Economy Watch

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 markets are looking forward positively today, putting behind it a Q3 that had its issues.

First however, later today the RBA will advise its latest rate review and tomorrow the RBNZ will do the same. That means there is a pre-release shadow over local interest rate markets ahead of those announcements. Both central banks are expected to add +50 bps to their policy rates although that is less certain for Australia.

Meanwhile, markets are more chipper today with the end of the quarter behind it. Equity markets have opened Q4 in a positive mood. Perhaps strong progress by Ukraine in defending itself is helping. However the data coming through for Q3 isn't so bullish.

In the US, the widely-watched ISM factory PMI sagged much more than expected to be barely expanding. New orders, including new export orders were the weak spot. Labour is still tight however, although price pressures are easing quickly.

There was also the internationally-benchmarked Markit PMI for the US out as well, the final September version, and that was more upbeat recording a stable expansion. In this one, production and new orders rose, albeit only marginally, input cost inflation eased further as some inputs fell in price, and employment growth was the fastest since March.

This one ties into a global set which is much less impressive with business optimism sinking to a 28-month low.

In Japan, they are still expanding but the trend is down with new orders and output falling.

We already reported that China's factory sector was shrinking in September. And now we can add that Taiwan is going backwards too with output and sales falling at their quickest rates since May 2020.

In India, their expansion continues at a good, healthy pace.

In Europe, their manufacturing sector downturn accelerated in September as demand tumbled further and price pressures intensified.

Social media is making a mess of globally systemic banking giant Credit Suisse's reputation, suggesting it is about to be the 2022 equivalent of Lehman Bros. The real fear is that rumours might become self-fulfilling. Those fears were given credence by their CEO who wrote a staff memo saying the bank was at a "critical moment" which fed the rumour mill. But it appears he was 'only' referring to a major organisational shakeup within the bank.

The UST 10yr yield starts today at 3.65% and down -18 bps from this time yesterday. 

The price of gold will open today at US$1692/oz. This is up +US$31 from this time yesterday.

And oil prices start today up +US$3.50 from yesterday at just under US$83/bbl in the US while the international Brent price has risen to be just over US$88.50/bbl.

The Kiwi dollar will open today at 57.1 USc more than +1c higher than where we that this time yesterday. Against the Australian dollar we are little-changed at 87.8 AUc. Against the euro we are up +¾c at 58.3 euro cents. That all means our TWI-5 starts today at 67.3, and up +100 bps since this time yesterday morning.

The bitcoin price is now at US$19,470 and up +1.4% from this time yesterday. Volatility over the past 24 hours has 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’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 the string of losses and instability is building - just at the RBA and RBNZ meet to to review their OCR settings.

As something of a canary, private equity deals are failing to get funded now. You can’t do a leveraged buyout without the debt, and financing markets are seizing up. Certainly banks are much less willing to do the debt part of these deals. More than US$1 tln in these deals were done in 2021, and 2022 started strong. But now markets are repricing valuations and that undercuts deals in process. Investors no longer agree the price-to-earnings ratios that private equity is pitching. Some icon deals being promoted are failing. Further, many private equity portfolio companies will be facing cost pressures they can’t pass on to customers. High-cost leverage can push weak businesses into a critical condition. Expect to see some big-time collapses and value-destruction. Some will be very public. Failures will raise the price of debt for others in similar situations.

However first in Japan, new official data shows that last week, their government spent about NZ$34 bln intervening in the foreign exchange market to prop up the yen. It worked but it drained nearly 15% of funds it has readily available for these types of interventions (meaning they have about NZ$225 bln left in these reserves which doesn't seem a lot for the world's third largest economy).

Japanese industrial production surged unexpectedly in August to be +5.1% higher than a year ago, its best non-pandemic result since 2014.

Meanwhile Japanese retail sales rose by +4.1% in August from a year ago, exceeding market consensus of +2.8% and following a +2.4% gain a month earlier.

In China, there were PMIs released late yesterday. The official factory PMI reports a very slight improvement to a steady state (neither expanding not contracting). But the private Caixin version has it going the other way, a growing contraction.

The official release also included data on their services sector and that was negative, falling from a modest expansion in July to no expansion in August. That is the third straight month of a decrease in their services expansion.

This coming "Golden Week" isn't going to generate any travel-induced activity. Authorities are warning everyone to stay put during the week. Some cities are even putting their whole community into a lockdown again.

And in an ominous sign, ocean carriers are cancelling dozens of sailings on the world’s busiest routes including Chine to the US West Coast during what is normally their peak season, the latest sign of the economic weakness hitting companies as inflation weighs on global trade and consumer spending.

Hong Kong retail sales were reported for August, and they weren't flash, falling -2.9% year-on-year.

And staying in Hong Kong, Bloomberg is reporting that the value of Chinese firms listed there has sunk -14% to their lowest valuation on record. They are now trading at just 60% of their book value, the cheapest ever.

Investors may shifting funds back to the US in a risk-off flow, but not all funds are flowing that way. The rush out of China also is seeing investment move to Vietnam - and India.

India reviewed its policy interest rate late on Friday and as expected it raised it by +50 bps to 4.9%.

In the US, the inflation measure the Federal Reserve takes note of, the PCE, slipped in August from July to be +6.2% higher than a year ago. But the "core" result rose slightly to 4.9% and "stubbornly high". Personal income rose again at the expected rate, but personal spending rose faster than expected.

US petrol prices have stopped falling, still at about US$3.80/gallon as a national average and stable for the past month - and still +20% higher than a year ago.

The latest University of Michigan consumer sentiment survey has stayed very low, even if it did rise marginally from July.

In Europe, German reported that its labour force didn't grow in August, the first time in 18 months that this has happened. They also said the numbers out of work fell by -125,000 and their jobless rate stayed at just 3.0% of their 44 mln labour force.

Meanwhile the EU said its overall inflation rate rose to +10.0% in September. German inflation was higher at +10.9% whereas French inflation was at 6.2% which was about the lowest of the larger countries in the block.

European Union countries agreed to impose emergency taxes on energy firms' windfall profits, and began talks on their next move to tackle Europe's energy crunch - possibly a bloc-wide oil and gas price cap.

In Australia, their Productivity Commission is reminding policymakers that first home buyer subsidies push up housing values is counter-productive and doesn't make home ownership more affordable. "This money would be better spent preventing homelessness", they say.

The UST 10yr yield starts today at 3.83% and unchanged from this time Saturday. A week ago it was at 3.70%. 

The price of gold will open today at US$1661/oz. This is down -US$1 from this time Saturday but up +US$20 from this time last week.

And oil prices start today unchanged from Saturday at just over US$79.50/bbl in the US while the international Brent price has risen to be just under US$85.50/bbl. These levels are similar to where we were at last week and eight month lows. Natural gas prices are still falling. OPEC is reported to be considering a big production cut in an attempt to prop up prices.

The Kiwi dollar will open today at just under 56 USc more than -1c lower than where we ended on Friday and back to a 13 year low (pandemic excepted). Against the Australian dollar we are unchanged at 87.7 AUc. Against the euro we are down at 57.5 euro cents. That all means our TWI-5 starts today at just 66.3, and down -160 bps in a week. That is an 11 year low (also pandemic excepted).

The bitcoin price is now at US$19,197 and down -3.0% from this time Saturday. 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 the momentum building to avoid Russian oil and gas supplies is now starting to be quite impressive.

But first, American jobless claims last week were a very low +156,000 taking the total number of people on these benefit to just 1.225 mln and the lowest level ever recorded and half what it was this time last year (which was also historically low). Labour market pressure in the US remains very high.

Going the other way, American mortgage interest rates are rising fast. The average rate on a 30-year fixed mortgage climbed to 6.7% this week, the highest since July 2007, up from 6.29% last week and 3.01% a year ago. That's according to a survey of lenders by mortgage giant Freddie Mac. Their 15-year fixed-rate mortgage averaged 5.96%, up from 5.44% last week and 2.28% a year ago.

South Korean business confidence fell sharply in August and back to pre-pandemic levels. But to be fair it has been the elevated prior two years that have been unusually positive. The current confidence level is what they were used to from 2004 to 2020.

Singapore reported its producer prices rose +17.3% in the year to August, although they slipped slightly from July, so the heat is starting to go out of this surge.

In China, they are about to start another Golden Week holiday so data and activity there will be a bit more restrained next week. Their news will tend to be political as the Communist Party holds it two big meetings.

But stresses can't be avoided. Investors dumped shares and bonds of Chinese property developers yesterday after a media report that CIFI Holdings had defaulted, adding to worries over the crisis-stricken real estate sector. Their Hong Kong-listed shares plunged 32% to a record low as of the market close yesterday, after credit intelligence provider Reorg reported that the Chinese developer had missed payment on certain non-standard debt. The company itself is remaining staunch.

The movement of business out of China is on full display in Vietnam. In the July-September quarter they say their GDP was almost +14% higher than the same quarter a year ago. And that was on top of an almost +8% surge in Q2. Exports to the US are a key driver. But a sharp rise in personal consumption also contributed materially.

Germany reported that its September consumer inflation rate touched +10% and is up matching the UK now (on the same basis).

And the German government has announced a major energy cost relief plan that could cost up to €200 bln. They are terming it a 'defensive shield' including a petrol price brake and a cut in VAT on the fuel.

Meanwhile, Norwegian exports of oil and gas are running at record levels. And China is diverting more fuel to Europe too. Heat pump sales are booming in Europe too, many sourced from China.

And Japan and Malaysia have reached a deal for natural gas that would lessen Japan's reliance on Russia.

In Australia their Federal Government reported a sharply improved fiscal performance in the year to June 2022. It was a significant positive surprise. 

And electricity major AGL has sharply brought forward is decommissioning of coal-fired electricity generation. It is a major move there, pressed by activist shareholders.

There was another -10% fall in the cost of shipping containers internationally last week. This dive is fast, and takes prices back to just +8% above the porior 5-year average.

The UST 10yr yield starts today at 3.77% and +4 bps firmer than this time yesterday. 

Wall Street is down sharply today in its Thursday session, with the S&P500 down -2.9% in late trade and slipping into a loss for the week so far. 

The price of gold will open today at US$1659/oz. This is down a mere -US$1 from this time yesterday.

And oil prices start today +50 USc firmer at just over US$82/bbl in the US while the international Brent price has risen to be just on US$88/bbl. The price of natural gas is falling, now at a two month low, as the Europeans make steady progress in building reserves and alternate sources from Russia.

The Kiwi dollar will open today at just over 57.1 USc and marginally firmer than this time yesterday. Against the Australian dollar we are firmer at 87.7 AUc. Against the euro we are down -½c 58.3 euro cents. That all means our TWI-5 starts today at just 67.4, and down -20 bps in a day.

The bitcoin price is now at US$19,473 and virtually unchanged from this time yesterday. Volatility over the past 24 hours has been moderate at just on +/- 2.4%.

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 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 markets are a lot calmer today and more willing to invest in 'risk'.

First, the Bank of England has rushed in a £65 bln bond buying surge to be concentrated over the next two weeks to steady a British economy that has been lashed by some very bad recent policy moves. "The purchases will be carried out on whatever scale is necessary to effect this outcome," they said. It is a move that seems to have calmed markets globally.

It comes after both the US authorities and the IMF urged their central bank to act decisively to halt the meltdown that those policy moves had initiated.

In the US, mortgage applications resumed their decreasing trend last week after the unusual prior week interruption. And American mortgage interest rates rose above 6.5% for the main 30-year benchmark rate, and that is about as high as it got in the real estate frenzy in the 2006-2008 period before the GFC.

American pending home sales fell in August, falling -2% from July to be down a whopping -24% from August a year ago. This fall was the third in a row and rising mortgage rates are getting the blame.

The US trade deficit rose in August in its usual seasonal pattern even it the rise wasn't as much as expected. Exports rose more than +21% above the same month a year ago, and imports rose +16% on the same basis. Month-on-month the rises were +2.3% and +4.5% respectively as holiday season goods started their seasonal inflows.

Those seasonal flows are making their inventory overhang worse. Wholesale inventories were up another +0.8% in August from July to be more than +25% higher than a year ago. Retail inventories were up +1.9% from July to be almost +22% higher than a year ago. Some of this will be inflation, but despite that, this inventory build is a serious overhang problem that would make any correction worse.

In China, their central bank has set the official yuan exchange rate noticeably lower again today, now down to 7.11 to the US dollar. That is a one day devaluation of -0.5% and a devaluation since the start of the month of -3.2%. Half of that has happened over the past four trading days. The central bank has warned against "forex gambling".

And staying in China, despite their weather and pandemic challenges, it looks like they will deliver record grain harvest volumes this year. Some southern regions struggled, but others in the north had particularly good results.

In Germany, their GfK Consumer Climate Indicator fell sharply again heading into October, hitting a new record low for the fourth straight month and worse than market forecasts. The latest reading highlighted mounting concerns over surging inflation and high energy prices as well as persistent recession fears, with income expectations plummeting to a new record low.

Aussie retail sales held up better than expected in August, rising +0.6% from July at an annualised rate of +7.2%. Year on year it was up more than +19% but a weak base affects that comparison. The August rise was also more than markets were expecting (+0.4%).

The UST 10yr yield starts today at 3.73% and -24 bps lower than this time yesterday in a sharp reversal of recent trends. 

The price of gold will open today at US$1660/oz. This is up +US$30 from this time yesterday.

And oil prices start today +US$3.50 firmer at just under US$81.50/bbl in the US while the international Brent price has risen to be just over US$87.50/bbl.

The Kiwi dollar will open today at just over 57 USc and recovering almost +¾c than this time yesterday. Against the Australian dollar we are little-changed 87.6 AUc. Against the euro we are also unchanged 58.8 euro cents. That all means our TWI-5 starts today at just 67.6, and up +40 bps in a day.

The bitcoin price is now at US$19,522 and up +1.9% from this time yesterday. Volatility over the past 24 hours has been high again at just on +/- 3.1%.

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 tomorrow.

In 2005 Earl Bardsley wrote an article published in the Journal of Hydrology highlighting the possibility and potential of a pumped hydro storage reservoir at Lake Onslow in Central Otago.

Fifteen years later Energy and Resources minister Megan Woods announced $30 million had been allocated to develop a business case to tackle New Zealand's dry year storage problem. This would mostly focus on a pumped hydro storage project at Lake Onslow.

Bardsley, Honorary Associate Professor at Waikato University's School of Science, talks about the Lake Onslow pumped hydro concept in the latest episode of interest.co.nz's Of Interest Podcast.

Should it go ahead the project would be a massive public infrastructure project taking years to complete, impact the local environment, and cost billions of dollars. Effectively it would involve soring energy like a battery, Bardsley says.

Water would be pumped up to a high elevation from the Clutha River and stay there until it's needed.

"So the energy is stored in the form of gravitational potential energy," says Bardsley.

The potential volume of water held, the capacity for generating power, and the actual energy stored would be massive. As potentially would be the impact on electricity supply and storage.

"I think the key selling point would be that it's an enabler to get rid of fossil fuel power generation, and secondly more than that it's an enabler of the green transition. So we can actually go ahead and move into EVs, maybe green hydrogen, because it's just not obvious to me that there are other mechanisms around by which we can actually do that," says Bardsley.

Part of the NZ Battery Project under the oversight of the Ministry of Business, Innovation & Employment, advice on technical, commercial and environmental feasibility studies of the Lake Onslow option is scheduled to be provided to Cabinet in December. 

There's more from Bardsley on the Lake Onslow proposal here.

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 of further chunky benchmark interest rate rises and growing market fear despite much economic data released being generally positive.

American durable goods orders slipped in August from July, but less than was anticipated by analysts (-0.4%) and the dip was very minor (-0.2%). They remain +11.2% higher than a year ago. Non-defence capital goods orders were up +6.3% on that same basis.

US retail sales as measured on a same store basis rose last week to be +11% higher than a year ago.

After declining all year, there was an unexpectedly large surge in sales of new homes in August, rising to an annual rate of 685,000 and far above the +500,000 rate expected. It was particularly notable in the South and West.

There was also a better-than-expected improvement in consumer sentiment in September, according to the widely-watched Conference Board survey.

Adding to the upbeat data, the Richmond Fed's factory survey in the Mid-Atlantic states came in better than expected too, but it really only recovered the unexpected July drop and new orders are not growing.

The US Treasury auctioned a 5 year bond today and that repeated yesterday's outsized rise in yields demanded by bidders. This one was just as large. The tender was very well supported by the median yield was 4.13% and up from 3.15% at the same event a month ago. At some point these much higher interest rates paid will weigh on the US federal deficit, but recall it has been falling at an amazing pace, down from disastrous levels in a very rapid repair.

There were a series of other consumer confidence surveys out yesterday. These have increasing importance given the background economic data is wobbling. If consumer sentiment wobbles too, a downbeat future is all-but-certain. In Australia, consumer sentiment is rising in this ANZ-Roy Morgan survey and is now at a four month high. But in the longer-term perspective 'high' might be stretching it. In Taiwan, their consumer sentiment survey slipped slightly in September. In South Korea their consumer sentiment rose and is now well off its July drop.

In China, industrial profits were unchanged in August, embedding in a small fall for the first eight months of 2022. Given the sluggish Chinese economy, a fall is consistent with other data. But that they have limited the slippage to just -2.1% is impressive, if true.

Meanwhile, the yuan is falling faster against the US dollar. An aggressive pushback by the Chinese central bank is now expected.

In The UK, there is a growing and significant trend of mortgage lenders withdrawing loan offers as their real estate market faces a sharp and sudden retreat. Lenders fear borrowers will go underwater quickly in this market leaving them with losses. Major lenders are among those pulling back.

And just one day after indicating it wasn't about to move its policy to protect the British Pound, an official at the Bank of England said "significant" policy moves are coming. Markets will remain sceptical until they see action.

In Australia, the Optus breach scandal is spreading. It is one that may affect over half their adult population and cause AMT/CFT issues for millions.

The UST 10yr yield starts today at 3.97% and another +8 bps higher than this time yesterday in a continuing push up. It's a new 14 year high again. 

The price of gold will open today at US$1630/oz. This is up +US$2 from this time yesterday.

And oil prices start today +US$1 firmer at just under US$78/bbl in the US while the international Brent price has risen about +US$1.50 to be just under US$84.50/bbl. A Russian gas pipeline to Europe appears to have been sabotaged overnight. Its supply disruption won't have a meaningful impact on their energy crisis however. No word yet who may be responsible, but it wasn't entirely unexpected.

The Kiwi dollar will open today at just on 56.3 USc and marginally softer than this time yesterday and still close to the pandemic low and the rate that applied in April 2009. Against the Australian dollar we are firmer at just on 87.7 AUc. Against the euro we are also slightly firmer 58.8 euro cents. That all means our TWI-5 starts today at just 67.2, and little-changed in a day.

The bitcoin price is now at US$19,160 and again up a mere +0.4% from this time yesterday. But in between it did pop up over US$20,000 but could not hold it. Volatility over the past 24 hours has been high at just on +/- 3.8%.

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 bond yields are still rising sharply and the momentum is rising. It is trashing our currency - and although most other currencies are struggling to stay with the greenback, we are doing relatively worse.

First today, the global economy has lost momentum in the wake of Russia’s war of aggression in Ukraine, which is dragging down growth and putting additional upward pressure on inflation worldwide, according to the OECD’s latest Interim Economic Outlook. They now say global economic growth will be a modest +3% this year before slowing further to just +2.2% in 2023. This is well below the pace of economic growth projected prior to the war and represents around -US$2.8 tln of lost economic activity in 2023. 

Meanwhile in the US, the Chicago Fed's national activity index was unchanged in August, but its July reading was revised higher.

But the Dallas Fed factory survey, which was already struggling, fell further in September. Incoming new orders are slowing now. This survey is more heavily weighted to the US oil patch than most other regional surveys there.

The Chinese central bank made a surprise announcement yesterday, saying it would raise their required foreign exchange risk reserves to 20% from the current zero. The reserve ratio has been zero since 2020. This announcement marks the latest policy measure to stem the faltering yuan which officially fell below 7 to the US dollar yesterday, following the offshore trading pattern late last week.

Japan's factory sector contracted in September according to the latest Markit PMI reading. But their services sector is expanding again in a shift that wasn't expected.

Singapore's industrial production rose in August in an improvement that also wasn't expected. The rise wasn't a lot, but signs of improvement are hard to find these days.

The mood in the German economy has deteriorated significantly. The ifo business climate index fell to 84.3 points in September, and down sharply from 88.6 points in August. This is the lowest reading since May 2020 and the decline runs through all four sectors of the economy.

In Italy, the results of their national elections are still uncertain, but it does look like the far-right Brothers of Italy party will be forming a new government. A real feature of these elections has been a record low 64% voter turnout, allowing an extreme party into power there.

A new Eurozone debt crisis is entirely possible.

And England's economy seems to be going from bad to worse. Investors have panned their recent policy moves as deeply unstable, and now an attempt by the Bank of England to reassure markets are fallen well short, compounding pressures on them. A US Fed official has weigh in about how bad policy in the UK has some wider implications.

In fact, it will probably not only be the UK that starts to raise rates out-of-cycle to contain their problems, this trend might spread. And even if the out-of-cycle trend doesn't spread widely, future benchmark rate hikes could well be super-sized.

The RBA and the RBNZ are two central banks making policy decisions over the next week, the RBA on October 4 and the RBNZ on October 5. They will be facing fierce scrutiny this time.

The UST 10yr yield starts today at 3.89% and +20 bps higher than this time yesterday in a new aggressive push up, almost as much in one day as we had all last week (and that was a lot). It's a 12 year high. 

The price of gold will open today at US$1628/oz. This is down -US$17 from this time yesterday.

And oil prices start today -US$1.50 lower at just under US$77/bbl in the US while the international Brent price has fallen about -US$3 to be just over US$83/bbl. These are new eight month lows.

The Kiwi dollar will open today at just on 56.4 USc and another full -1c drop since this time yesterday and now close to the pandemic low and the rate that applied in April 2009. Against the Australian dollar we are -½c softer at just on 87.4 AUc and a new nine year low. Against the euro we are -½c lower 58.6 euro cents. Against the yuan we are now under ¥4 and its lowest since 2015 (except the pandemic) .That all means our TWI-5 starts today at just 67.1, and down -80 bps to an eleven year low (also pandemic-excepted).

The bitcoin price is now at US$19,076 a mere +0.5% higher from this time yesterday. It has been under US$20,000 for nine straight days now. Volatility over the past 24 hours has been modest at just on +/- 1.8%.

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 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.

First we should note that it is a public holiday in New Zealand and markets are closed here today.

Today we lead with news the US dollar has hit a 20 year high on global recession fears, and that is causing issues around the world, including for New Zealand.

It won't make getting our inflation back under control any easier given how much is cause by the tradeables sector.

In the wider Asian region the strong US dollar will hurt. The yuan makes up more than a quarter of the weighting of Asian currency indexes. And the Japanese yen is the third-most-traded global currency, so its weakness has had an outsized impact on its Asian counterparts. 

At the same time the Chinese economy is shrinking. And it will soon take further steps to bolster consumption.

In China, home loan interest rates have dropped to record-low levels in at least 80 major Chinese cities, as financial regulators endeavour to keep the property market afloat. In September, over 80% of 103 key cities surveyed show first home loan rates have fallen to 4.1%, while second home loan rates have fallen to 4.9%.

Singapore's annual inflation rose to 7.5% in August which was above the 7.2% expected by analysts, and above the 7.0% they had in July. Generally ASEAN inflation is something to keep an eye on, and the surging US dollar won't be helping. Malaysia's inflation is rising and is at 4.7%. Indonesia is also at 4.7%. Thailand is at 7.9%.

Taiwan's inflation rate is low (like China's) and currently running at 2.8%. But their retail sales activity expanded +12% from a year ago, and their industrial production is up at record levels.

In Italy, they are voting, deciding whether to choose their most right-wing government since WWII. It's an election being followed in Europe. Giorgia Meloni leads the far-right Brothers of Italy party and is aiming to become the country's first female prime minister, allied with two other parties on the right. We will know exit poll indications tomorrow.

Staying with parties of the Right, new tax cuts and outsized public spending and subsidies in the UK seem to have crashed the British currency. What they will do for their economy is uncertain, but it is a huge 'experiment' that markets are judging will have an unhappy ending. Nouriel Roubini says this will end in an IMF bailout of the country.

There were a couple of early PMIs out over the weekend. The American one reported that private sector output fell at softer pace as new orders returned to growth in September. Their factory sector expanded in September, but their services sector didn't even if the contraction was very minor. The American economy may be doing better than the financial markets because higher interest rates cause a revaluation down of financial instruments (and cause losses) whereas the real economy responds to consumer signals, not Wall Street signals.

Canada reported retail sales activity for July overnight and it wasn't positive with both month-on-month declines (their first in seven months) and year-on-year retreats.

The early Eurozone PMI for September reported a steeper downturn as price pressures intensified. Both their factory and service sectors are contracting this month, but the quantum is quite small at this stage. The negative impacts are strongest in Germany. The French activity is positive and helping to hold up the overall results.

Early Australian PMI indexes show their factory sector expanding at a good pace in September and faster than in August. But their services sector is not mirroring that, more or less marking time.

But much of Australia is exposed to mining, and commodity prices are retreating. Now credit rating firm Moody’s has changed its outlook for the global metals and mining Industry from stable to negative as a global economic slowdown continues to soften demand.

Over the past week, the price of copper has fallen -2.8%. Over the past month it is down -8.4%. For aluminium it is -5.6% and -10.1% respectively. For iron ore it is-2.0% and -8.2% respectively. But there are others still rising, like nickel which is down -5.5% in a week but up +8.9% in a month. Then there is coal, up marginally this past week and up +4.5% in a month. Wheat is up a sharpish +6.7% over the past week and up +12.1% over the past month.

The UST 10yr yield starts today at 3.69% and marginally lower than this time Saturday but it has still been a +23 bps gain in a week. 

The price of gold will open today at US$1645/oz. This is up +US$3 from this time Saturday.

And oil prices start today still much lower at just under US79.50/bbl in the US while the international Brent price has risen about +US$1 to be just under US$86/bbl. These are still about eight month lows.

The Kiwi dollar will open today at just on 57.4 USc. This is its lowest since briefly in the first few days of the first pandemic lockdown, and prior to that 13 years ago. Against the Australian dollar we softer at just under 88 AUc and still near its lowest in seven years. Against the euro we are little-changed at just under 59.3 euro cents. Against the yuan we are down under ¥4.1 and its lowest since 2015 (except the pandemic) .That all means our TWI-5 starts today at 67.9, and down -50 bps to a seven year low (also pandemic-excepted).

The bitcoin price is now at US$18,981 and up +1.2% from this time Saturday. It has been under US$20,000 for eight straight days now. 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 central banks around the world are racing to raise rates in a concerted effort to squash inflation. The cost may be growth and jobs, but there seems universal agreement rampant inflation is a bigger long term risk.

But first, US jobless claims rose last week to +178,000 but this level is still very low by historic standards. It is no indication their tight labour market is easing. There are now still less than 1.3 mln people on these benefits and the insured jobless rate is a tiny 0.9%.

The US current account for Q2-2022 came in pretty much as expected, with a -US$251 bln deficit. It isn't good, and these huge quarterly deficits started in 2020 and haven't let up. Disastrous policy making is behind the ugly trend and although Q2-2022 was an improvement on Q1, it still came in at -4% of GDP. Recovery from mad policy isn't easy as they are finding out. (New Zealand's current account deficit is -2.7% and that isn't good either.)

The latest regional factory survey, this one from the Kansas City Fed, reported a sluggish expansion, but firms continued to add workers and were moderately optimistic about growth in future months.

But with mortgage rates hitting 6.29%, the American housing market is wavering and ready to a substantial drop, it seems. The chance to reset to improve affordability is ahead of them. Rents may have peaked too.

The Bank of Japan met yesterday and held its ultra loose monetary policies. But the Japanese government had to intervene to support the yen for the first time since 1998 after the currency extended losses to fresh 24-year lows. The divergence between monetary policy in Japan and the United States has widened further adding to policy stress. The Bank of Japan maintained its key short-term interest rate at -0.1% with governor Kuroda saying the central bank won't be raising interest rates any time soon.

The Taiwanese central bank also met and raised its policy rate to 1.625% from 1.5%. It was a modest rise in the face of a slowing economic expansion.

Hong Kong had no inflation in August from July and very weak local economic activity, and the annual rate remained at 1.9% - almost all of which happened in October 2021 so is about to leave the index.

Indonesia raised its policy rate by +0.5% yesterday as they are starting to experience inflation at too-high levels for them and now running at +6%. That took their policy rate up to 4.25%.

Norway also raised its policy rate by +50 bps to 2.25%. They have an inflation rate running at 6.5%. Switzerland raised theirs by +75 bps to 0.50% and taking them out of a negative policy rate for the first time since 2015 and their highest rate since 2009. Swiss inflation is now running at 3.5%.

The Bank of England joined the queue unanimously raising their rate by +50 bps too, to 2.25%. Their inflation rate is currently 9.9%. They also said the UK may already be in recession.

EU consumer confidence confidence dropped further in August to a new all-time low since this series began in 2007. 

Container shipping costs dived -10% in the past week alone as demand in the sector deflates very quickly now. But the same is not true for oil tankers; the cost for them has doubled in the past month. And dry bulk cargo rates are inching higher again.

The UST 10yr yield starts today at 3.70% and up a huge +19 bps from this time yesterday. This now its highest since 2010. 

The price of gold will open today at US$1672/oz. This is down -US$12 from this time yesterday.

And oil prices start today up +50 USc from yesterday at just under US$83.50/bbl in the US while the international Brent price is now just over US$89.50/bbl.

The Kiwi dollar will open today at just on 58.5 USc and more than -½ lower than this time yesterday, as the Fed signals settle in. Against the Australian dollar we are slightly softer at just 88 AUc and its lowest in seven years. Against the euro we are little-changed at 59.4 euro cents. That all means our TWI-5 starts today at 68.4, and down -40 bps.

The bitcoin price is now at US$19,071 and down -1.8% than this time yesterday. Volatility over the past 24 hours has been very high at just on +/- 4.5%.

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 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's all about the Fed who not only raised rates today, they also see more big rises before the end of the year.

As expected, the US central bank has raised its policy rate by +75 bps to 3.25%. Interestingly, that is now above the RBNZ policy rate (of 3%) for the first time since March 2020, and outside the pandemic period and the period immediately before it, the first time in more than 20 years. It is also their highest since early 2008.

The US Fed has also significantly raised its sights on where its policy rate is headed in its battle against inflation. By the end of 2022 they expect this rate to rise to 4%. Markets have priced in more with a year-end rate of 4.25%. A year out they now see a 4.6% Fed Funds rate, up sharply from 3.8%. And their view of how that comes down from there is now much more restrained.

This is a slightly more hawkish view than they had at previous reviews.

Markets initially responded by bidding up the value of the US dollar. Our currency fell -40 bps on the news but is now back up. The UST 10 year benchmark bond rate rose to a new high since 2010 on the news but then sunk to below its pre-announcement level. The S&P500 which was up +0.8% just before the news turned down by -0.6% and is now back up. Oil prices fell.

In other data released overnight, US mortgage applications actually rose last week from the week before, a rare rise in a declining trend and is down about -30% from the same week a year ago. A large part is due to fast rising interest rates, with the benchmark 30-yr rate at 6.25%, and up +25 bps in just one week.

American existing home sales slipped in August, although not be as much as they did in July. But it does extend the streak of declines to seven straight months. Rising mortgage rates got the blame here, and of course it won't get any easier after today's Fed moves.

The Asian Development Bank has downgraded its forecast for China's 2022 growth to +3.3% from +5.0% in April. The bank also cut its projection for next year to 4.5% from 4.8%. At the same time, it said, the emerging Asian region is forecast to grow at a +4.9% rate, instead of its earlier April +5.3% forecast. It has been rare for China's expansion to be significantly less than its much smaller neighbours. In fact the last time that happened was 30 years ago as Deng Xiaoping was working to recover from the disastrous Mao Tse-tung years. It was a foundation that served them well - until Xi Jinping, it seems.

China is cutting the regulated price of petrol again, its seventh reduction so far in 2022.

In Australia, their central bank says it will not pay a dividend to their government “for a number of years” as it nurses balance sheet losses relating to its bond purchase program that could top AU$58 bln.

The UST 10yr yield starts today at 3.51% and despite some sharp initial reactions higher has now fallen to a lower level than this time yesterday. 

The price of gold will open today at US$1684/oz. This is up +US$18 from this time yesterday, moved only after the Fed news..

And oil prices start today down -US$1 from yesterday at just under US$83/bbl in the US while the international Brent price is now just on US$89/bbl.

The Kiwi dollar will open today at just on 59.1 USc and +20 bps higher than this time yesterday, following the US Fed signals. Against the Australian dollar we are slightly firmer at 88.3 AUc. Against the euro we are actually up almost +½c to 59.5 euro cents. That all means our TWI-5 starts today at 68.8, and up +20 bps.

The bitcoin price is now at US$19,422 and firmer than this time yesterday. Volatility over the past 24 hours has been moderate at just on +/- 2.2%.

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.