Economy Watch

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 China is still struggling to get its economic expansion back on track, while the US may be reporting an economic stall in some measures but their labour market suggests their expansion is still building.

First, Chinese industrial profits retreated in July from June, down -11.8% from year-ago levels for the month to just ¥623 bln. Year-to-date they are lower now too. This data comes from a national official survey of "large firms" with annual revenues of over NZ$5 mln from their main operations, so actually it really only avoids the smallest of companies. This isn't a surprising result given the headwinds they face. But the same official data shows that the liabilities these firms face grew more than +10% in the year to July. The pressure from those headwinds is building.

And they have an even more serious crop problem. While there has been some new rain in parts of the south, it isn't enough and it isn't hitting most key agricultural areas. It is hard to overstate the impact this is likely to have on their rice and vegetable crops generally. China is facing a tough food supply problem. More rain now is probably too late to save most damaged crops.

Food production is one thing, electricity production is another and China's southwest is doing it hard at present. And that is having consequences for EV owners - some now can't use public charging stations.

And in China's northeast, two more local banks are about to be declared bankrupt. They aren't the first. But national banks are moving in to shore up the situation.

In the US and in a short, blunt speech at Jackson Hole, Fed boss Powell reinforced the American central bank is very focused on getting inflation back to its policy range and will tolerate the 'pain' that may cause. He essentially said the choice they face is some short pain now, or much larger and long term pain if they leave the pressures unaddressed.

Now the battle against excessive inflation takes priority over the short term economic expansion. His speech is a good example of why monetary policy decisions have been handed to technocrat experts, rather than left to politicians.

But perhaps inflation is retreating somewhat. The US PCE measure fell in July from June, but from a year ago it is up +6.3% in July, but that is less than the +6.8% level recorded in June.

The same data shows the American consumption impulse easing fast. In fact incomes rose faster than expenditures in July, and only for the second month in the past 12 have we seen that.

American consumer sentiment improved in August, driven by the expectation that future prospects are brighter. But overall, sentiment is still lower than year-ago levels.

And in the week ahead, we will get two jobs reports for the US, both of which are expected to show that their labour market remains resilient. The latest non-farms payrolls consensus estimate is for +300,000 jobs in August, a similar pre-estimate analysts had for July, and one that was beaten handily on the upside. With just three days to go, there seems little to now affect August estimates.

In light of a still-booming jobs market, more observers are questioning the official GDP data that suggests the giant American economy has stalled or contracted. The two sets of data seem unlikely companions - one is probably wrong. And a stock market readjusting after a long period of 'yield' valuation gains isn't a persuasive measure either.

Still, the now rather fast build-up of inventories is a worry, even if it may have been 'necessary' in these times of difficult supply chains.

Staying in the US, the first estimates of the annual crop inspection tours show that the soybean harvest should yield normal results, but the corn harvest is likely to come in -4% lower than earlier official USDA estimates. As corn is their largest crop, this will have global implications. The corn price rose on the news and it had only recently come off its all-time high.

The UST 10yr yield starts today at 3.03% and little-changed from this time Saturday, and after Powell's speech. 

The price of gold will open today at US$1739/oz which is up a mere +US$1/oz from this time Saturday.

And oil prices start today at just under US$93/bbl in the US which is unchanged from Saturday, while the international Brent price is still just at US$99/bbl.

The Kiwi dollar will open today at 61.3 USc and a tad lower than this time Saturday. That is still its lowest since mid-July. Against the Australian dollar we are down at 89.1 AUc and a 5 year low. Against the euro we are down at 61.6 euro cents. That all means our TWI-5 starts today at 70.5 but that is quite similar to this time last week.

The bitcoin price is now at US$19,996 and down another -3.3% from this time Saturday. It is struggling to get back to US$20,000. Volatility over the past 24 hours has been low at just on +/- 0.8%.

You can find links to the articles mentioned today in our show notes.

And get more news affecting the economy in New Zealand from interest.co.nz.

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

Against the backdrop of a sweltering summer, China's Covid-zero policy rumbles on, the country's commercial property sector teeters, and youth unemployment soars.

To talk about all these issues and more, I spoke to Beijing-based David Mahon, Managing Director of Mahon China Investment Management, for the latest episode of interest.co.nz's Of Interest Podcast.

On the weather Mahon says it's China's hottest summer since records began in 1961, and has exceeded anything he has experienced in the almost 40 years he has lived in China.

It has also been dry leading to "a complete collapse" of key hydro-driven power from the Yangtze River and its tributaries. This has led to factory closures and limited electricity supplies to some cities, with the impact stretching from Sichuan province to Shanghai.

"It's having major ramifications on the economy," Mahon says. "This year's weather means the harvest in general will also be poor."

In terms of the battle against Covid-19, Mahon describes the experience of being tested every three days, the challenges of business travel, clients in lockdown running out of food, and when and how he thinks the Government will start to loosen the Covid-zero policy.

"The Covid policies are baffling at the moment. I think China knows that whatever happens there'll be a death toll once they begin to relax as New Zealand is finding," says Mahon.

In the podcast he also talks about how China's strategic reserves are helping it combat inflation, interest rates, supply chains, problems in the commercial property sector, high youth unemployment and general demographic challenges, plus what recent clashes between bank depositors and the police were about.

"The longer-term issue is that in general China won't have enough workers in industry, and they're going to have to look at a migrant worker programme, something which to date they never would've even begun to conceive of," Mahon says of China's demographic challenges.

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 global full employment just goes on and on, and is calling into question some of the ways we measure economic activity

First in the US, Americans are in the last week of their summer holidays and heading toward the crucial final third of 2022 with rising economic uncertainty. Much of that is because their housing markets are slowing quickly, and mortgage interest rates are rising. In fact rates for this past week turned up again after a few weeks relief. But like most consumers, negative news weighs heavier than positive news, but there are positives, and even in the global circumstances, a lot of them. The mood should be upbeat, even if it isn't.

New American jobless claims fell yet again to only 184,400 and well below what was expected. There are now 1.4 bln people on these benefits, a new modern low. Just one year ago, there were 12 mln people on these benefits, so the improvement has been epic. It is not a metric reported much these days, but we shouldn't lose sight of the achievement.

Meanwhile, the second estimate of the US GDP result for the second quarter was released and that brought a small improvement (actually a lower decline of -0.6% from Q1) than in the first estimate revealed. Interestingly they also released data for "Gross Domestic Income", which is the same data as GDP, just from a mirror perspective: one person's spending is another's income. And that shows GDI rose +1.4% in Q2, even if it was down from +1.8% in Q1. Obviously one of GDP or GDI is wrong and increasing numbers of economists now think that history will show that GDI is closer to the actual situation.

Away from this geeky data, all eyes are on the Powell speech at Jackson Hole, WY, in a central bank gathering organised by the Kansas City Fed. Actually the same regional Fed branch released their factory survey for its District and that showed a weakening expansion in August.

We will have details of the Powell comments, and the market reaction, in tomorrow's briefing.

In Canada it is probably worth noting that weekly earnings there are rose faster than expected June and a notably faster pace than for May. The overall gains are not keeping up with inflation though. But some are however, with factory wages up +6.9% year-on-year, and wages for people in professional and technical jobs were up almost +11%.

China has rushed out more economic stimulus with a further ¥1 tln set of policy measures to try and rebuild some growth, guard against the effects of their pandemic policies and try to fix the corrosion of their property market crisis. A 19-point policy package announced yesterday included another ¥300 bln that SOE banks can invest in infrastructure projects, on top of ¥300 bln already announced in June. Local governments will be allocated ¥500 bln of special bonds although this is not all strictly 'new'.

Overnight rains swept across parts of Sichuan, which has been suffering from a prolonged drought as a result of the worst heatwave in 60 years. But no-one is saying the impact of drought is behind them yet. They will need rain for a month to catch up.

The Bank of Korea raised its base rate by +25 bps to 2.5% during its August meeting, as widely expected, citing persistent inflationary pressures and high inflation expectations. This move came after they delivered an unprecedented +50 bps rate increase in July and as they try to prevent capital outflows amid more rate hikes in the US. The latest decision was also the 7th increase in borrowing costs since they lifted their base rate for the first time in August 2021. South Korea's inflation rate to hit 5.2% this year, the highest level since 1998.

Germany also reported its Q2 economic activity and in contrast to the US, it expanded, and expanded a bit more than expected. Having said that the growth was a low +1.7% year on year, just better than the +1.4% expected. Germany might be struggling with energy pain, and angst levels high. But in fact history will show they are handling the challenge well in the circumstances.

Freight rates for container shipping fell at a faster pace last week. But although it is -40% lower than the September 2021 peak, these rates are still +60% above the five-year average. Freight rates for bulk cargoes fell even faster last week.

The UST 10yr yield starts today at 3.03% and down -8 bps from this time yesterday and awaiting Powell's speech. 

The price of gold will open today at US$1758/oz which is up +US$9/oz from this time yesterday.

And oil prices start today at just over US$93/bbl in the US which is a -US$1.50 USc fall, while the international Brent price is still just over US$99/bbl.

The Kiwi dollar will open today at 62.3 USc and +½c higher than this time yesterday. Against the Australian dollar we are lower at 89.3 AUc and while it is only a small slip since yesterday, it is in fact our weakest against the Aussie since October 2017, a 5 year low. Against the euro we have risen slightly to just on 62.4 euro cents. That all means our TWI-5 starts today at 71.3 and a +30 bps firming.

The bitcoin price is now at US$21,572 and a tiny -0.3% slip from this time yesterday. Volatility over the past 24 hours has been modest at just on +/- 1.1%.

You can find links to the articles mentioned today in our show notes.

And get more news affecting the economy in New Zealand from interest.co.nz.

Kia ora. I'm David Chaston and we’ll do this again on Monday.

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 the US and Chinese economies both seem to be struggling for momentum.

The latest data for durable goods orders in the US for July have delivered mixed results, and at first look somewhat weak. They were unchanged from June, disappointing market expectations of a +0.6% increase and following an upwardly revised +2.2% rise in June. It was the first month in five that orders showed no growth. But a little deeper look shows it is all due to low orders for 'transportation equipment' (read, aircraft). Defence spending was lower too. Outside these lumpy categories, new orders climbed +1.2% which is actually pretty good. Capital goods orders rose +0.4% from June. Year-on-year, overall orders are up +9.4% and capital goods, up +16%.

US mortgage applications fell again last week and are now more than -20% lower than the year-ago period - and to a 22 year low. The benchmark 30yr fixed mortgage interest rate rose +20 bps in a week to 5.28% plus points.

Pending home sales fell for the second consecutive month in July, and for the eighth time in the last nine months. They were down -1.0% from June, and are down nationally -20%. In the Western states, they are down more than -30%. With the volumes easing fast, the real estate industry is expecting prices to follow down soon.

Canadian wholesale sales slipped -0.6% in July from June in a generally weak outturn.

Trapped in current imports of oil and gas, Japan will order new nuclear power plant construction and restart plants that have been idled for more than ten years to shore up some energy security.

In China, major effort is underway to save this year's rice harvest. Extensive engineering is at work diverting dwindling water supplies to where it is very short, some work risking the degrading of future reserves. And water issues generally in China are causing extinction events for many species. Next week, very high temperatures should ease in central China, but that won't means rain - just not so hot. But rains are coming relatively soon.

To help SMEs, China instituted a tax deferral program. But as time has gone on, their economy has gotten worse just as these deferred tax debts become due. It will be fierce bite on a struggling sector soon.

In Europe, another dramatic spike in natural gas prices appears to have ended any hopes that their inflation battle is set to ease, with financial markets now bracing for higher prices, a faster pace of interest rate hikes and a deeper economic downturn. Limited heating and lighting will be on the menu in Germany this winter. Interestingly, China has over-ordered natural gas and is selling some of it to Europe to ease their stress. But of course, that will only last as long as demand stays sluggish in the Chinese economy. Some of that excess is obviously Russian, but some is Australian, even American.

In Australia, the world's largest timber skyscraper has been ordered by software giant Atlassian for their new headquarters at Sydney Central tech precinct.

And of course, central bankers, including Adrian Orr, are now heading to Jackson Hole, WY. All eyes are on a Powell speech set for Saturday morning NZT.

The UST 10yr yield starts today at 3.11% and up +6 bps from this time yesterday and back to levels last seen at the end of June.

The price of gold will open today at US$1749/oz which is up just +US$1/oz from this time yesterday.

And oil prices start today at just under US$94.50/bbl in the US which is small +50 USc rise, while the international Brent price is still just on US$100/bbl.

The Kiwi dollar will open today at 61.8 USc and -¼c lower than this time yesterday. Against the Australian dollar we are little-changed at 89.6 AUc. Against the euro we have slipped slightly to just on 62.1 euro cents. That all means our TWI-5 starts today at 71 and a -30 bps easing.

The bitcoin price is now at US$21,632 and a small +0.9% rise from this time yesterday. Volatility over the past 24 hours has been modest at just on +/- 1.7%.

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 August data is starting to show the turn in global economic sentiment is turning 'south'.

But first, after the prior week's recovery in the American retail impulse, last week's same-store survey built on that, returning to the good year-on-year weekly gains we have seen since early July. These are gains far better than can be accounted for by inflation

However American new home sales fell sharply again in July to an annual rate of only +511,000 and way lower than that +575,000 rate expected. In fact, that is now the slowest pace of new home building in six years.

And there are increasing reports of company layoffs, and we would expect the data to start to show that, and a turn down in their long-running labour market expansion. The 'Great Resignation' trend may be over, in the US at least.

The Richmond Fed's factory survey, covering the active mid-Atlantic states region, was another that is reporting a contraction now. But to be fair, they report a 3 month average, whereas the month result itself for August isn't a contraction. But the trend is definitely lower, led by retreating new order levels.

There were a raft of 'flash' PMI's released overnight for August, and the one for the US reported a slower expansion in their factory sector, but a further contraction in their services sector. Having noted that, the factory sector expansion was its weakest in two years. The survey results point to "weak client demand" to explain the retreats.

It was the same story in Japan where the same survey found a factory sector still expanding but at a much reduced pace in August - and a services sector that moved down into a small contraction.

In China, another dairy company has been caught with undeclared additives in their 'pure milk' products. The downturn in China is starting to have ripple impacts regionally, including in the Australian mining industry

Taiwanese inflation is picking up, now at 3.4% in July. And their industrial production rose but at a slower pace and consistent with the sharp slowing in export orders we noted yesterday. Meanwhile their retail sales, which has lagged for years, is now rising quite sharply.

Singapore's inflation rose to 7.0% in July from a year ago, although the month-on-month rise was tamer than they have had recently.

In a surprise hawkish pivot, the Indonesian central bank hiked its policy rate by +25 bps yesterday to 3.75%, saying it needs to mitigate rising inflation risks there.

After falling to an all-time low in July, the EU's consumer sentiment survey in August stayed worryingly weak even if it did 'improve' marginally. They are building a 'fear of winter' given the Russian shutoff of energy shipments.

The EU 'flash' August PMI's reported small contractions in their factory sectors, but a steady-state in their service sectors. Things are tougher in Germany than France, but they are not easy anywhere.

The 'flash' Australia manufacturing PMI fell to 54.5 in August 2022 from 55.7 in July, hitting the lowest level in a year but marking the 27th consecutive month of expansion within their factory sector. The same report suggests their services sector is contracting in August.

The UST 10yr yield starts today at 3.05% and little-changed from this time yesterday. 

The price of gold will open today at US$1748/oz which is up +US$11/oz from this time yesterday.

And oil prices start today at just under US$94/bbl in the US which is a sharp +US$4.50 rise, while the international Brent price is still just under US$99/bbl.

The Kiwi dollar will open today at 62.1 USc and +½c higher than this time yesterday. Against the Australian dollar we are little-changed at 89.7 AUc. Against the euro we have risen about +¼c to just over 62.3 euro cents. That all means our TWI-5 starts today at 71.3 and a further firming.

The bitcoin price is now at US$21,429 and a +1.0% rise from this time yesterday. 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 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 the rise and rise of global bond yields has investors fretting that the chances of a global recession are rising.

But first, China's scorched southwestern regions extended curbs on power consumption as they deal with dwindling hydropower output and surging household electricity demand during the current long drought and heatwave. Wildfires are a problem there too. There have been power cuts even in Shanghai although at this stage they seem only to be symbolic and in sympathy with central regions doing it tough.

The People's Bank of China cut their one-year loan prime rate by -5 basis points to 3.65% from 3.7%, while the five-year rate was cut by -15 basis points to 4.3% from 4.45%. A cut was expected, but -10 bps for each. Most new and outstanding loans in China are based on the one-year loan prime rate, which is now loosely pegged to the central bank's medium-term lending facility rate, while the five-year rate influences the pricing of mortgages.

It is this housing signal that is getting the most attention, showing Beijing is still struggling to stop the sector's sharp retreat. Their housing sector crisis just won't go away.

We should also note that the Chinese yuan has fallen to a two year low against the US dollar. But it isn't the only currency sinking; the British pound is also at a 2-year low, and the Euro is back at parity with the USD and at a 20 year low.

Taiwanese export orders fell in July from June, and the impetus is going out of this banner feature of the Taiwanese economy.

In the US, the Chicago Fed's national activity index rose, a rebound that wasn't really expected and putting two monthly declines behind it. All four broad categories made positive contributions in July; production, orders, employment and personal consumption. Investors ignored this data.

But there are new signs that the US housing market is entering a downturn that is bringing sharply lower prices. This a special problem in regions that saw sharp rises during the pandemic when there was a shift away from major urban centers.

The tone of the upcoming speech from the Fed boss at the end of this week is taking on huge implications. Markets will be super-sensitive to any perceived 'new' signals. We are less than two weeks away from the US Labor Day long weekend, signaling the end of their summer holiday season and the start of a more serious assessment of the prospects of the giant US economy. Sentiment is everything at this stage, and Powell will have an influence on that.

The UST 10yr yield starts today at 3.04% and up +7 bps from this time yesterday. 

Wall Street is in a sell-off mood with the S&P500 down -2.2% in Monday trade. 

The price of gold will open today at US$1737/oz which is down -US$11/oz from this time yesterday.

And oil prices start today at just over US$89.50/bbl in the US which is very little-changed, while the international Brent price is still just on US$95.50/bbl.

The Kiwi dollar will open today at 61.6 USc and only marginally softer than this time yesterday. Against the Australian dollar we are unchanged at 89.8 AUc. Against the euro we have risen about +½c to just over 62 euro cents. That all means our TWI-5 starts today at 70.9 and a minor firming.

The bitcoin price is now at US$21,226 and a -1.0% fall from this time yesterday. Volatility over the past 24 hours has been moderate at just on +/- 2.1%.

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.

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 drive to 'fix farming', especially livestock farming, might be igniting a new and potentially dangerous round of food price increases, dangerous especially for the poor.

But first, the western-backed Asian Development Bank has been funding projects in China, even though China has built its own 'development bank', the Asian Infrastructure Investment Bank which has delivered funding for emerging economies along its Belt & Road projects, in its own interests. The ADB plans to provide China with up to US$7.5 bln in financing from 2021 to 2025, down from US$9 bln between 2016 and 2020. But now the ADB is saying time is up on these projects and is moving to end what has become a charade by China. China's Belt & Road projects now top US$1 bln in 'investment'.

China is claiming a big increase in foreign investment in July. But there are reasons to be sceptical. Markets are. They expect a -10 bps trimming of both their 1yr and 5yr Prime Loan Rates when they are reviewed later today. It says a lot if China is cutting rates while the rest of the world is raising them. The Chinese Government 10yr bond yield is near its 20 year low (excepting the brief pandemic low).

Also low is the flow in the Yangtze River and that is now critical. It seems it will be at least a month yet before any relief is likely. The implications for some regions and cities are rather grim.

Japan's inflation rate rose to 2.6% in July from 2.4% in the prior month. This was the 11th straight month of increase in consumer prices and the fastest pace since April 2014, amid surging fuel and food cost following Russia's invasion of Ukraine, as well as a sharply weakening yen.

In the US, in the heart of their summer holidays, all eyes are turning to the central bank shindig at Jackson Hole, WY, and especially the Powell speech upcoming on Sunday August 29 NZT. It is likely that a contingent from our RBNZ will be there, but no word yet on who.

The US dollar has resumed its rally and yields on US Treasury bonds have risen as markets come to realise they can't beat the Fed and that interest rates will keep on rising until inflation is beaten - even if that means enduring a recession. This makes the Powell signals all that more interesting.

It does raise the question of whether any sort of 'soft landing' can be achieved through this process.

Across the US and Canada, assessors are out this coming week looking at the corn and soybean crops. Yield is the one thing satellite imagery can't assess, so the results of these annual 'tours' are crucial in working out how much grain is about to come to market.

North of the border, Canadian retail sales fell by -2% in July from June, preliminary estimates showed. That is a back-track from June, when retail sales rose +1.1% from May, and May was upwardly revised.

In Australia we should note that at the end of last week, energy from renewables were the largest feed into their electricity networks nationwide, for the first time ever.

We should also note that cattle prices have hit all-time highs in New Zealand recently. Not only are schedule prices up (especially in the South Island), but saleyard prices are too. However some saleyard activity will be constrained by wet weather, which may boost prices further. What is unusual is that this record is coming three months earlier than the usual October seasonal rise. Lamb prices are rising too, and out of season as well, but they aren't yet at record levels even if very close.

Meanwhile, carbon prices are on the rise again, after having flatlined for the past six months. At NZ$85.50/NZU they are matching their February 2022 high. The EU carbon price is also rising again, up to €96/tonne (NZ$155) and also matching their February 2022 high. It is hard to escape the sense that these prices are just getting started. One consequence will be that livestock and grain prices are about to follow them sharply higher as land is converted from food production to 'forests'. Only the wealthy will be able to keep up, sadly.

And speaking or carbon taxes, Indonesia has confirmed it will impose these on its nickel exports soon, almost certainly before the end of 2022 and probably announced at the upcoming G20 meeting to be held there in Bali (which is also the epicenter of their FMD outbreak). Indonesia is home to almost a quarter of global nickel reserves, and the metal is one of its major exports, along with coal and palm oil.

The UST 10yr yield starts today at 2.97% and up +9 bps from this time on Friday and up +15 bps from this time last week. 

The price of gold will open today at US$1748/oz which is up +US$3/oz from this time Saturday but down -US$54 for the week.

And oil prices start today at just on US$89.50/bbl in the US, while the international Brent price is now just under US$95.50/bbl. These levels are little-changed.

The Kiwi dollar will open today at 61.7 USc which is almost -1c lower than this time on Friday. A week ago it was at 64.5, so a weekly devaluation of -4.3%. Against the Australian dollar we are also lower at 89.8 AUc. Against the euro we have fallen to 61.5 euro cents and also a -½c drop. That all means our TWI-5 starts today at 70.8.

The bitcoin price is now at US$21,446 and very little-changed from this time Saturday. A week ago it was US$24,076, so an -11% fall from then. 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 tomorrow.

In 2015 when he and his wife Selena published Generation Rent Rethinking New Zealand’s Priorities, economist Shamubeel Eaqub admits he was pessimistic about the housing market. That has now changed. 

Speaking in interest.co.nz's Of Interest Podcast, Eaqub, now of economic consultancy Sense Partners, explains why he's now optimistic about the housing market.

"I think there is a consensus across the political spectrum that there is a problem, and now we're fighting about what the solutions are. To me that's a really optimistic place to be when it comes to the housing market," Eaqub says.

"We've seen changes in the Auckland Unitary Plan which has led to significant increase in supply, diversity of types of supply in terms of more medium density [housing], high density, places that are infills, places that are greenfield. So we're seeing really good progress. We've seen changes in the Residential Tenancies Act, it's not perfect but it's heading in the right direction. Recently we saw an announcement for build to rent. Again it's not perfect, [but is] heading in the right direction. We're building more state houses, [which is] very, very good because we have a massive wait list of over 25,000 households that are waiting for social housing."

"So I think we are heading in the right direction in that the balance has moved from apathy towards action, and we are arguing about what are the best solutions," Eaqub says.

In the podcast he also talks about why a land tax - a "pseudo wealth tax" - is top of his housing market wish list, the psychology of the housing market, pressure on the Reserve Bank after it "misdiagnosed the [Covid-19] problem and flooded the housing market with money with predictable results," and perhaps what it should've done, outdated thinking in the public service, the needs of renters and requirements for affordable housing, consenting, the current difficulties for borrowers in attracting mortgages and how and when this might change, and much more.

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 US economy still seems to be exhibiting impressive resilience in the face of global and domestic uncertainties.

Initial jobless claims in the US last week came in at a similar low level as the prior week at +191,000 leaving 1.427 mln people on these benefits. This data is still bumping along at all-time low levels. It is an impressive run.

The Philadelphia Fed Manufacturing Index rose to 6.2 in August from -12.3 in July, returning to positive territory after two consecutive negative readings. This was better than expected and far better than the neighbouring New York survey we noted yesterday. However new orders levels remained negative. But employment levels rose and the price indexes continued to fall back from elevated levels.

But American existing home sales fell almost -6% to an annual rate of 4.81 million in July, the slowest pace since May 2020 and below market expectations. This was the sixth consecutive monthly retreat reflecting the impact of the mortgage rate peak of 6% in early June. The median existing-home price for all housing types was $403,800, up +11% from July 2021, and total housing inventory increased +4.8% to 1,310,000 units.

Canada's producer price hikes seem to be past their peak with a notable fall back in July. Still, they remain +12% ahead of year-ago levels even if the monthly reversal was a sharp -2.1%.

In China, the important inland manufacturing city of Chongqing (population 32 mln) has ordered factories to suspend operations until August 24 to conserve energy after an exceptionally hot spell led to a surge in electricity demand. The extreme heat has led to a huge increase in the use of fans and air conditioners. Chongqing has a high number of factories that make cars and computers, and their shutdown could have an impact on supplies domestically and internationally. Previously, the government had only required that factories cease production during consumption peaks, but the tight power supply-demand situation has become so severe that shutdowns were deemed necessary. Local authorities said that many areas in Chongqing have been experiencing high temperatures of over 44o C.

Meanwhile, a major Hong Kong-based lender, the Bank of East Asia, has seen its profits plunge as it provisions for losses from the Chinese property sector. If mainland banks recognised the same reality, it would undoubtedly crystalise a full-blown banking crisis in China - but almost all large banks are state-owned there. This is what makes the BEA result 'interesting'. Shares in companies like Evergrande are now worthless according to fund managers.

The EU confirmed its July CPI inflation rate as 9.8% although less in the eurozone. But their core rate - that is, without food or energy - is only 4.0% and in their special circumstances, that will be pleased with that.

In Turkey, they are still doing odd things with monetary policy. With inflation running at 80% and rising fast - they cut their benchmark policy rate by -100bps to 13%. Their currency, which was already historically its weakest ever, slumped to a record low (as any independent observer could have predicted) and this will likely boost inflation further. Their current account surplus has turned to a deficit. Harsh “liraisation” measures by the central bank have failed to support their currency. It is just more evidence that the laws of economics apply to autocrats as well.

In Australia, their July labour market stats show a jobless rate that dropped to 3.4% s.a. from 3.5% as a further 20,000 people moved out of unemployment (3.3% actual). And that was despite their employed labour force shrinking unexpectedly by -41,000 in the month. (New Zealand's June jobless rate was 3.2% actual.) Australia's participation rate is 66.4%; New Zealand's is 70.5%.

Container shipping freight rates are falling faster now, especially for trans-Pacific cargoes out of China. Overall, rates fell -3% last week to be -35% lower than year-ago levels. It looks like American buyers are successfully pivoting their supply chains away from China. Bulk cargo freight rates are lower too, now back into the range that has applied since the GFC.

The UST 10yr yield starts today at 2.88% and little-changed from this time yesterday. 

The price of gold will open today at US$1759/oz which is down -US$6/oz from this time yesterday.

And oil prices start today up +US$3.50 at just over US$91/bbl in the US, while the international Brent price is now just under US$96.50/bbl.

The Kiwi dollar will open today at 62.6 USc which is a touch lower than this time yesterday. Against the Australian dollar we are also a touch softer at 90.4 AUc. Against the euro we have risen slightly to 62 euro cents. That all means our TWI-5 starts today at 71.4, and little-changed.

The bitcoin price is down -0.8% from this time yesterday at US$23,256. Volatility over the past 24 hours has been low at just under +/-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 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 the drought in China is compounding their problems, and making their summer holiday break a very uncomfortable one for Beijing officials.

But first, the US Fed minutes were released today showing a maintained hawkish view, committed to getting inflation back to its 2% target. They said that for the central bank to scale back its rate hikes, inflation reports due to be released on September 14 would need to confirm that the pace of price growth was cooling. They meet next on September 22, 2022 (NZT)

American retail sales disappointed in July, held back by lower petrol sales, and car sales. But online sales rose, kicked along by Amazon's Prime Day, and other non-vehicle sales did ok too. Overall, despite the weakish car sales, they still posted a +8.6% year-on-year gain. But there was no month-on-month rise, so this will go down as an underwhelming event.

Also disappointing is the rise and rise of business inventories, up +1.4% in June from May to be almost +19% higher than year ago levels. This was as expected. Their inventory-to-sales ratio isn't out of whack yet, but it is rising, and relentlessly

US mortgage applications fell last week, so the prior week's gain has proven to be the anomaly.

In China, the heat and drought are biting harder with industry shutdowns extending, now to steel mills. Beijing's worry levels are growing. The weather situation is worsening an economy that was already underperforming.

As you are probably aware, Norway saved much of its oil riches, building the world's largest sovereign wealth fund. But recent market turmoil has hit it hard and they lost -US$174 bln (NZ$278 bln) in the first half of 2022. After that loss their fund is worth US$1.3 tln, the largest drop in the funds history. To put that loss into perspective, in half a year the New Zealand GDP is NZ$185 bln. Norway has a population of 5.5 mln people, so the Fund is worth about NZ$375,000 per citizen.

In the UK, inflation rose to 10.1% in July from 9.4% in the previous period and above market forecasts of 9.8%. It was their highest level since February 1982.

The UST 10yr yield starts today at 2.89% and up +7 bps from this time yesterday. 

The price of gold will open today at US$1765/oz which is down -US$11/oz from this time yesterday.

And oil prices start today up +US$1.50 at just over US$87.50/bbl in the US, while the international Brent price is now just under US$93/bbl.

The Kiwi dollar will open today at 62.7 USc which is -¾c lower than this time yesterday. Against the Australian dollar we are a bit firmer at 90.5 AUc. Against the euro we have fallen to 61.7 euro cents. That all means our TWI-5 starts today at 71.3, and down -60 bps.

The bitcoin price is down -1.9% from this time yesterday at US$23,440. 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.