Economy Watch

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 global trade is losing altitude, with the geopolitical pressures starting to take their toll.

But first, US mortgage applications fell yet again last week, continuing the long string of declines and are -23% lower than year-ago levels. Mortgage interest rates rose to 5.94% in this survey.

The US reported its July trade balance data earlier today which showed a smaller overall deficit by -US$10 bln to a 9-month low of -US$71 bln, broadly in line with market forecasts. Total exports were up a mere +0.2% to a new all-time high of US$259 bln as a rise in exports of services offset a decline in goods shipments. Meanwhile, imports went down by -2.9% to US$330 bln as a decline in imports of consumer goods and industrial supplies offset a rise in shipments of cars. Given their moderately expanding economy, its a good result. That takes their trade deficit to just under 4% of GDP for the first time in a very long time.

The US Fed's Beige Book summaries of regional surveys painted a modest picture of their economic expansion in August. Economic activity was unchanged since July, with five Districts reporting slight to modest growth in activity and five others reporting slight to modest softening. Most Districts reported steady consumer spending as households continued to trade down and to shift spending away from discretionary goods and toward food and other essential items. Car sales remained lackluster across the country, reflecting limited inventories and elevated prices. It is not a very upbeat assessment.

The US may be transitioning to a period of lower growth, but the Fed signaled it will stay targeting inflation until the effort is successful, no matter what the economy does. A top official said they will need to see “several months” of low monthly inflation data to be convinced that rapid price growth is finally cooling, raising the odds that they will again raise interest rates by +75 bps when they meet later this month.

The Bank of Canada raised its policy by +75 bps to 3.25% overnight in a well signaled change. It is the fifth consecutive rate hike, pushing borrowing costs to the highest since 2008. They also said this rate will need to rise further given the outlook for inflation. In addition they will continue their quantitative tightening by selling off their bond holdings. The widely-watched local PMI series reported a sharp expansion in August, after the unexpected drop in July, so there is still strong growth pressure in their economy.

China released its August export data late yesterday and they were weak, even weaker than expected. Their import data was weak as well. Their trade surplus dipped and that was even after their trade surplus with the US rose in August from July.

China's FX reserves fell more than expected in August, taking them down to US$3.05 tln and a drop of -US$50 bln and to their lowest level since October 2018.

Taiwanese exports struggled in August, but by the political and military squeeze put on them from China. Although they remain at an historically high level, the growth impetus disappeared in the latest month.

Global air cargo markets faltered in July, interrupting the expansion track they had been on. The Asia/Pacific region reported almost a -10% reduction year-on-year.

In Australia, economic activity rose in Q2-2022 by about what was expected to be +3.6% more (real) than a year ago. In Q1-2022 the growth rate was +3.3%. Consumer spending was the bright spot in the June quarter. Exports also performed well, however, elsewhere conditions were pretty mixed. These Aussie results are far better than what most countries are reporting for the June quarter.

The UST 10yr yield starts today at 3.27% and retracing -6 bps after deciding some of the earlier rise was overdone. 

The price of gold will open today at US$1717/oz and up +US$15 from this time yesterday.

And oil prices start today -US$4.50 lower at just over US$82/bbl in the US while the international Brent price is now just over US$88/bbl. At these levels they are back to price levels in effect at the beginning of 2022 - and in fact prices pre-pandemic. The weak Chinese trade data undermines these prices today.

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 a bit softer at 60.7 euro cents. (Notice the parity with the greenback.) That all means our TWI-5 starts today at 70.4 and unchanged since this time yesterday.

The bitcoin price is now at US$$19,001 and a tiny -0.6% lower than this time yesterday. It got down to US$18,559 in between. Volatility over the past 24 hours has been modest at just on +/- 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.

Paul Conway, the Reserve Bank's Chief Economist and former Economics and Research Director at the Productivity Commission, is optimistic that better times may be ahead for New Zealand's lagging productivity performance.

Speaking in the latest episode of interest.co.nz's Of Interest Podcast, Conway says New Zealanders work about 10% more hours per person, but produce about 20% less output than workers in the average OECD economy, which is why average incomes and wealth in NZ are both significantly below the OECD average.

Whilst NZ's productivity performance hasn't been great for several decades, in part at least because we're "a small economy that's the last bus stop on the planet," Conway sees optimism for improvement ahead.

"The reason I'm optimistic about productivity is because technology is changing everything. In the digital realm geography becomes less of an issue. It becomes less of a handbrake. So it's like technology is eroding those economic forces that have kept productivity growth low in New Zealand for so long," Conway says.

He does acknowledge, however, that there's a long way to go.

In the podcast Conway also talks about what productivity is, why it matters, what the transition to a zero carbon economy may mean for productivity, the concept of degrowth, how NZ can improve productivity and more.

Figure 3 below comes from the Productivity Commission. Also see Conway's 2020 article on a pro-productivity policy agenda for New Zealand 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 bond prices are taking a hammering today, with losses mounting quickly now.

But first, the latest dairy auction has delivered higher prices. Overall they were up +4.9% in USD terms, and with our currency weakening, the rise in NZD was a stellar +10.2%. These rises were led by WMP which delivered a bit of a surprise. WMP was up +5.1% from the last auction. But in between there was a GDT Pulse event for WMP a week ago and that did not signal such a big rise today. Today's WMP result is +5.7% higher than the GDP Pulse event. Buyers are realising that future supply is going to be lower than they were planning so demand is returning to shore up that supply shortfall.

This the US, they have returned from their long Labor Day weekend to face sharply rising yields as bond losses pile up. The USD is surging too especially against commodity currencies which are in full retreat.

However, the US service sector is firing on all cylinders (if that is a valid phrase these days as the car industry turns electric?). The ISM services PMI expanded at a faster pace from its already healthy level. It was led by activity and new orders. Labour markets remained tight, they said.

The ISM services PMI is the widely-watched services survey in the US, but it isn't the only one. The internationally benchmarked Markit one told a quite different story. Usually these surveys see quite similar conditions, but not this month. The Markit services PMI is in contraction and reporting its sharpest fall since May 2020 with new orders retreating. One of them is wrong, its just not clear which one at this time.

Separately the US logistics LMI reports a fifth month of easing in August, the lowest expansion since May 2020. Mostly it is falling demand. Although the index shows the overall logistics industry continues to expand, the rate of growth is now the all-time high/tightness in March. Warehousing Capacity is down again, transportation prices fell for a second month while transportation capacity continued to increase and inventory levels grew. This logistics LMI suggests the Markit PMI might be closer to the mark rather than the ISM one.

Despite these risks, the bond market is back to pricing in another full +75 bps rate hike at the next US Fed review on Thursday, September 22 (NZT). Bond prices are taking a hammering.

In China, economic news has gone very quiet. It is neither fashionable not wise to report news that their economy is struggling, especially ahead of the upcoming Party Congress. But it is clear that house prices in their resale markets are falling across a broad range of cities now. And the Chengdu lockdown is shaping up to be a make-or-break situation for their zero-Covid policies.

In Japan, their currency is weakening fast. The Bank of Japan is holding on to its aggressive easing program to finally get inflation rising, and it might succeed. But the cost is a sharply falling yen as those easing policies are now in sharp contrast to the rest of the word. The very much wider yield gap between US Treasuries and Japanese government bonds has encouraged investors to dump the yen for the dollar.

In Europe, almost countries are well into formulating extensive support programs for energy supply and household budgets as the winter season looms, one where there will be no Russian energy to cover the cold snap. The size of these programs in total could be epic, and the EU is stepping up itself with overarching support.

In Australia late yesterday, their central bank raised its cash rate target by +50 bps to 2.35%. This was as expected. They said they aren't seeing any reason to expect CPI inflation lower than 7.¾% in 2022, so the pressure remains to get it back to 3% and within their policy range. In turn that means more outsized hikes can be expected, although they are clearly trying to avoid tipping them into a consumer-led spending recession.

The UST 10yr yield starts today at 3.33% and up +13 bps after Wall Street's long weekend. 

The price of gold will open today at US$1702/oz and down -US$9 from this time yesterday.

And oil prices start today -US$2 softer at just under US$86.50/bbl in the US while the international Brent price is now just under US$92.50/bbl.

The Kiwi dollar will open today just under 60.5 USc and more than -½c lower on a surging greenback. Against the Australian dollar we are unchanged at 89.7 AUc. Against the euro we are a bit less than -½c softer at 61 euro cents. That all means our TWI-5 starts today at 70.3 and -30 bps lower this time yesterday.

The bitcoin price is now at US$19,110 and a sharpish -3.6% lower than this time yesterday. Volatility over the past 24 hours has been high at just on +/- 3.2%.

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.

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 energy stress is spreading everywhere now.

Remember in the US it is their Labor Day long weekend holiday, essentially signaling the end of their summer holiday season. Markets will return to regular mode tomorrow when volumes traded will be more regular.

But even though they are on holiday, the heat wave in the West is unrelenting, spiking electricity demand and pushing their grid systems to the limit. The California grid operator has declared an emergency today, pleading for users to turn off appliances to avoid uncontrolled blackouts.

In China, their central bank cut its FX reserve ratio by -200 bps from 8% to 6% to try and stem the losses of their plunging currency which hit a 2 year low overnight. But these move to protect the yuan are unlikely to stop its slide. Even their huge FX reserves can't do that. China’s financial institutions held US$954 bln of foreign-currency deposits as of July, down from a record US$1.1 tln in February, a -13% fall.

The lockdown in Chengdu is tightening. Now that region has been hit with an big earthquake, compounding the misery. And another large city in the west, Guiyang is under lockdown orders too.

The Caixin China Services PMI fell to 55.0 in August from July’s 15-month high of 55.5 amid the recent pandemic wave and the impact of adverse weather. Still, the latest result was the third straight month of growth in services activity, as new orders grew solidly with the rate of increase the second-steepest since October 2021 while broadly in line with the series average. Meantime, new export orders fell for the eighth straight month, down at a steeper rate than that in July; while employment declined for the second month running.

The sagging demand, especially from China, has seen OPEC agree to a small oil output cut of about -100,000 bbls/day. This reverses their increase of the same size a month ago. Even though the practical impact is tiny - less than -0.1% - it is intended to show OPEC will defend a price level of about US$100/bbl. Prices rose after the news.

In Europe there is plenty of planning, and an equal amount of angst after Russia has blocked energy supplies from flowing their way. The price of coal hit a new all-time record high. Oil and gas prices rose too. But overall, Europeans seem stoic in the face of the threats, pushing back against the Russian actions. When this whole crisis calms down, Europe will unlikely ever be a buyer of Russian energy again.

Turkey released its August CPI inflation rate and it ticked up over 80%, a 40 year high for them. It does seem to have topped out however.

In Australia, corporate profits rose by +7.6% in Q2 from Q1, easily beating market expectations of a 4% gain. But this follows a downward revision of the Q1 gain from 9.8%. Listed company results are very transparent, so I suppose the downward drift is because unlisted companies aren't doing so well.

Aussie job ads data came in stronger than expected, rising +2%. Given other recent weakish Aussie data, it was expected this job ad metric will have fallen - but not yet, at least.

All eyes are now on the Reserve Bank of Australia's rate review which will come at 4:30pm this afternoon (NZT). They are widely expected to raise their 1.85% cash rate target by +50 bps to 2.35%. (The next RBNZ OCR review doesn't come for another 4 weeks, on October 5, 2022.)

The UST 10yr yield starts today at 3.20% and unchanged. 

The price of gold will open today at US$1711/oz and down -US$2 from this time yesterday.

And oil prices start today +US$1.50 firmer at just on US$88.50/bbl in the US while the international Brent price is now just under US$95/bbl.

The Kiwi dollar will open today just under 61 USc and little-changed. Against the Australian dollar we are softish at 89.6 AUc. Against the euro we are unchanged at 61.4 euro cents. That all means our TWI-5 starts today at 70.6 and very little different to this time yesterday.

The bitcoin price is now at US$19,826 and very little-changed from this time yesterday. Volatility over the past 24 hours has been modest at just on +/- 1.0%.

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 the iconic 2022 inflationary pressures from rising commodity prices seem to be easing, and as fast as they rose earlier in the year.

But first, in the US it is their Labor Day long weekend holiday, essentially signaling the end of their summer holiday season. Markets will return to regular mode on Wednesday, NZT and volumes traded will be more regular.

Global food prices retreated again in August to their lowest level in seven months, due to a broad-based fall, Cereal prices went down -1.4%, led by a -5.1% drop in international wheat prices on improved production prospects, especially in Canada, the US and Russia. Dairy prices fell -2% and meat prices fell -1.5% from the prior month.

In China, three state banks have been ordered to lend ¥200 bln (NZ$45 bln) to property developers so that they can complete projects underway, so that buyers off the plan can get their properties. Laudable as it may be, it crystalises the losses involved. Those developers are also bust, having burned through the cash from the original sale (mainly other, earlier bank loans). The new loans to complete the projects guarantee they will deliver the projects at huge losses (¥200 bln or more?). The Chinese property development sector is a huge drag and drain on their economy. It is very hard to see how those three state banks will ever get their money back. The losses are to be socialised, it seems.

Construction machinery manufacturers in China are seeing orders and profits plunge.

In the US, the headline non-farm payrolls data reported a +315,000 rise, pretty much as analysts had anticipated. But is was less than the outsized July gain although similar to May and June. The jobless rate ticked up to 3.7% on a higher participation rate. This is the seasonally adjusted data, but the 'actual' data is very similar this month (+309,000) taking their employed labour force to just under 153 mln and its highest ever.

Average hourly wages rose +5.2% from a year ago.

It is hard to image a recession when employment and wage growth is strong. The Fed will be emboldened to push ahead against inflation knowing their labour market remains tight despite all the inflationary hurdles. Equity markets retreated on this thought.

But American July factory orders slipped when they weren't expected to. They fell -1% in July from June, but remain +11.6% higher than year-ago levels

But there is evidence supply-chain pressures are easing, including for carmakers. Ford has been posting strong year-over-year gains on climbing electric-vehicle sales and improved deliveries of trucks and SUVs. The company’s EV sales increased fourfold from a low base a year earlier, while sales of ICE vehicles rose by a quarter.

In Canada, Vancouver is reporting that sales of houses are down -45% from year-ago levels in August, and prices are now dropping month-on-month. Toronto's report was little better.

In South Korea, inflation seems past its peak. It rose 5.7% year-on-year in August, slowing from a 24-year high of 6.3% in July and below the consensus forecast. Energy and food prices have started declining from elevated levels. The country’s annual inflation rate also slowed for the first time since January and marked the slowest pace in three months.

The most dramatic data has been from the EU. Their producer price index surged +3.7% in July alone, to be up +38% in a year. That means it is accelerating at a truly stunning pace. But even among that, one country stood out - Ireland, who reported that their producer prices rose +26% in one month! to be +48% higher than a year ago. "Interesting" statistical data collection there. Ignoring the crazy Irish data, Italy (+6.5%) and Germany (+5.6%) led the month-on-month rises by Europe's large economies, whereas Spain (+0.0%) and France (+1.6%) were the most restrained of the remaining large economies.

Germany is instituting an excess profits tax on energy suppliers there. That is part of a much wider program of "support" to deal with the impending winter pressures.

We should also note that prices for some commodities are sinking, some back to their July lows, others well below. For example, copper is retreating and heading towards its July low again, but aluminium is now near an 18 month low. Nickel, zinc and lead are back to July lows, but tin is also approaching 18 month lows. Iron ore is heading for year-ago lows. All are weak because markets judge Chinese demand will remain weak.

The UST 10yr yield starts today at 3.20% and up +1 bp from this time Saturday. 

We haven't updated movements in the US Fed balance sheet recently. Quantitative tightening is well underway, with more than US$140 bln shed from their holdings since mid April. It is likely the pace will pick up a bit on this sell-down, draining liquidity, and on its own, and independent of their policy rate signals, putting pressure on yields.

Junk bond yields are rising fast again too, and probably related go the Fed actions. The recent peak was in early July and they fell from there. But over the past week they have surged higher again. Although benchmark rates are rising sharply, these junk bond yields are another marker to watch as losses build for the holders of this script.

The price of gold will open today at US$1713/oz and little-changed from this time yesterday, but down -US$25 in a week.

And oil prices start today marginally firmer at just on US$87/bbl in the US while the international Brent price is now just over US$93/bbl. A week ago these prices were US$93/bbl and US$99/bbl respectively so a sharpish -7% fall in a week.

American petrol prices are still slipping. They are currently averaging NZ$1.64/L nationwide after having been NZ$1.67/L a week ago and NZ$1.79/L a month ago. They peaked at NZ$2.13/L in June, so down a quarter from then and releasing significant inflationary pressure because they are now almost back to February levels.

The Kiwi dollar will open today at 61.1 USc. From a week ago it is virtually unchanged as well. From a month ago it is down -3.3%. Against the Australian dollar we still up at 89.8 AUc and up +0.8% in a week. Against the euro we are up to 61.4 euro cents and little-changed in a week. That all means our TWI-5 starts today at 70.7 and up +20 bps for the week.

The bitcoin price is now at US$19,841 and down -0.6% from this time Saturday. But it is -3.5% lower than 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.

China is far and away New Zealand's key export market. But this comes with risks.

China is an authoritarian one-party state. Its human rights record came under fire from the United Nations this week, and China's growing international assertiveness is seeing it butt heads with the United States and increase its influence in the South Pacific.

Against this backdrop, is it possible that NZ is too dependent on China as a destination for our exports? What are the risk to this relationship? And could we diversify by exporting more of our key products to other countries? 

To discuss this I am joined by Stephen Jacobi, Executive Director of the New Zealand International Business Forum, for the latest episode of interest.co.nz's Of Interest Podcast.

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 American dollar has jumped to 20-year high as jobs data supports aggressive Fed rate rises and quantitative tightening. This will have tough, tough consequences for many other countries, especially those with debt in US dollars.

All eyes are now turning to the US labour market culminating in the August non-farm payrolls report out tomorrow. Today their jobless claims data for last week was a low +177,000 new weekly claims with now under 1.4 mln people on these benefits, a new modern low.

And so far there is no evidence yet in their job cuts and layoffs monitoring of anything but a strong labour market.

The consensus expectation for the growth in non-farm payrolls is +300,000 (sa) and continuing their two year streak.

There were factory PMIs out overnight for August. Both report an extension of the modest expansion in their factory sector. The widely-watched ISM one reported a rise in new orders and that was despite a sharp contraction in new export orders. The employment aspect turned higher after a retreat last month. Price pressure softened.

The internationally benchmarked Markit one reported similar trends although the new order intake was weaker in this survey.

Canadian building consent levels fell a rather sharp -6.6% in July, an result that was not expected. (The expected a -0.5% slip.) Its a situation very similar to Australia where housing construction is going into a steep reversal.

The surging US dollar is especially tough on Japan, and may be quite inflationary. Toyota is a major buyer of steel and those costs are rising sharply. They also insist their parts suppliers use 'Toyota steel' - and have raised prices recently to those suppliers, some by as much as +30%.

In China, the private Caixin factory PMI came in weaker than expected; in fact it is now contracting. A small expansion was expected but it actually reports the first contraction in the sector since May. It comes after widespread lockdowns and electricity shortages. Output grew at the softest pace in three months, both new orders and buying levels fell for the first time since May; and employment fell for the fifth month running. For the first time in quite a while, it was matching the official factory PMI so there is now question their manufacturing sector is retreating,

In the EU, there was a surprise in the data for German retail sales for July. They actually rose from the prior month, even after adjusting for inflation. A further retreat was expected, so this is a big miss by analysts there. But year-on-year, there is a small -2.6% retreat in retail volumes - quite modest given the tough situation the Germans find themselves in.

However, German factories contracted in August, a 26 month low, and the wind is going out of there manufacturing sails. In France, their factories aren't in contraction mode yet, but new orders fell in August. Overall the EU has just tipped into a factory contraction, but at least the cost pressures are subsiding now.

Globally, factories are barely expanding and now at a 26-month low. Output falls across consumer, intermediate and investment good sectors are widely recorded, but input cost and output price inflation are both easing. China weighs heavily on the global results.

In Australia, lending for housing retreated in July at a fast rate. In fact lending to investors fell at its fastest pace since mid-2015, and lending to owner-occupiers fell at its fastest pace since 2008. Bank lending to their construction industry dived a startling -35% in July from June. There's more than a whiff of fear in these figures.

The UST 10yr yield starts today at 3.25% and up an unusually sharp +11 bps from this time yesterday. 

The price of gold will open today at US$1698/oz and down another -US$16 from this time yesterday.

And oil prices start today down -US$4/bbl at just under US$86/bbl in the US while the international Brent price is now just under US$92/bbl.

The Kiwi dollar will open today at 60.7 USc and down -½c from this time yesterday. Against the Australian dollar we holding at 89.5 AUc. Against the euro we are holding at 61 euro cents. That all means our TWI-5 starts today at 70.3 and another small retreat and all because of the muscular USD.

The bitcoin price is now at US$19,741 and down -1.2% from this time yesterday. Volatility over the past 24 hours has 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 supply chain cost pressures seem to be easing now.

But first, US mortgage applications fell again last week and are now -23% lower than year-ago levels. Benchmark mortgage interest rates rose to 5.8% which puts them back to their highest since 2008. The American housing markets is in the doldrums, undermined by those rising rates.

On Saturday NZT we get the next American jobs report and today we got the ADP pre-cursor employment report. It has been tracking the non-farm payroll quite well in its revised format. But they say the era of supercharged jobs gains may be over. They report a shift toward a more conservative pace of hiring in August, possibly as companies try to decipher their economy's conflicting signals. They say American jobs grew just +132,000 in August from July. The latest consensus for the non-farm payroll gains is +300,000 however, suggesting the strong jobs expansion remains on track.

The ISM Chicago PMI for August in this heartland manufacturing region has the moderate expansion rolling on even if not as hot as it has been. But new order levels were up and order backlogs are growing in their region they say. They also say jobs are now easier to hire for.

The official measure of Chinese factory activity contracted for a second straight month and the fifth decline in the past six months. These signs of weakness are building up now. Meanwhile the official Chinese service sector PMI is still expanding but at a slower pace. They can take some heart from that expansion even if it is their slowest in three months. The extended weakness has some analysts reducing their 2022 growth estimates down to just 3% and for such a large economy, that is a long way from Beijing's target of "about 5½%".

China needs its stimulus projects to work, to pay off not only now with employment and spreading demand, but long-term by avoiding these 'investments' becoming white elephants. Sadly there is no assurance that will be the case. We may have underestimated how much is being committed to these projects. Some say US$1 tln, some say up to three times that once debt and company investments are added to the official largess. But will China get anything like US$3 tln in benefit from these projects, however laudable they may sound? It is pretty clear that all the prior stimulus they invested hasn't worked long term as planned - or they wouldn't have needed the new stuff. If this is rinse-and-repeat, we are witnessing waste on an epic scale. 

It is not only the Chinese property market that is causing company pain, their airlines are reporting deep losses as well.

India said its economy expanded +13.5% in Q2-2022 from the same quarter a year ago, the most in a year, but less than the expected +15.2% gain. It is actually a remarkable spurt for the world's sixth largest economy. And it stands in stark contrast to China at the moment. But the Indian spurt, which came after a series of much lower gains, isn't expected to be repeated any time soon.

Germany reported its unemployment rate as 3.2% in July, tighter than for June, and given their inflation stress, a somewhat surprising result. They have unusual pressures but they are yet to show up in their labour market. Employment is still expanding.

The EU said its CPI inflation rate was 9.1% across the zone in August, a small rise from an already high level. They also said their core inflation rate was 4.3% however. But food prices were up more than +10% in August from a year ago.

Russia reported a series of economic statistics overnight and none of them were positive, except perhaps their jobless rate which officially held at a low 3.9% level in June - which seems odd given all the other very negative data.

Russia said it will shut down its NordStream 1 pipeline to Europe "for three days, for maintenance". The Europeans were expecting this new pressure. It not the first such shutdown and has only been operating at 20% anyway.

In Australia, total construction work done unexpectedly fell by -3.8% on a quarter-on-quarter basis for the three months to June, sharply missing expectations of a +0.9% rise and following a -0.9% fall in the first quarter. It was the second straight of quarter decline in construction work done, due to a fall in building work done (-4.6%), residential (-6.8%), non-residential (-1.1%), and engineering work (-2.7%). Don't move to Australia for a construction job.

Australian house prices took their biggest fall in 40 years in August, down -4.7% from year-ago levels. Prices in Sydney led the way down. Sydney is currently stuck in the chaos of public transport strikes, making life very difficult at present if you commute.

Internationally, container shipping costs are falling faster now, down -4% last week, down almost -40% in a year although they are still well above five-year averages. Freight rates for bulk cargoes are falling fast now too and are now lower than pre-pandemic levels. The extreme cost pressure surrounding international supply chains are easing quickly now.

The UST 10yr yield starts today at 3.14% and up +2 bps from this time yesterday. 

The price of gold will open today at US$1714/oz and down -US$10 from this time yesterday.

And oil prices start today down -US$1.50/bbl at just under US$90/bbl in the US while the international Brent price is now just under US$96/bbl.

The Kiwi dollar will open today at 61.2 USc and little-changed from this time yesterday. Against the Australian dollar we still down at 89.4 AUc. Against the euro we are down to 61 euro cents. That all means our TWI-5 starts today at 70.5 and another small retreat.

The bitcoin price is now at US$19,982 and up +1.4% from this time yesterday. Volatility over the past 24 hours has been moderate at just on +/- 2.0%.

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 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 the US Fed's interest rate rises haven't yet quelled enthusiasm in either their retail or labour markets, nor consumer sentiment, which is something of a surprise.

American retail sales rose faster than expected last week on a same-store basis to be +14% higher than year-ago levels, picking up the pace and by faster than can be explained by just inflation.

The number of job openings in the US rose and by almost +200,000 in July from June to 11.2 mln, while markets had expected it to drop to 10.45 mln. It was the first increase in job openings after three consecutive months of small declines.

And American consumer sentiment improved, as measured by the widely-watched Conference Board survey. While it wasn't an expected improvement, it doesn't really affect the overall trend of sliding sentiment yet. But it does hold out the possibility that a trend reversal is possible over the rest of 2022, something that seemed unlikely a month ago.

Yesterday we noted the weakness in the Texas factory survey. But today, their service sector survey came in positive for August, even if slightly less so than for July.

The US Fed is raising its benchmark interest rate as we know, and will likely keep at it with chunky increases for some time. They next review this 2.5% rate on September 22, NZT. But at the same time they are pushing through quantitative tightening, and now upping the withdrawal of prior monetary stimulus to -US$95 bln per month from bond markets. This is likely to have a compounding impact on core interest rate yields across the curve. Doing both at the same time is aggressive - and potentially quite risky.

Across the Pacific, yesterday we noted in China that rains had returned to southwestern regions but that they weren't enough to save agriculture or really break the drought. But they have lowered temperatures and reduced electricity demand. Now officials are worried that they might turn out to become excessive quickly and have issued warnings about flash flooding as a possibility. Slips and other land damage is possible too if they become strong. Officials have warned miners to be wary, including at coal mines.

And now that Evergrande has faded, the new 'largest property developer" in China is Country Garden Holdings, a developer that builds lower-end housing. They just filed their six month interim financial reports revealing profits fell -90% compared with the prior year. At least it wasn't a loss. But such weakness could be corrosive for them keeping their funding active. Being "China's largest property developer" is an unwanted title these days.

We should also note that the Chinese yuan is weakening quite quickly now, down -2.0% since the start of the month, down -8.1% since the beginning of the year. There is a loss of face involved here.

In Hong Kong, a total of 140,500 residents had applied as of the end of June for a special British visa that paves the way for citizenship in the UK, with China's sweeping national security law spurring more people to leave, especially families. Their population totaled 7.29 mln as of the end of June, down roughly 120,000 from a year earlier. It maxed out at over 7.5 mln in 2009. This marked the biggest drop since tracking began in 1961. The local government highlighted a "natural decrease" from deaths outpacing births. But in reality a large portion of the decline stemmed from the net outflow abroad of over -110,000 residents over the course of the year to June.

In Europe, Germany reported its August inflation rate overnight, and at +7.8% is was slightly higher than they expected, boosted of course by the cost of Russian energy. On an EU harmonised basis it came in at +8.8%. But it is really the cost of food that is giving this metric the real extra boost, as they wean themselves off Russian energy. Still the high rate in August is very similar to what they have had for the past six months now.

Their rate is tame compared with Hungary, which is paying for the mistake of cozying up to Russia. They have an inflation rate of 14% over the past year and 27% as the annualised rate between June and July, and to try and deal with this pressure they raised their policy interest rate overnight by +100 bps to 11.75%.

The ECB will also be weighing their new moves and that too is sure to include a rate hike as \EU inflation might hit 9% when it is announced later tonight. Just how much the ECB will move is the current question. Their next review is on Friday, September 9, NZT.

In Australia, building permits were expected to fall -2% in July from June, but they actually fell -17%, a huge miss. Year-on-year they slumped -18%. Much of this is because approvals for new apartment building are now very weak, down -45%. But even for houses, the year-on-year retreat is approaching -20%. Rising RBA interest rates are getting the blame.

The UST 10yr yield starts today at 3.12% and up +1 bps from this time yesterday. 

The price of gold will open today at US$1724/oz and down -US$14 from this time yesterday.

And oil prices start today down -US$5/bbl at US$91.50/bbl in the US while the international Brent price is now at US$97.50/bbl.

The Kiwi dollar will open today at 61.3 USc and a -¼c dip from this time yesterday. Against the Australian dollar we still down at 89.5 AUc but off a 5 year low. Against the euro we are down to 61.2 euro cents. That all means our TWI-5 starts today at 70.6 and a small retreat.

The bitcoin price is now at US$19,702 and down -2.8% from this time yesterday. Volatility over the past 24 hours has been moderate at just on +/- 2.6%.

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 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 global equity values have slumped as investors reassess valuations following the US Fed's hawkish stance on inflation.

In the US, the Dallas Fed survey of factories in the American oil patch are still struggling, even if less so. The fall-off in new orders isn't as sharp in August and the Outlook, and Business Activity scores are less negative in August than in July. Production is still expanding although at a now-small rate. But employment remains very strong. These firms are now less negative about their future than a month ago.

A new report claims the American financial system, with nearly US$23 tln in assets, "is more liquid and better capitalised than ever". Their overall Common Equity Tier 1 Capital (CET1) is now 11.0%. However for perspective, for the main banks in New Zealand that same CET1 level is 11.9% and if Kiwibank is excluded it is 12.4%. RBNZ capital-boosting efforts are paying off.

International companies are shifting to build new manufacturing capacity in the US. This is best exemplified by the rush to build EV battery capacity there, with now 14 new such ventures announced. Even Chinese companies are part of the overall shift, although they are tending to base their new facilities in northern Mexico.

A survey of American companies operating in China found them gloomy about future prospects. Optimism about the future business outlook has dropped to a record low in 2022. That said, those companies continued to report strong performance metrics for the past year, with almost 90% saying their China operations are profitable.

This separation between the world's two largest economies isn't leaving China feeling very happy at all.

China’s factory activity likely contracted again in August, an updated Reuters poll is showing, as pandemic flare-ups and a distressed property sector pummeled demand while a power crunch in southwestern China hit production.

And in a sign of some desperation, Beijing is sending high-ranking officials, including central bank governor Yi Gang and several cabinet ministers, across the country to supervise their recent stimulus policies. In advance of the upcoming Party Congress, they had better come back with 'good news'. It will be a tough gig for those sent to the provinces. They can't do much about the drought in the next few weeks. Food reserves are starting to be released from their strategic inventories, the first announced is for pork.

Singapore is still reporting very high rises in producer prices at +19%, but just not raging up as fast in August as they did in July (+28%).

Taiwanese consumer confidence was low again in August, but it has stopped falling. Recall it is at levels last seen in 2010.

In Australia, retail sales bounced back, triggered by the return of international tourists (much of which came from New Zealand) and stronger than expected local demand. Their July retail trade was up +15.8% from year-ago levels, far more than can be accounted for by inflation.

The UST 10yr yield starts today at 3.11% and up +8 bps after markets digested Powell's speech. 

The price of gold will open today at US$1738/oz and virtually unchanged from this time yesterday.

And oil prices start today up +US$3.50/bbl at US$96.50/bbl in the US while the international Brent price is now at US$102.50/bbl.

The Kiwi dollar will open today at 61.6 USc and a +¼c gain from, this time yesterday. Against the Australian dollar we still down at 89.1 AUc and a 5 year low. Against the euro we are still just under 61.6 euro cents. That all means our TWI-5 starts today at 70.8 and a small gain.

The bitcoin price is now at US$20,266 and up +1.4% from 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.