Economy Watch

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 open and fair availability of information is subject to wild distortions in two of the world's largest economies.

Americans are at their mid-term polls in an election that seems to turn on vast amounts of self-interested billionaire money and admitted-Russian interference - and for some reason these influences seem to be working in battle-ground contests. It seems likely a grim result for proper democracy is about to be rewarded, and again in the face of the popular vote. Gerrymandering wins again.

These results, and the American CPI data for October which is due on Friday (NZT) are the next big market movers.

Their rise in consumer credit was slightly less than anticipated in September, but the miss was minor and indicates a sensible expansion, not anything to be concerned about. For one thing, it rose less than inflation, so isn't revealing any consumer debt stress.

And American retail sales chugged on last week, up +7.6% from the same week a year ago on a same-store basis.

In China, they are celebrating reporters and news media "loyal to the party", so they too are under the influence of powerful forces. Different to the US, but still malign. It is difficult to then work out the true state of the Chinese economy.

In Taiwan, compared with the same month last year, exports fell in October, but only marginally and by far less than was expected. And there was a sharpish rise in imports there, so their trade surplus halved in the month.

In Europe, retail sales eased higher (on a 'real', inflation-adjusted basis) in September and by the amount expected. This was an improvement over the prior month.

In Australia, the widely-watched NAB business confidence survey fell in October, taking it to its lowest reading since December 2021 and leaving it below the long-run average. It comes amid growing concerns over rising interest rates and a gloomy global outlook.

The Westpac-Melbourne Institute Index of Consumer Sentiment for Australia fell in November to its lowest level since April 2020 as rising interest rates and surging inflation weighed on family finances and the economy. November’s reading also remained at contractionary levels for the ninth straight month.

The UST 10yr yield started today at 4.14% and down -7 bps from this time yesterday. 

The price of gold will open today at US$1717/oz. This is up a sharpish +US$39 from this time yesterday.

And oil prices start today -US$2 lower than this time yesterday at just on US$90/bbl in the US while the international Brent price is just on US$96.50/bbl.

The Kiwi dollar will open today at 60 USc and up +¾c since this time yesterday. Against the Australian dollar we have stayed firm at 91.6 AUc. Against the euro we are down marginally at 59.2 euro cents. That all means our TWI-5 starts today at 69.9 and +40 bps higher than this time yesterday.

The bitcoin price is now at US$20,480 and down -1.1% since this time yesterday. However, volatility over the past 24 hours has been very high at just on +/- 4.3% with some wild swings from more market instability.

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.

Kia ora,

Welcome to Tuesday’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 investor fascination with the possibility China may back off its strict lockdown regime doesn't seem to be reciprocated by official announcements yet.

In China, exports fell in October, their first retreat since May 2020, and prior to that their January 2019. The fall wasn't large (-0.3%) but over the past two years it is well lower than the prior low of a +3.5% year-on-year rise.

China's October 2022 trade surplus was lower too at +US$85 bln, and well lower than the +US$96 bln expected. Imports fell faster than exports but these are actually little-changed in the past seven of eight months.

Apple has warned it will ship fewer premium iPhones and customers will face longer waits for products after strict COVID-19 curbs disrupted production at a key factory in Zhengzhou, China, which is operating at "significantly" lower capacity as pandemic-related restrictions affected assembly of the premium iPhone 14 Pro and Pro Max. Key supplier Foxconn has had to run the facility under tighter restrictions, including daily testing and limitations on staff movements.

Analysts had expected China's foreign currency reserves to dip marginally in October by about -US$18 bln. But in fact they rose marginally by +US$23 bln to US$3.05 tln.

Those rumours continue to swirl about a coming easing of pandemic controls. It is 'seducing investors'. But news of a wider spread of infection, especially in the Guangdong region, remains a real public health and economic worry.

In the US, a detail from the strong October jobs report is worth noting. Logistics firms shrank their workforce by -20,000. This is a sign that the supply chain stresses are easing faster than expected and the great employment run-up during it may be over. But it is an industry with a very much larger jobs footprint now.

In Europe, German industrial production rose in September from August and by more than expected and is now +2.6% higher than year-ago levels. But you may recall that we have already reported than new order levels are not rising.

International air travel made a "strong recovery" in September, including in the Asia/Pacific region, but it is still down -50% from equivalent pre-pandemic levels. Only North America is almost back to those benchmark levels. On the air cargo front the situation is closer to normal volumes, but the Asia/Pacific region is dragging. Again, it is strong North American air cargo markets that is driving this recovery.

The UST 10yr yield started today at 4.21% and up +5 bps from this time yesterday. 

The price of gold will open today at US$1678/oz. This is down -US$5 from this time yesterday.

And oil prices start today marginally firmer than this time yesterday at just over US$92/bbl in the US while the international Brent price is just on US$98.50/bbl.

The Kiwi dollar will open today at 59.2 USc and little-changed since this time yesterday. Against the Australian dollar we have stayed firm at 91.6 AUc. Against the euro we are down slightly at 59.3 euro cents. That all means our TWI-5 starts today at 69.5 and -20 bps lower than this time yesterday.

The bitcoin price is now at US$20,718 and down -2.5% since this time yesterday. Volatility over the past 24 hours has been modest at just on +/- 1.6%.

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. I'm David Chaston and we’ll do this again tomorrow.

Kia ora,

Welcome to Monday’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 still driven out of the United States.

High and persistent inflation is the greatest near-term risk to the American economy and financial system, the US Federal Reserve said in its semi-annual Financial Stability Review. It also warned of rising instability in the trading of American government debt. An unexpected future shock could amplify existing vulnerabilities and shadow banks - leveraged financial firms other than regulated banks - are the main risk they see.

All this comes as the American prepare to vote in the mid-term elections. All the signs are that the Democrats will lose control of both houses of Congress, and making the Biden Administration's final two years very hard to govern effectively. Fortunately, they have used the first two years to install a very effective economic repair. The new Congress will focus on its culture wars.

Also over the weekend US non-farm payrolls rose more than the conservative forecasts, up +261,000 s.a. in the headline result and well above the expected +200,000.

But as regular readers will recall, we prefer to watch the 'actual' numbers and those rose +1,172,000 in October from September and taking their paid workforce to a massive 154.3 mln, and easily its largest ever. That is +1 mln more than the 'seasonally adjusted' numbers report. The pay for +1 mln extra people is likely to be highly stimulating and power American consumption for some time to come. That will also be adding to inflationary pressures, bolstering demand. They have a paid workforce +3.4% larger than this time last year.

By any measure these are strong numbers. Their participation rate rose to a modest 62.2%. As might be expected, less than 20% of their jobless are 'long term unemployed' which is consistent with a very strong labour market.

It is now a chicken-or-egg issue going forward. Will the new expanded employment drive an economic expansion? Or will a stuttering economic expansion make the higher employment unsustainable? Seemingly endless 'warnings' that the US economy is running out of steam have so far proven unfounded. But there is one cloud in today's US jobs numbers - the vast increase in paid workers were at hourly rates that rose slightly slower than inflation.

North of the border, Canada also reported a strong and strengthening jobs market. They expected a +10,000 rise in paid jobs but actually reported +108,300 new jobs - and even more for full-time positions, and a reduction in part-time jobs. Their participation rate is 64.9%.

Adding to the positive vibe, Japan's services sector is well on the mend, with it expanding at a faster rate in October. They reported faster growth in activity levels and employment and optimism in that sector is now at all-time highs.

In China, they said they are sticking to their zero-Covid policies, dashing hopes of some easing. China says it is still facing complex and severe pandemic outbreaks in the country and with winter approaching they are worrying about the current uptick gaining more momentum. All this is despite rising public and local government pressure to move on from the costly and disruptive policy.

China's seemingly endless promises of "reform and opening up' are just pointing out how closed and controlled their economy is, even if they know they do need those economic reforms. Their Party Congress focus on control and security indicates a deep distrust of their own people and market forces. It is hard to see how international companies can have much confidence in supply chains that rely on China after these recent shifts.

And in a detail confirming the sidelining and downgrading of the influence of their central bank, the Party has gone after a senior manager there, with a standardised accusation of corruption. Officials with economic experience are now suspect.

Singaporean retail sales rose more than expected in September and extending a new positive trend. They are now up +3.2% from August and up more than +11% from year-ago levels.

German factory orders fell in September and by more than expected. This extends a recent weakening trend. Export orders are holding these from being even worse.

In Australia, their residential rental market is in crisis with vacancy rates at 1% or below in most urban areas. There are reports that some renters were making up to 100 applications for a home unsuccessfully, sometimes after receiving a no-grounds eviction with a set end date. The conditions for widespread social unrest are brewing in these circumstances.

And the Australian central bank expects a couple of tough years for Australians, with real wages continuing to fall as inflation persists and unemployment starts to rise. These forecasts are part of their latest Monetary Policy Statement from the Reserve Bank of Australia. They echo their new Government's warnings. "Given the importance of avoiding a price–wage spiral, the board will continue to pay close attention to both the price-setting behaviour of firms and the evolution of labour costs in the period ahead," it warned. They are also concerned that recent jumps in rent, especially in Australia's two biggest cities, might further entrench inflation.

The UST 10yr yield started today at 4.16% and unchanged from Saturday. 

The price of gold will open today at US$1683/oz. This is up +US$8 from this time Saturday.

And oil prices start today little-changed from this time Saturday at just over US$91.50/bbl in the US while the international Brent price is just on US$98/bbl.

The Kiwi dollar will open today at 59.3 and a +¼c higher than this time Saturday. For the week it is up +1¼c and a strongish revaluation. Against the Australian dollar we have stayed firm at 91.7 AUc and near our highest since April. Against the euro we are up slightly at 59.6 euro cents. That all means our TWI-5 starts today at 69.7 and our highest since mid September.

The bitcoin price is now at US$21,260 and up another +2.4% since Saturday. Volatility over the past 24 hours has been low however at just on +/- 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’ll do this again tomorrow.

Why do banks love housing so much? Is this good for the overall economy? And if not what, if anything, could be done to change things?

We address these questions in the latest episode of interest.co.nz's Of Interest Podcastwith Martien Lubberink, Associate Professor at Victoria University’s School of Accounting and Commercial Law. Lubberink has previously worked for the Dutch central bank and contributed to the development of bank regulatory capital and disclosure standards both in Europe and globally.

New Zealand banks do the majority of their lending to people buying houses. ANZ NZ, the country's biggest bank, has $104 billion of housing lending, which is 71% of its total lending. It's a similar story at the other major banks. At ASB 69% of total lending is housing lending. At Westpac NZ it's 66%, at Kiwibank it's 84% and at BNZ it's 55%. 

In the podcast we discuss how and why bank regulatory capital settings incentivise housing lending, how the political economy favours home owners, the potential of so-called fintech financial service providers to boost borrowing opportunities for small businesses, or SMEs, and more.

"We are very much focused on lending to residential real estate, our homes. We've got no capital gains tax, everything's geared up to supporting the home owners. And that is because we vote for that, we want that. We are not explicitly voting for SMEs, and SMEs themselves are fragmented, poorly organised. So they can not stand up against powerful politicians, [the] powerful interests of other parties. SMEs are in a way the wallflower of our economy and that's kind of detrimental because a lot of growth and great ideas will come from that sector," Lubberink says.

"The banking system in itself is not a problem, it's more the way that the lending is organised. And that's more like a political deal made between voters who want their homes. In fact these homes are subsidised because there's almost no risk attached to them. If something goes wrong owners will be bailed out or banks will be bailed out. That's the world we live in, which I think is very hard to change."

"There is a bit of a trade-off. The banking system is safe. On the other hand the big problem still is the very large exposure to a single asset class [housing]. If something goes wrong in that single asset class it goes wrong very quickly," Lubberink says.

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 most economic expansions are rolling on, but seem to be less secure as central banks struggle to contain inflation.

The giant American service sector expansion slowed slightly in October, and by slightly more than was expected. But it is still a healthy expansion, just less so. The widely-watched local survey from the ISM pegs the decrease due to slower growth in both business activity and new orders and taking this one to an 18 month low for this expansion. The internationally benchmarked Markit survey is actually recording a small contraction in this sector. This seems unlikely given the jobs and benefit-claims data, but that is what it shows.

The key metric is out tomorrow, the October non-farm payrolls report, and an expansion of jobs of +200,000 is expected.

The October job cuts report edged up to a tiny 34,000 in the month, but still, that is its highest since October 2021. And there are many reports of firms now bracing for tougher times ahead.

The number of American filing for jobless benefits rose marginally to +186,000 which is still a very low level for them. That means 1.24 mln people are on this unemployment support, and still bumping along near its historic low. That is an 'insured jobless rate' of just 0.9% of their workforce. 

US factory orders rose in September from August by the amount expected, and are +11.7% higher than year-ago levels.

The US September trade balance for both goods and services, which had fallen back to early 2021 levels by August 2022, blipped up in September to a deficit of -US$74 bln, as the economic expansion drew in more imports.

The American home ownership rate rose to 66% in September. (For perspective, in New Zealand that rate is 64.5%.)

The number of new Canadian residential building consents dived unexpectedly in September according to data out overnight. No-one saw the -17% month-on-month drop coming. A -6% drop was what was expected.

The internationally benchmarked PMIs for India shows their growth momentum picked up in October in both their factory and services sectors, and to good levels. In some large cities, this comes at considerable cost to public health, however.

Norway raised its key policy rate by +25 bps to 2.50%, and that was less than the +50 bps hike expected.

England raised its key policy rate by +75 bps to 3.0% in a split decision. This is a 30 year high and was as expected. The dissenters would have raised it less. They are fighting CPI inflation of over 10% and have a target of just 2%. They also said they are facing a two-year recession.

Container freight rates fell another -3% last week to now be -20% below their five-year average. Pacific rates are still falling. Atlantic rates are either stable or rising now. Bulk cargo rates are still falling too.

The UST 10yr yield started today at 4.13% and +14 bps higher than yesterday just after the US Fed market reaction. 

The price of gold will open today at US$1628/oz. This is down -US$20 from this time yesterday.

And oil prices start today down -US$1 from this time yesterday at just on US$88/bbl in the US while the international Brent price is just under US$95/bbl.

The Kiwi dollar will open today at 57.7 USc and almost -1c lower than this time yesterday. Against the Australian dollar we are firm at 91.8 AUc and our highest since April. Against the euro we are down slightly at 59.2 euro cents. That all means our TWI-5 starts today at 68.8 and down -70 bps since yesterday.

The bitcoin price is now at US$20,306 and down -1.1% from this time yesterday. Volatility over the past 24 hours has also been modest at just on +/- 1.9%.

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’ll do this again 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 International edition from Interest.co.nz.

Today we lead with news that is all about the US Fed.

As expected, the US Fed has raised its policy rate by +75 bps to 4%. It is their sixth consecutive rate hike and the fourth straight +75 bps increase, pushing borrowing costs to a new high since 2008. The odds are currently divided between another +75 bps hike at their December 15 meeting, or a lesser +50 bps rise then, although today's statement tips the chances to the +50 bps end.

Recent economic data has been pointing to an impressively resilient economy although some signs of a slowdown are starting to emerge especially in their housing market. And of course, their inflation is sticky and close to a 40-year high. Of course, this is what the new high official interest rates are designed to bring down. Remember, they have an inflation target of 2%. But the overall resilience, especially in their labour market, is making that a tough task and there is scant evidence yet that these early sharp rate hikes are making a material difference, especially to inflation expectations.

Still, the Fed suggested it is coming to the end of its series of sharp hikes.

American mortgage applications fell again last week although not be as much as previously. And American mortgage interest rates also fell slightly, which wasn't expected. But they are still more than double the level of a year ago. Not falling are car loan interest rates, and they are now at their highest since the GFC and touching 6.3%.

The pre-cursor employment report from ADP which focuses on the private sector only delivered a marginally better result for October than expected. They reported a gain of +239,000 jobs last month, the most in three months, and compared to market forecasts of +195,000. However, hiring was not broad-based with the services-providing sector creating +247,000 jobs. On the other hand, jobs were lost in IT; professional and financial activities; education and health. Also the manufacturing sector shed -20,000 which is consistent with the tamer regional factory surveys we have been reporting recently. Analysts expect non-farm payrolls to rise +200,000 in October when they are reported on Saturday NZT.

Despite their extreme inflation stress, the number of German in paid work hit a new high in September at 45.6 mln. However, their labour market expansion is slowing somewhat. Their jobless rate stayed unchanged at 5.5%.

Just days after Russia suspended support for Ukrainian grain exports through the Black Sea, it has agreed with Turkey to restart its participation in the agreement. Wheat prices fell back on the news.

In Australia, residential building consent levels fell almost -6% in September from August, and are down -13% from a year ago. Meanwhile, lending for housing fell more than -8% in September from August and is down more than -18% year-on-year. Lending for commercial construction is down -33%. But non-residential building consents rose +3.7% in September and are down less than -2% year-on-year.

And the price of iron ore just keeps on falling as Chinese demand reduces further. Coal prices are no longer rising (although they aren't falling either). Chinese steel mills are highlighting weak demand, especially from their property sector.

The UST 10yr yield started today little-changed at 4.04%. But after the Fed announcement it fell to under 4%. 

The price of gold will open today at US$1648/oz. This is up +US$3 from this time yesterday.

And oil prices start today little-changed from this time yesterday at just over US$89/bbl in the US while the international Brent price is just under US$96/bbl.

The Kiwi dollar will open today at 58.6 USc and up a little since yesterday and a new six week high. But after the US Fed it has risen to 59.2 USc. Against the Australian dollar we are unchanged at 91.5 AUc and our highest since April. Against the euro we are up slightly at 59.5 euro cents. That all means our TWI-5 starts today at 69.5 and up +40 bps since yesterday.

The bitcoin price is now at US$20,533 and up a mere +0.4% from this time yesterday. Volatility over the past 24 hours has also been low at just on +/- 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’ll 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 global factories are no longer expanding as fast as we head into the last two months of 2022.

But first, there was another sizeable fall in dairy prices at the auction earlier today. Overall prices fell another -3.9% in USD terms, and on the rising Kiwi dollar, prices were down a substantial -6.6% in NZD terms. These falls are mounting up now. Very weak Chinese demand, including from their foodservice industry is kneecapping these commodities. SMP was down -8.5%, WMP was down -3.4%. All this is happening despite falling global milk production. Overall prices are now back to levels we last had in January 2021 with the bull run well faded. We are down -30% from the peak in March 2022. Non-one is talking about a "commodity super-cycle" anymore. In fact, farm gate payout forecasts will undoubtedly start to be trimmed now for the upcoming season.

Meanwhile, American retail sales are still holding up. On a same-store basis, sales last week were up +9.7% from year-ago levels with is a stronger gain than the prior week.

But American factories are not expanding as fast as they once were, in fact now barely at all. Both PMIs for October out today record a minor expansion only. The widely-watched local one reports a slowing on new order intake, falling export orders, and prices that are not rising anywhere near as fast. The Internationally-benchmarked Markit one reports similar conditions. Their logistics LMI confirms a fast easing of supply-chain pressures.

Meanwhile, their September JOLTS report shows September job openings increases; hires edged down, and total separations decreased. If those conditions extended into October the upcoming non-farm payrolls report for October will be on the upside of the currently expected +200,000 employment gain.

And American construction spending unexpectedly rebounded in September, amid a surge in investment in nonresidential structures that offset a further decline in housebuilding.

In Japan, their Markit PMI fell away to only a minor expansion, reporting new orders and output growth declined further in October.

The private Caixin factory PMI in China wasn't as negative as the official one, but it was already contracting in September and stayed contracting in October.

In contrast in India, their factory expansion rolls on at a good pace with new order growth and production strong and inflationary pressures mild in October

The Australian PMI for October remains good by international standards, but demand and output growth slowed and inflation pressures eased visibly. But they report business confidence improved.

The RBA, who review their cash rate target monthly, added another +25 bps to their policy rate taking it to 2.85%. They deemed this an adequate response to their inflation pressures which they now see peaking at 8%. They seem confident it won't get away from them, although few others are. Markets expect another +25 bps in December and their policy rate topping out at 3.85% in May 2023. Perhaps they are expecting a weakening China to do much of the work for them?

These rate rises hit households with mortgages almost immediately in Australia, because most are still on floating rates.

The UST 10yr yield starts today unchanged at 4.05%. 

Wall Street's Tuesday session is soft with the S&P500 down -0.3%. Overnight, European markets all closed up about +1% except Frankfurt which only rose +0.5%. Yesterday, Tokyo finished with a +0.3% gain. However Hong Kong ended making strides erasing its recent big dump, gaining +5.2% on the day and Shanghai was up +2.6%. Rumours yesterday that their pandemic lockdown policies are about to change were behind the mood shift. The ASX200 rose +1.7% yesterday but the NZX50 dipped -0.2% on the day.

The price of gold will open today at US$1645/oz. This is up +US$9 from this time yesterday.

And oil prices start today +US$3.50 higher than this time yesterday at just on US$89/bbl in the US while the international Brent price is just over US$95.50/bbl.

The Kiwi dollar will open today at 58.4 USc and up +¼c since yesterday and a six week high. Against the Australian dollar we are +½c firmer at 91.5 AUc and our highest since April. Against the euro we are up almost another +½c at 59.2 euro cents. That all means our TWI-5 starts today at 69.1 and +40 bps higher and our highest since mid-September.

The bitcoin price is now at US$20,443 and a mere +0.3% from this time yesterday. Volatility over the past 24 hours has also been low at just on +/- 0.8%.

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.

Kia ora,

Welcome to Tuesday’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 international inflation is still raging, while the economic slowdown needed to quell it is starting to show in some parts.

There were two regional factory surveys out overnight in the US. The Chicago PMI was little changed and that was an unexpected disappointment because an improvement was expected. It remains quite negative. And the Dallas Fed factory survey for October was also disappointing. Output rose there but the level of new orders didn't and the firms surveyed said the outlook isn't as positive. The Dallas Fed factory survey has been more negative than anywhere else in the rest of the country.

The official Chinese factory PMI unexpectedly fell to 49.2 in October from 50.1, missing market forecasts of 50.0. This was the lowest reading since July, and comes amid the return of strict pandemic restrictions in several big cities with output, new orders, and export sales all falling. Their service sector PMI's turned negative too, largely for the same reason.

And here's an indication of just how tough China's anti-Covid measures are. It locked crowds in the Shanghai Disneyland after a case there was suspected. And it is not the first time they have done something like that.

Meanwhile, the Hong Kong economy is going backwards faster, down a sobering -4.5% from the same period a year ago. This is its steepest contraction since the 2020 pandemic period, and before that the worst since the GFC.

Japanese industrial production was up +9.8% in September from a year ago, but that is artificially enhanced by a weak base. From August, there was slippage, down -1.6% which is rather a sharp negative change.

Japanese retail sales rose by 4.5% in September 2022, compared with an expected +4.1% gain. This was the seventh straight month of increase in retail trade there and the steepest pace since May 2021, and interestingly higher than CPI inflation.

The overall inflation rate in the EU rose to 10.2%. It was the first time it has been in double figures since the EU was formed. Yesterday, we reported Germany's +11.6% rise, today we can note France is up +7.1%, Italy up +12.8%, and Spain was up +7.3%. 

Germany retail sales rose in September from August (in 'real' terms), an improvement analysts were not expecting.

Despite those pressures, the EU is still expanding, even it it is slower. It grew +0.2% in Q3 from Q2 and up +2.4% year-on-year. It's a creditable result given all the challenges the region is facing. Portugal and Spain are both doing the best in this bloc.

Australian retail sales rose more than expected, and that is the 9th month in a row of gains. However, almost all of the recent monthly gains are likely due to higher prices rather than volumes. Fashion and dining led the uptick. But year-on-year the gain was more than +17%, mainly because of a very weak base.

The RBA will likely raise rates this afternoon; markets expect a tame +25 bps rise to 2.85%. Anything else will be a surprise. But Australia does face a rising inflation threat, so +25 bps is probably inadequate as an inflation-fighting response.

In Brazil, the Presidential election result gave ex-President Lula the win by a small but clear margin of some 2.1 mln votes. But that probably won't stop the loser Bolsanaro from "doing a Trump". Lula doesn't officially take over until January 1, so there are probably some extremist events to play out until then. Markets seem to respect these results.

The UST 10yr yield starts today up +4 bps at 4.05%. 

The price of gold will open today at US$1636/oz. This is down -US$10 from this time yesterday.

And oil prices start today -US$2.50 lower than this time yesterday at just on US$85.50/bbl in the US while the international Brent price is just over US$91/bbl.

The Kiwi dollar will open today at 58.1 USc and little-changed since yesterday. Against the Australian dollar we are firm at 91 AUc. Against the euro we are up +½c at 58.8 euro cents. That all means our TWI-5 starts today at 68.7 and +30 bps higher.

The bitcoin price is now at US$20,390 and down -1.1% from this time yesterday. Volatility over the past 24 hours has been modest at just on +/- 1.4%.

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’ll do this again tomorrow.

Kia ora,

Welcome to Monday’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 financial markets have decided there are no [economic] adults in the room in China's ruling group and are moving to decrease their exposure to the Middle Kingdom.

First, almost 20% of the members of the American Chamber of Commerce in Shanghai said they were decreasing their exposure to China. And this survey was carried out before the CCP Congress changes were known.

On Friday, Hong Kong equity investors took it on the chin with an ugly -3.7% drop to cap a loss of -6.5% for the week. Shanghai was tough too, falling -2.3% on Friday and -3.9% for the week.

And over the weekend reports emerged that the giant Foxconn facility that makes iPhones in Henan Province, one that employs and houses 200,000 workers, has a serious pandemic outbreak forcing a lockdown on the facility and causing great distress. Workers are escaping, some redirected into isolation facilities, but not all. Apple is likely to accelerate its decoupling.

Further, some key commodity prices sank rather sharply over the weekend. That included iron ore, zinc, and steel. Copper remains in the doldrums. The immediate drivers of these retreats are the lower prospects in China.

The Bank of Japan kept ultra-low interest rates and maintained its dovish guidance as recession fears dampen prospects for a solid recovery in Japan, cementing its status as an outlier among global central banks who are mostly tightening monetary policy.

Meanwhile, Japan unveiled an economic package worth about US$200 bln to cushion their "high inflation" as households and some businesses struggle under the impact of a weak yen.

In the US, and following the first positive estimate of US Q3 GDP growth, the follow up PCE inflation rate has been released and it is unchanged at 6.2%. The same data shows consumer spending remained 'robust', growing at a +7.2% rate and above the related inflation level. Personal incomes rose at an annual rate of +5% and higher than was expected. Perhaps more important than the monthly September numbers are that none of these metrics seems to be falling away. Wall Street liked what it saw, more or less validating Janet Yellen's recent comments.

The next Fed meeting is coming up this week on Thursday, November 3 (NZT). Markets have priced in a +75 bps hike then taking its policy rate to 3.75% and expect it to rise to 5% from there through to mid-2023. After that, the October non-farm payrolls report will be released at the end of the week, and markets now expect a modest +220,000 gain in payrolls and little change in the low jobless rate. Full employment there seems unchallenged at this time.

But not all Americans appreciate the current focus on tackling inflation. Pending home sales were down a massive -10% in September from August, and down more than -30% from a year ago.

And another sentiment survey, this one from the University of Michigan, remains very low even if it did inch up in October and confirming the earlier 'flash' result.

Perhaps online sales are peaking out; Amazon is warning that this upcoming holiday season sales may be lackluster.

Across the Atlantic, EU business and consumer sentiment remains very low too - for completely understandable reasons.

And markets believe the ECB is about to turn dovish to support a flagging region and downgrade the inflation fight.

German inflation is getting worse however. The latest 'harmonised' reading has it at an eye-popping +11.6% pa in October, driven by energy costs up +43% and food costs up +20% in a year. But the costs of the Russian invasion seem to have made Germans more hostile to Russia. Their President, who comes from a wing of Germany's Social Democrats that long argued for closer economic ties to Moscow, said Russia's invasion had brought "a change in era".

Germany is living with the stresses, and even managing to grow their economy in real terms despite the extreme pressure.

The EU struck a deal on a law to effectively ban the sale of new petrol and diesel cars from 2035, aiming to speed up the switch to electric vehicles and combat climate change.

We are in for a heavy data week ahead. In the US we will get the Fed's interest rate decision, their non-farm payrolls report, and a raft of earnings reports. Also, investors will be closely watching central bank meetings in England, Australia, Norway and Malaysia. There will be GDP and inflation rate figures from the Euro area. Finally, China will be releasing its manufacturing and services PMI’s for October.

Then there are the tensions in Ukraine, the US mid-term elections, and the Brazilian election results, all of which financial markets will be watching too.

The UST 10yr yield starts today unchanged at 4.01% but down -21 bps in a week. 

The price of gold will open today at US$1646/oz. This is up +US$4 from this time Saturday.

And oil prices start today +US$1 firmer than this time Saturday at just on US$88/bbl in the US while the international Brent price is just over US$94/bbl.

The IEA has released its October update pointing out that demand for fossil fuels has peaked for all for types (coal, oil, gas) and will fall rapidly from here, and the demand for renewables, especially hydrogen is taking off. To meet European demand alone, the IEA estimates the total capital investment in hydrogen is as much as US$1 tln. And that is just the start, they say.

The Kiwi dollar will open today at 58.1 USc and little-changed from Saturday. Against the Australian dollar we are firm at 90.7 AUc. Against the euro we are unchanged at 58.3 euro cents. That all means our TWI-5 starts today at 68.4 and also little-changed.

The bitcoin price is now at US$20,625 and down a mere -0.4% from this time Saturday. But it is up +7.5% from this time last week. Volatility over the past 24 hours has been low at just on +/- 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’ll 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 that generally isn't positive, but the data and sentiment seems to be remarkably resilient.

US durable goods orders rose more in September than August, but not be as much as was expected. But the rise from a year ago was an impressive +11.5%. Orders for capital goods rose +13.6% on the same basis which is actually quite impressive in itself and indicates a broad commitment by firms there to new capital spending.

The US economy grew an annualised +2.6% in Q3-2022, beating forecasts of a +2.4% rise and rebounding from a contraction in the first half of the year. Helping was strong business investment and a smaller current account deficit. Hurting was a fall in residential construction and marginally slower consumer spending. But this actually was the bit that held better than expected. This result is the first of three estimates, so is subject to revisions.

There were +183,000 new claims for jobless benefits last week, another low level and taking the total to 1.225 mln and a small increase but really, still bumping along near record lows. Next week's October non-farm payrolls are likely to to remain very solid.

Not so positive is the next regional factory survey, this one from the Kansas City Fed district. This one points to a sharpish softening in production, shipments, and new orders. Still, employment rose mainly because those surveyed expect a pickup because "the economy is still decent". That is borne out by remarks by one very large business in the region, Caterpillar.

In China they reported that industrial profits slipped in October. Apparently foreign firms made losses in the month, as did local privately owned businesses. But State-owned businesses reported improved or holding profits.

In Taiwan, the trifecta of an invasion fear, rising inflation and interest rate hikes, saw consumer confidence there drop to a 13-year low in October.

As expected the ECB raised its policy rates by +75 bps earlier today, taking the key one to 2.0%. They tweaked a few of their support programs, but didn't change them significantly. In just three months, they have raised rates by +200 bps, the fastest pace of tightening in the bank's two-decade history. They are presiding over a set of economies on the brink of recession while trying to tame raging inflation, a very tough ask. They want to shrink their bloated balance sheet, but haven't started that yet.

German consumer sentiment improved in October according to the widely-watched GfK survey. It was a very minor improvement, but going into winter and with a war on their doorstep, this is perhaps a somewhat surprising outcome. It still is however at a quite depressed level.

Global freight rates for shipping containers fell faster last week than in the prior one, down another -7% in this latest survey. It is rates out of China, especially to Europe, that drove this latest fall. Rates from China to the US also continued to fall. Trans-Atlantic rates are actually now rising. Rates for bulk cargoes slipped again too.

The UST 10yr yield starts today down another -6 bps at 3.96% and back to where it was two weeks ago. 

The price of gold will open today at US$1659/oz. This is down -US$8 from this time yesterday.

And oil prices start today +US$1 firmer than this time yesterday at just under US$89/bbl in the US while the international Brent price is just over US$95/bbl.

The Kiwi dollar will open today at 58.4 USc and little-changed from this time yesterday. Against the Australian dollar we are up +½c at 90.3 AUc. Against the euro we are up a bit more than +½c at 58.5 euro cents. That all means our TWI-5 starts today at 68.5, and another +30 bps firmer than yesterday.

The bitcoin price is now at US$20,567 and -1.0% lower than this time yesterday. Volatility over the past 24 hours has been modest at just on +/- 1.1%.

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 on Monday.