance sheet. Because QE just seems to find itself in asset markets. It moves equity markets up, it moves house prices [up], it creates other distortions in the economy that we really don't need to have. It creates all kinds of financial stability problems. QE has proved very dangerous. Maybe we should have it for just in case, but understand the cost of using it is much, much higher than we ever anticipated," McDermott says.

QE) is a monetary policy tool through which a central bank buys securities on the open market with the aim of reducing interest rates, increasing the money supply and bolstering economic activity. During 2020 and 2021 the Reserve Bank bought $53 billion worth of government and local government bonds from banks. It's now selling $5 billion worth annually to New Zealand Debt Management, the Treasury unit that manages government debt.

QE, McDermott says, gets into the financial system where it has to work through asset prices.

"So it has over inflated asset prices. It creates a distortion in terms of wealth distribution, it distorts business decisions, and it creates financial fragility in the system so everybody is over leveraged, there's too much debt in the system," says McDermott.

The exit strategy for central banks is tricky, McDermott adds, saying he hasn't seen any country do this well.

"The business model relies on keeping QE going. So I think we need to say that has not to be New Zealand's future, we don't want a distorted financial system. So it's important to reduce it before we get hooked on that really bad habit."

In the podcast he also talks about whether inflation has peaked, good and bad forward guidance from central banks, the sport of Federal Reserve watching, the need for New Zealand to have monthly Consumers Price Index inflation data, the state of the global economy, including China, the US and Australia, and the three things he'd be watching over summer if he still worked at the Reserve Bank.