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 markets only have eyes for the Fed, even as geopolitical tensions rise further in Ukraine.

But first up today, there was another positive dairy auction this morning and overall prices rose a tad less than +2.0% which was probably a bit less than expected and which was no doubt due to the -0.7% slip in the SMP price when a good rise was anticipated. However the WMP price did rise +3.7%. Coming to the rescue has been the falling NZD however. Recall prices rose +10% at the prior event in NZD and this time the rise in local currency has been +4.6%. Fonterra's upcoming annual meeting will be full of satisfaction from their shareholders, even if this auction on its own probably won't change any farm gate payout forecast.

We are now less than 24 hours from the US Fed meeting results and markets are bracing for some pain. The current view is that the Fed will stay tackling inflation strenuously (with another +75 bps hike) and be prepared to inflict painful growth-reducing consequences to achieve their goal. They need markets to 'know' they are serious about beating inflation no matter what the cost. Those may be costs others will pay, but this is probably their last chance to get on top of the inflation thief. Blinking now will damage their cred for a generation.

In the US they reported that new housing starts rose in August while permits for residential housing slipped slightly. Completions dipped as usual during the August holiday period. Given the softness of their housing markets at present, this data is actually pretty good.

US retail sales growth softened last week on a same-store basis, but they were still more than +10% ahead of year-ago levels.

There was a UST 20yr bond auction earlier today where the yield rose sharply from the prior event. The well-supported tender drew US$32 bln in bids for the US$12 bln on offer and the median yield achieved was 3.75% which was almost +50 bps higher than the prior event a month ago.

Canada reported its inflation rate at 7.0% in August, down from 7.6% in July and lower than the expected 7.3%. Month-on-month prices fell, and by more than expected.

Japan also reported its August consumer price inflation but it rose to 3.0% from 2.6% in July. This was the 12th straight month of increase in consumer prices and the fastest pace since September 2014, amid surging food and fuel costs accentuated by a slump in the Yen. Core inflation also rose above analyst’s estimates to 2.8%. Without food or fuel the rate was +1.6%. Now all eyes will turn to the Bank of Japan to see how they react. But while core consumer inflation exceeded the central bank's 2% target for five straight months, the central bank seems unlikely to raise interest rates anytime soon as wage and consumption growth remain weak, analysts say.

China reviewed its loan prime rates today but made no changes to either the 1-year (used as a base for personal lending) or the 5-year (used as a base for institutional lending).

Taiwanese export orders recovered in August which was impressive given the geopolitical pressures swirling around it then. They were up +2.0% in August when a -2% fall was expected after a -2% dip in July.

Far more worrying however was producer price data out of Germany. These are now rising rampantly, up +7.9% in August from July when only a +1.6% rise was anticipated. That pushes their year-on-year PPI rise to a dangerous +45%. These are the largest changes ever recorded there. German industry is in a dark place at present.

The race is on to insulate Germany from Russian risks. Newly released data shows that in the first seven months of 2022, China shipped photovoltaic (PV) modules with a combined capacity of 51.5 gigawatts to Europe, +25.9% more than the whole of last year.

We should also probably note that in Australia, their officials face an improving Budget situation, one that could be +AU$50 bln better over the next few years.

The UST 10yr yield starts today at 3.57% and up another +3 bps from this time yesterday. That is another new 11-year high.

The price of gold will open today at US$1666/oz. This is another -US$5 below where it was this time yesterday.

And oil prices start today down -US$1 from yesterday at just under US$84/bbl in the US while the international Brent price is now just under US$90/bbl.

The Kiwi dollar will open today at just on 58.9 USc and more than -½c lower than this time yesterday, again. Against the Australian dollar we are also more than another -½c lower at 88.1 AUc. Against the euro we are down likewise to 59.1 euro cents. That all means our TWI-5 starts today at 68.6, down another -60 bps and a new two year low.

The bitcoin price is now at US$18,816 and -0.9% lower than this time yesterday. Volatility over the past 24 hours has been moderate at just on +/- 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’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 all laser-focused on the US Fed today.

In the waiting period before the US Fed policy announcement on Thursday (NZT), the US dollar is edging higher, and hovering at a 20-year high. This is a distortion that is having global impacts. 

The UST bond yield benchmarks are also pushing higher, at 11 year highs. But equities are little-changed, waiting nervously to see if they have priced in the Fed's expected rise properly. At this point, the expectation is for a +75 bps hike taking the US Fed funds rate up to 3.25%. Markets have priced in +80 bps now, and expect their benchmark rate to max out at 4.5% in mid-2023. That means they expect another +125 bps over the next nine months, indicating they think most of the work has been done and after this week’s rise it will be mopping up operations from the Fed. Still, the last time the US Fed funds rate was at 4.5% was in 2008.

There was a small fall in homebuilder sentiment in the US in September, but it is the ninth in a row for this sector. This is a sector on the front lines of any looming recession.

Canada has reported that its August producer prices fell, making it three consecutive month-on-month falls in a row and taking the annual rise back to +10.6%. Recall the annual rise was over +18% in March so the recent declines are gathering pace. The falling cost of raw materials is a feature of this reversal.

But from the Fed's point of view, inflation is still stalking their economy. US retail petrol prices might be -6.2% lower now than a month ago, but they are still +15% higher than year-ago levels. That's a big improvement, but probably not enough.

Of more concern for policymakers is that inflation is embedding itself in wider sections of their economy, and the risk of wage-push inflation remains high.

China has reported a good inflow of foreign direct investment in August, +US$14.5 bln and +11% more than the same month a year ago. In a longer perspective however, this level is only equivalent to a +5% rise pa from 2018. Good but not special.

It has now been two months since many Chinese homebuyers stopped repaying mortgages to protest stalled construction on their properties. A lack of progress at more sites now threatens to intensify the boycott, despite assurances from authorities.

Later today Japan will reveal its August CPI rate. It was 2.6% in July, 2.4% for its 'core rate'. Markets expect that core rate to rise to 2.7% in August. The Bank of Japan has maintained its ultra-loose monetary policy for a very long time now, and eyes are on whether these sort of rates will be enough to induce any sort of change.

The UST 10yr yield starts today at 3.49% and up +3 bps from this time yesterday. That is touching an 11-year high. 

The price of gold will open today at US$1671/oz. This is -US$5 below where it was this time yesterday.

And oil prices start today little-changed from yesterday at just over US$85/bbl in the US while the international Brent price is still just under US$91/bbl.

The Kiwi dollar will open today at just on 59.6 USc and almost -½c lower than this time yesterday. Against the Australian dollar we are also -½c lower at 88.7 AUc. Against the euro we are down likewise to 59.4 euro cents. That all means our TWI-5 starts today at 69.2, down -40 bps and a two year low.

The bitcoin price is now at US$18,987 and -3.5% lower than this time yesterday. Volatility over the past 24 hours has been very high at just on +/- 4.0%.

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 that the coming week will be dominated by interest rates decisions by the major central banks including US Federal Reserve, Bank of Japan and the Bank of England. Also in focus will be August inflation rates reported for both Japan and Canada.

All this will come following the global recession warning from the World Bank that is focusing minds.

Most equity market indexes ended last week sharply lower as investor fears grew. And the S&P500 futures suggest that Wall Street will open tomorrow down another -0.8%. From its peak in January this year, the S&P500 has now retrenched by -19.3%. The cacophony of news when it hits -20% and a bear market just might drive it to a new low. Certainly p/e ratios need correcting in this new environment of much higher benchmark interest rates.

But consumers seem to have had enough of the 'fear' mood - they already did that. Now they seem to be feeling better about life.

In the US the University of Michigan consumer sentiment survey rose to a five-month high, driven by a sharp, recent fall in petrol price inflation. Will it last? Who knows? Will the investor fear mood last? That seems equally uncertain but they are having to swallow increasing losses. Along with their bond investor brothers, equity market losses are piling up and portfolios are shrinking in value now. The negative mood might become a self-fulfilling trend in the back half of 2022.

More positively we should note that the "interim settlement" of the US rail dispute is a significant risk removed from the immediate future. Given where the parties were, it is quite an achievement, under pressure. Ratification seems likely.

China reported some key data late on Friday, and some of it was unexpectedly positive. Retail sales were up +5.4% in August from a year ago, an expansion at twice the July rate. Industrial production was up +4.2% on the same basis, also beating expectations. In fact, electricity production surged in August, up almost +10% from year-ago levels. But this is still a bit of a puzzle because these 'power' rises recently are far more than can be explained by industrial activity, or consumer behaviour.

The Chinese central bank fixed the value of the yuan (CNY) at 6.93 to the US dollar on Friday. But in freely-traded offshore markets, the CNH is trading over 7. If you can get CNYs out of China, there is a good arbitrage trade available now with an "easy" 1% gain on each transaction.

Chinese citizens are as heavily 'invested' in residential real estate as Kiwis, maybe even more so. But data out on Friday shows that in 50 or their 70 largest cities the prices of new housing fell in August from July. That is the most in more than seven years. More broadly, for housing resales, 56 of these 70 cities posted price retreats. The 'wealth effect' impact on vast numbers of Chinese households will be negative, and for many, disturbingly so. There may be building social disquiet.

Meanwhile in Germany, they have seized control of some Russian-owned energy assets in the country to shore up its energy security concerns. Russia has turned off its gas and oil taps and Germany needs the local infrastructure to operate on alternate supplies, which are starting to flow in volume, including from the US. The price of oil and gas is not rising, nor is futures pricing.

Elsewhere in Europe, Hungary is becoming the cheerleader for Russia at a time inflation is soaring. It has placed caps on mortgage rates, food prices and fuel costs. It is also cracking down of dissent, and the EU is worried for democracy in Hungary and is withholding US$7.5 bln in aid while those anti-democratic measures are in place. Hungary has inflation at 15.6% pa and a benchmark interest rate of 11.75%.

The UST 10yr yield starts today at 3.46% and unchanged from this time Saturday. We should also note the sharp rises in wholesale swap rates in New Zealand on Friday, pushing up again. Our one year swap rate is now it’s highest since 2008. 

Bond investors may be taking losses, equity investors joining them, but data out on Saturday (for July) shows an international rush to shift money to the US. In the month, they reported the sum total of all net foreign acquisitions of long-term securities, short-term US securities, and banking flows was an inflow of US$153.5 bln. While these flows are quite variable, there has been an upward trend in them since 2019.

The price of gold will open today at US$1676/oz. This is -US$41 or -2.4% below where it was this time last week.

And oil prices start today little-changed from Saturday at just on US$85/bbl in the US while the international Brent price is still just on US$90.50/bbl.

The Kiwi dollar will open today at just on 59.9 USc and marginally firmer than this time Saturday. For the week it has been a -1.2% devaluation. Since the start of the month a -2½% devaluation. And since the start of 2022 the devaluation has been -12½%. Against the Australian dollar we are unchanged at 89.2 AUc. Against the euro we are still just under 59.9 euro cents. That all means our TWI-5 starts today at 69.6, marginally firmer but still very close to a two year low.

The bitcoin price is now at US$19,674 and virtually unchanged from this time Saturday. Volatility over the past 24 hours has been modest at just over +/- 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’ll do this again tomorrow.

Following probes into the conduct and culture of banks and life insurers in 2018 and 2019, the Financial Markets Authority (FMA) is preparing to start regulating the conduct of financial institutions.

The incoming regime aims to ensure financial institutions do what's best for their customers over the entire lifecycle of a financial product, and introduces a fair conduct principle through which financial institutions are required to treat customers fairly.

Why is change needed? What problems is the conduct of financial institutions regime designed to address? And what changes will consumers and the public notice?

To address these questions and other issues I spoke with Clare Bolingford, the FMA's Director of Banking and Insurance Conduct, in the latest episode of interest.co.nz's Of Interest Podcast.

"What the new regime does is it puts a legal obligation on banks and insurers to make sure they are treating customers fairly, that's the central principle," Bolingford 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 of China stumbling and central banks fiercely focused on controlling high inflation, the chances of a global recession in 2023 seem to be building.

But last week only +156,000 Americans made jobless claims, taking the total number on these benefits to just 1.275 mln, an historic low. Whatever else might be going on, the Americans have a very tight labour market still.

And American retail sales rose more than expected in August from July, and bouncing back from the disappointing prior month. These sales are now +10.4% higher than year-ago levels, so more than keeping up with inflation.

However there were two regional Fed surveys out overnight and neither were especially positive. The Philly Fed one for September was the weakest, with new order levels no longer driving an expansion. The New York Empire State one came back from a deep August retreat with a small rise in new orders. Neither noted that businesses see a positive outlook.

In fact the Fed's national monitoring of industrial production reported a small retreat in August, one that wasn't expected. This activity is up +3.7% for the year, but to be fair the main weakness is in mining activity. Consumer goods production is lackluster. But production of business goods remains quite strong, except perhaps for construction activity.

It looks like a deal has been reached in the nationwide rail labour dispute, one that should avoid strike action. That has been a big threat hovering over near-term economic activity.

In China, their seven largest banks dropped term deposit rates in coordination. It was their first decrease in seven years and strongly hints at fast-weakening loan demand, probably led by mortgage demand. But with many economists now forecasting 2022 Chinese growth to be only about +3%, business loan demand is likely much lower too.

And China has again deferred tax payments for SMEs, the third time in 12 months they have taken this emergency action.

Japan ran its biggest single-month trade deficit on record in August as imports surged on high energy costs and a slump in the yen, exposing the economy's vulnerability to external price pressures. Imports rose +50% in a year driven almost exclusively by energy imports. Their cost in yen ballooned because the value of the yen fell. Exports rose +22%.

In Australia, the Melbourne Institute survey of year-ahead consumer inflation expectations fell to 5.4% in August from 5.9% in July.

Australia reported its August labour market data yesterday and that showed a good +59,000 expansion in full-time jobs, and a fall in part-time jobs. The AUD firmed. It also showed a small rise in their jobless rate to 3.5%. 

A new study by the World Bank says a recession is possible next year if monetary tightening and the focus on beating inflation remains the goal of central banks.

Container shipping costs are falling even faster now, down -8% from last week alone to be now -50% lower than year-ago levels, which were admittedly high. The key Shanghai-Los Angeles rates are collapsing, down -11% last week alone and are down by two thirds from year-ago levels. Against the grain, shipping rates for bulk cargoes are rising recently, although they are only back to pre-pandemic levels.

The UST 10yr yield starts today at 3.46% and up +5 bps from this time yesterday. 

The price of gold will open today at US$1665/oz and dropping -US$32 from this time yesterday. That is a 2 year low.

And oil prices start today -US$4 lower at just on US$85/bbl in the US while the international Brent price is now just on US$90.50/bbl.

The Kiwi dollar will open today at just on 59.8 USc and nearly -½c lower than this time yesterday. For the week it has been a -1.2% devaluation. Since the start of the month a -2½% devaluation. And since the start of 2022 the devaluation has been -12½%. Against the Australian dollar we are marginally lower than yesterday at 89 AUc. Against the euro we are lower at 59.8 euro cents. That all means our TWI-5 starts today at 69.5 and a new two year low.

The bitcoin price is now at US$19,833 and another -1.4% fall from this time yesterday. Volatility over the past 24 hours has been moderate at just over +/- 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 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 of more evidence inflation may be topping out.

But first, US mortgage applications fell -1.2% last week, a fifth consecutive decline as the base mortgage rate hit 6% for the first time since 2008. That is now nine weeks in the past twelve that they have fallen, suggesting their housing markets are in retrenchment mode. But that isn't coming with excess stress, it seems. Delinquency rates remain very low on housing loans. We are seeing declines, yes, but without stress.

American producer prices fell -0.1% in August from July and this was as expected. Year on year they are up +8.7% which was less than expected and less than the +9.8% rise in July and was the least it has risen in any month over the past year. There are definite signs here that the punchiness of price rises are easing. Maybe yesterday's CPI data wasn't the harbinger it seemed.

But concerns are mounting over the potential upward pressure on prices if a huge rail strike snarls supply chains and hurts economic activity.

In China, a new people's movement is underway. After going on a mortgage strike over undelivered housing, others are now rushing to repay their mortgages. As the property market slumps, the once sought-after leverage has turned into a burden. Now increasing numbers of borrowers are cashing up their "wealth management products" (essentially money market funds) to pay down the home loan. The drive is helped because those funds are now returning very meagre results. A disinvestment push like this won't help reinvigorate their economy. And it could be deflationary.

Japan reported machinery orders for July, and they were up strongly (just like the machine tool orders we noted yesterday for August). It was a rebound that wasn't expected, showing the company board rooms are still investing. These orders were up +5.3% from June and up +12.8% from year-ago levels.

In India, their widely watched wholesale price inflation rose by 12.4% in August. But this was less than July's 13.9% rise and less than the expected 13% rise. Food prices were also up 12.4% in this survey.

The annual inflation rate in the UK unexpectedly edged lower to 9.9% in August from 10.1% in July, which was the highest reading since 1982. Analysts had expected it to rise to a 10.2% rate. It was milk and cheese that is helping propel their costs higher. Their food prices were up more than +13% in August.

In Sweden the ruling center-left coalition has been beaten by a centre-right grouping in a razor-thin result. The center-right only wins however because of a surge in support from a far-right anti-immigrant party which will be part of the new government. The new government may not be very stable. Failure to deal with rising gang violence undid the center-felt parties.

And staying in Europe, their General Court in Luxembourg has upheld an NZ$8.5 bln fine on Google for the way it used its Android operating system to favour Google Search.

In Australia, new home sales are still declining. They were down -13% in July. Now new data shows they are down another -1.6% in August. They have been falling all year from the peak in December 2021 and are down -28% since then

The UST 10yr yield starts today at 3.41% and little-changed from this time yesterday. 

The price of gold will open today at US$1697/oz and down another -US$7 from this time yesterday. But most other precious metals made some sort of recovery overnight.

And oil prices start today +US$1.50 higher at just under US$89/bbl in the US while the international Brent price is now just under US$94.50/bbl.

The Kiwi dollar will open today at just on 60.2 USc and little-changed from this time yesterday. Against the Australian dollar we are firmer than yesterday at 89.1 AUc. Against the euro we have remained lower at 60.2 euro cents. That all means our TWI-5 starts today at 69.8 and still at its two year low.

The bitcoin price is now at US$20,116 and another -3.0% fall from this time yesterday. Volatility over the past 24 hours has been moderate at just over +/- 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’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 markets have reacted sharply to a 'small miss' in the US inflation data. The impact on the NZD has been large.

This small change in the American inflation rate has brought huge reactions. The US CPI slipped in August from 8.5% to 8.3% at an annual rate. Month-on-month the rate rose from 0% in July to +0.1% in August, or an annualised rise of +1.2%. The data may seem tame, but it wasn't the fall to 8.1% markets were expecting and there has been a truly outsized reaction.

Equity markets have dived. Bond yields have jumped. The USD has strengthened sharply. Markets are bracing for a Fed that says it is more determined than ever to squash inflation and benchmark policy rate hikes may now be higher for longer given the policy action so far isn't working, apparently.

The American CPI benefited from sharp falls in fuel cost. But it was food and rent that is creating the latest upward pressure, showing the inflationary impulse is much more embedded that many had assumed. The prior assumption was that falling petrol costs would be enough to quell inflation. It isn't. Core inflation actually rose.

The market reaction seems to be based on the fear that the inflation fight might necessitate their economy suffering a hard landing, and a period of recession.

Meanwhile last week, same store retail activity rose more than +11% from a year ago. That remains much more than can be accounted for by inflation and continues a long run of 'real' gains and far above what this tracking showed pre-pandemic.

And as at June 2022, deposits at US banks flowed out, falling -US$370 bln to US$19.6 tln. It is the first quarterly decline since 2018 and comes as households seem to be shifting to a more active investing stance. It is an enormous shift, on a global scale. It's even an enormous shift in terms of their economy, equivalent to about 1.5% of GDP.

In China, it appears that another very large hi-profile company is in trouble, mainly because of its exposure to the property sector. This could be another HNA-style meltdown. This company is Fosun International. Beijing has apparently told its state-owned banks and other SOEs to review their exposures to the company. The Shanghai based company was built on debt, and has seen its share price wither by half in the past year. Today's official warnings may trigger some sharp moves when the Hong Kong Stock Exchange opens later in the day.

Economic sentiment in Germany has dived to its lowest level since the GFC, obviously driven by concerns about what lies ahead in a winter without the backstop of Russian energy supplies. The September fall is being described as 'significant'.

In Australia, there are 10.8 mln dwellings. In total they were worth AU$10.146 tln as at March 2022. But by June they had fallen in value to AU$9.983 tln. That is a loss of value of -AU$162 bln - or -AU$1.8 bln per day.

Staying in Australia, that value retreat hasn't hurt business confidence - yet. The widely-watched NAB business sentiment survey for August improved, with conditions holding high and confidence improving. Westpac had a consumer sentiment survey out too, and that improved as well.

The UST 10yr yield starts today at 3.42% and another +6 bps firmer from this time yesterday.

The price of gold will open today at US$1704/oz and down a sharpish -US$25 from this time yesterday. But that was a minor fall compared to some other precious metals.

And oil prices start today -50 USc lower at just under US$87.50/bbl in the US while the international Brent price is now just over US$93/bbl.

The Kiwi dollar will open today sharply lower at just on 60.1 USc and an overnight fall of -1½c from this time yesterday. That is a 28 month low. Against the Australian dollar we are down at 88.9 AUc and a -½c fall. That is a nine year low. Against the euro we are also -½c lower at 60.2 euro cents. That all means our TWI-5 starts today at 69.8 and a fall of -90 bps over the past day. The last time we were this low on the TWI-5 was November 2020.

The bitcoin price is now at US$20,747 and a sharp -6.7% retreat from this time yesterday. Volatility over the past 24 hours has been extreme at just over +/- 5.0%.

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 of more evidence we may be transitioning to a period of lower inflation, globally at least.

The latest US Fed survey of inflation expectations shows them retreating. For petrol, households surveyed expect them to remain at the current lower levels over the next year. That means overall inflation expectations are now 5.7% in the year ahead, down from 6.2% in July. House price growth expectations fell sharply, now down to just +2.1% and a two year low, and expectations of future credit access fell. Households however were much more optimistic about their future income and financial situations.

The latest update to the USDA World Agriculture Supply & Demand Estimates (WASDE) show that global wheat prices will remain historically high, but are falling from prior estimates. High harvest levels in Russia and Ukraine have stopped these prices rising further., they say. Coarse grain yields are slipping and prices rising they say. Rice prices are up on India's export ban and very much lower production in the US. They don't see much change in the beef or dairy trade.

There were two US Treasury bond tenders today. Both brought sharply higher yields. The 3-year bond came in with a median yield of 3.50%, and up from 3.14% a month ago. The 10-year bond came in with a median yield of 3.24%, up sharply from the 2.69% a month ago.

The recovery of the Japanese economy continues, probably best illustrated by the growth spurt in machine tool orders. They were up almost +11% from August a year ago even though this was a slight slip from July, this is a usual season pattern. This high-tech sector is back to pre-pandemic levels now. What is interesting is the strength in order from domestic clients (+16%).

China and Australia may have their high-profile squabbles, and China may have thrown its hand in with Russia. But China also knows Russia is an unreliable partner. In 2021, China bought 2.2 mln tonnes of Australian wheat and it cost them about US$500 mln. In 2022 they will buy 6.3 mln tonnes and it will cost them more than US$2 bln. China seems trapped into relying on Australian-sourced commodities, be it wheat or iron ore or coal. No wonder Australia is generating huge trade surpluses - China is paying up, despite the disrespect China perceives from Australia.

And in China, after last week's brush-by from Typhoon Hinnamnor, the weather tracking suggests Shanghai could get a direct hit from the next on heading its way, Typhoon Muifa.

In India, inflation rose in August to 7% and higher than expected, but that was just back to levels we had seen for the prior four months.

Indian industrial production growth was quite anemic in August however, coming in up just +2.4% when a +4.3% rise was expected. Both benchmarks were well lower than July's +12.7% rise from a year ago.

The UST 10yr yield starts today at 3.36% and +4 bps firmer from this time yesterday. 

The price of gold will open today at US$1729/oz and up +US$12 from this time yesterday.

And oil prices start today +US$2.50 higher at just under US$87.50/bbl in the US while the international Brent price is up a bit less, now just over US$93.50/bbl.

The Kiwi dollar will open today just on 61.5 USc and back up +½c from this time yesterday. Against the Australian dollar we are little-changed at 89.3 AUc. Against the euro we are also little-changed at 60.7 euro cents. That all means our TWI-5 starts today at 70.7 and up +20 bps over the past day.

The bitcoin price is now at US$22,237 and another 2.7% rise from this time yesterday. Volatility over the past 24 hours has been moderate at just over +/- 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 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 central banks are keeping the pressure on the inflation bogey just as there is mounting evidence inflationary pressure are easing and in some places quite quickly. 

However, this weekend China is on holiday (Mid-Autumn Festival), a muted affair with travel discouraged. Authorities have issued warnings about unnecessary travel as pandemic cases grow relentlessly, across many provinces.

New yuan loans expanded more in August than July, but then the July level was very depressed, and the August 'recovery' was less than expected. It was driven by stronger 'corporate demand' including forced financing on Beijing's orders. Household demand remained very weak. Their money supply is now growing at three times the rate of economic activity - maybe much more in recent months.

Staying in China, after effusive official start-up claims, their carbon market trading is grinding to a halt. The need to be carbon-efficient is no longer a priority there it seems.

The inflation impetus has leaked away almost completely in China. The annualised CPI rate over the past 4 months is just +0.6%, even though they are reporting annual CPI inflation of 2.5% to August and down from 2.7% to July. Most of those gains happened in the early part of the year. Food prices are stable now. But lamb prices rose again in August even though they fell in the last 12 months. Beef prices are hardly rising however.

Producer price inflation has vanished in China, replaced by deflation now. It’s been a sharp retreat and prices are falling at a rate exceeding -14% pa now. For the full year to August they are up +2.3%, and that is far below the annual +9.5% in August 2021. Current rates are 18 month lows. This sort of data makes sense of the sinking yuan exchange rate.

In the US, and after months of gloom, Americans are finally starting to feel better about the economy- but more resigned to inflation. Petrol prices have fallen quickly, but overall inflation is still relatively high and the August numbers will be out on Wednesday this week (NZT), and are expected to slip from 8.5% to 8.1%. But the fast rise in sentiment isn't because of year-on-year changes, it is because of month-on-month changes to household budgets, and the relief is widespread.

US wholesale inventories rose slightly in July from June, but that just adds to a long string of increases. Year on year they are up a disturbing +25%. That is more than inflation can account for. Supply-chain pressure is also part of the reason. But wholesale sales slipped in July from June. So the inventory-to-sales ratio jumped, and although it is not yet back to pre-pandemic levels, companies will notice the pressure now and the risk of a de-stocking period is high - which is always a corrosive sign.

This year American online sales will rise just +9.4% to US$1 tln, the first time the growth rate has slipped into the single digits, and given inflation's surge, an unusually modest rise. Bloomberg is reporting that sellers on the giant Amazon platform are bracing for a weak upcoming holiday season and the worry that they will need to discount heavily to shift inventories. That will depress inflation too.

The impact of lower order levels is being noticed particularly hard in China. In what should be their peak-season of export shipments, in fact it now looks like an off-season period. It is another key reason why containerised shipping costs are diving. And the number of container vessels waiting offshore of the Port of Los Angeles-Long Beach has declined from more than 100 in January when it was at its highest, to less than 10 now. This is more pressure-relief sure to reduce inflation.

But none of this is deterring the US Fed from its focus on battling inflation, no matter what the impact on demand. Another board member called for an out-sized hike in September in a speech over the weekend.

Canada delivered a surprisingly disappointing jobs report for August. The number of full-time jobs fell sharply in a way that wasn't expected. A small gain was expected. The move was substantial, enough to raise its jobless rate sharply too, up to 5.4% from 4.9% in July. It was a sharp fall in public sector jobs that drove the change, rather than an impact of interest rates on the private sector where employment was unchanged.

In Sweden there is an election underway, with the center-left expected to best a recent surge by the anti-immigration 'Sweden Democrats' party. A failure to deal with a recent gang violence upsurge has bolstered the far-right party.

In New Zealand, grocery heavyweight Foodstuffs is reporting that their suppliers raised prices to them +8.7% over the past year with almost 7,500 product lines rising in cost. Fruit and vegetables led the way. Overall the pace is quickening, with the August cost rises running at a +12% pa rate over July.

The UST 10yr yield starts today at 3.32% and unchanged from Saturday. 

The price of gold will open today at US$1717/oz and up +US$1 from this time Saturday.

And oil prices start today -US$1.50 softer at just under US$85/bbl in the US while the international Brent price is now just under US$92/bbl.

The Kiwi dollar will open today just on 61 USc and unchanged over the weekend. Against the Australian dollar we are unchanged at 89.2 AUc. Against the euro we are at at 60.8 euro cents. That all means our TWI-5 starts today at 70.5 and down a minor -20 bps for the week.

The bitcoin price is now at US$21,650 and a 2.3% rise from this time Saturday. Volatility over the past 24 hours has been modest at just over +/- 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’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 death of their monarch in the UK will be grabbing all the headlines today, but the global economy is "carrying on". Here are those economic events.

In the US jobless claims were lower last week, both from the prior week and from what was expected. There are now 1.4 mln Americans on these benefits and still hovering near its all-time low.

In remarks at a monetary policy conference, Fed boss Powell doubled-down on outsized rate hikes in bullish comments. That reinforces market expectations that their September hike will be another +75 bps.

The recent expansion of American consumer credit in July has come in at a tame level and well below what was expected - and well below the inflationary impulse, so a 'real' decline. This is an indication that the Fed's higher interest rates are working to suppress demand.

In Hong Kong, Evergrande's local headquarters has been seized by its bankers, probably state-owned CITIC, after the struggling Chinese property developer defaulted on a loan and twice failed to sell the building. The prime-located 26-story building was valued at US$1.2 bln.

Across China, local governments are getting tough on developers who have stalled projects. Fire sales are about to happen.

In Beijing, they seem to have drawn a line under their exchange rate with the US dollar, working hard to avoid the ignominy of the CNY falling above 7 to the greenback. Their faltering exports and falling FX reserves aren't helping.

The Q2-2022 GDP data for Japan was released yesterday (the second estimate) and economic activity came in better than expected. It was +3.5% higher than a year ago when a +2.9% expansion was expected, boosted by a strong pickup in private consumption and a faster rise in government spending. (Don't forget, this is after inflation has been removed.)

After its +50 bps rate hike in July, the ECB raised them today again, and by an unprecedented +75 bps. The main refinancing rate is now at 1.25%, the marginal lending facility at 1.5% and the deposit facility one at 0.75%. Policymakers also said that interest rates should rise further over the next several meetings. Bank boss Lagarde said the ECB is far away from the rate that will get their inflation rate back to the 2% target. They have significantly revised up their inflation projections to average 8.1% in 2022, 5.5% in 2023 and 2.3% in 2024. And they sharply revised growth estimates lower to +3.1% in 2022, just +0.9% next year and +1.9% in 2024.

In Britain, a change of monarch is underway. They have just changed their Prime Minister. And change at the UK Treasury Department is also underway with the immediate sacking of its top official.

Meanwhile the country said it will cap household energy costs for two years, a substantial bailout aimed at staving off a deep recession and bringing down inflation that is running at more than +10% and the highest rate among large developed economies. But energy cost support for businesses facing the same stresses didn't eventuate.

In Australia, the RBA Governor was been speaking yesterday and left his audience with a dovish message, implying that their next rise might be just +25 bps. These comments moved both rates and currency markets locally. He was expected to be a bit dovish, but in the end he was more so than expected.

Continuing the theme of big numbers being reported yesterday, Australian exports plunged in July from June mainly due to sharp falls in the export of minerals and coal. That tanked their trade balance sharply, in fact the June to July fall was their largest ever, falling almost -AU$11 bln in one month resulting in a surplus of only +AU$8.5 bln (the previous record monthly fall was -AU$6.7 bln in January 2017.) Within this data was the note that Australia's rural exports rose +3.9% on a 'healthy'(?) grain market.

Container shipping costs are falling ever faster now, down -5% last week alone. But the costs of shipping bulk cargoes seem to have stopped falling, and back to pre-pandemic levels.

The UST 10yr yield starts today at 3.29% and up +2 bps from this time yesterday. 

The price of gold will open today at US$1710/oz and down -US$7 from this time yesterday.

And oil prices start today +US$1.50 higher at just under US$83.50/bbl in the US while the international Brent price is now just over US$89/bbl. 

The Kiwi dollar will open today just over 60.6 USc and little-changed since this time yesterday. Against the Australian dollar we are unchanged at 89.7 AUc. Against the euro we are also unchanged at 60.7 euro cents. That all means our TWI-5 starts today at 70.4 and the same as this time yesterday.

The bitcoin price is now at US$19,210 and a 1.1% firmer than this time yesterday. Volatility over the past 24 hours has been modest at just on +/- 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’ll do this again on Monday.