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 the next risk to global supply chains may come from drought in China.

But first up today, there was another dairy auction this morning and prices were lower again, for the fifth consecutive time, and the 10th time in the past eleven events. That means from its recent peak in early March, overall prices are now down by more than a quarter, a bear market for dairy products. They were down -2.9% this time from the prior event, but worse, down more than -4% in NZD terms. If there are any positives, they come from the "at least it wasn't as weak as markets expected" variety. Analysts will be less committed to their early 2022/23 farm gate milk payout forecasts now. Then again, there were some below-the-line positives in SMP and cheese especially, so perhaps they will see this as the bottom of the current market.

Elsewhere, global data on offer was also less than positive.

Perhaps bucking that trend however was the recovery in the weekly US retail pulse monitoring by the Redbook survey, with good same-store year-on-year growth above inflation and putting behind it the prior week's dip.

But American housing starts sagged badly, down almost -10% in July from June to be -8.1% lower than year-ago levels. This was much weaker than expected. Building consent levels were weaker too. It may not be much consolation, but the Americans don't have this trend on its own - it has shifted to a global trend where housing is sagging on all fronts now, and may well do for a while yet.

But picking up some of the pace, and perhaps more than expected, was American industrial production in July. June's data was revised up too. This is now +3.9% above year-ago levels (real), and puts behind it two weakish months.

Canada reported its July CPI data today, at 7.6% which was as expected and lower than the June 8.1% rise. It is another inflation data point that suggests the peak is passed for inflation. But this is not expected to slow their central bank's push to raise their policy rate.

And Canada reported better than expected housing starts for July, so that is a positive for them.

The German ZEW sentiment index isn't improving however, coming it at its lowest since the GFC.

In China, normally at this time of year we note excessive flooding along the big river basins like the Yangtze. But this year it is the opposite with very low flows and very high temperatures. This does not bode well for farming, not the industry relying on hydro-electric power from their river systems. There is now talk of factories closing due to electricity shortages. Brands like Apple are having supply issues.

There are no updates on yesterday's reports China is about to block Australian and New Zealand beef imports.

In Australia, an unsurprising RBA set of minutes from the last meeting has most observers convinced they will raise their policy rate another +50 bps again in early September to 2.35%. Some sections of these minutes reflected concerns of downside risks, but the overall tone was hawkish, especially relating to their strong labour markets.

The UST 10yr yield starts today at 2.82% and up +3 bps from this time yesterday. 

The price of gold will open today at US$1776/oz which is down -US$2/oz from this time yesterday.

And oil prices start today down another -US$2.50 at just over US$86/bbl in the US, while the international Brent price is now just over US$92/bbl. These prices are now near six-month lows.

The Kiwi dollar will open today at 63.4 USc which is -¼c lower than this time yesterday. Against the Australian dollar we are a bit lower at 90.3 AUc. Against the euro we have also slipped to 62.3 euro cents. That all means our TWI-5 starts today at 71.9, and down -20 bps.

The bitcoin price is down -0.9% from this time yesterday at US$23,894. Volatility over the past 24 hours has been modest at just over +/-1.2%.

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 that signals from the world's second largest economy aren't positive with data that is causing alarm both inside and outside the country.

Their reactions are also bringing over-reactions.

In a dramatic online posting, Chinese media have unofficially announced that New Zealand and Australian beef imports are to be blocked from entering the country, including Hong Hong, effective immediately. It doesn't seem to include dairy products. Apparently our products bring a risk of foot & mouth disease, presumably because we are close to Indonesia which has the disease. Or, it is an convenient excuse by Chinese wolf-warriors to beat us up until we toe the Beijing line on political issues. In any event, the FMD aspect is plainly false so that aspect will blow over quickly. But the message has been sent.

The negative news isn't only that. There was also some sharply negative data out of the booming US economy. The New York Fed's regional factory survey delivered a huge negative surprise, falling very sharply. New orders and shipments plunged, and unfilled orders declined. No-one saw this coming. A small slip was expected taking their expansion to a more modest level. But the actual report records a dramatic contraction in the region.

Meanwhile, sentiment in the American home building industry turned negative in August, but this really isn't much of a surprise given what is going on in their overall housing markets - and the global retreat in housing markets generally.

After stagnating in the March quarter, the Japanese economy picked up to be +2.2% higher in the June quarter from a year ago, and Q1 was revised higher too. This confirms a string of better data we have been noting for a few months now. But the expansion, while welcomed, wasn't quite as strong as analysts were expecting. Exports helped. Even so, Japan can now claim its economy is now larger than pre-pandemic. It's been a slow recovery for them, and the IMF last month downgraded Japan's growth forecast for the full 2022 to +1.7% from the April projection of +2.4%.

But the big data movements came from China where retail sales data for July disappointed. They came in up +2.7% from the year-ago level, lower than the June gain, and much lower than the +5% expected. It is a bad miss. Industrial production came in weaker too, although not by quite as much. It was up +3.8%. Both sets of data confirm China isn't going to get anywhere near its target of "about 5½% growth" in 2022. Independent analysts will be downgrading prospects on this data. And it isn't an especially good look for President Xi ahead of his appointment to the top job for life.

China's electricity production rose +4.5% in July from a year earlier. "Thermal power" (coal fired) was up +5.3%. Energy production rising faster than output isn't a good look for productivity either.

And house prices in China in July fell more than expected from June, now down -0.9% year-on-year. That's their third straight month of retreat. Forty of their seventy largest cities posted month-on-month declines for new housing. 51 of these 70 posted declines for resales. These official data changes not were especially large, but the consistency of these tiny movements doesn't really gel with individual market reports of stress and retreat.

After this data was released, the People's Bank of China said in an unexpected announcement it was cutting the interest rate on a ¥400 bln one-year, medium-term lending facility loans to some banks by -10 basis points to 2.75% from 2.85%. It is their first rate cut in seven months.

This Chinese data is important for Australia who will be watching nervously. Fears are that Chinese construction could stumble badly as developers’ funding dries up. The key commodities the Aussies will be watching are copper and iron ore of course.

Indonesia posted an outsized trade surplus in July of +US$4.2 bln for the month, boosted by strong coal and palm oil exports from year-ago levels. FMD hasn't affected them so far.

The UST 10yr yield starts today at 2.79% and down -5 bps from this time yesterday. 

The price of gold will open today at US$1778/oz which is down -US$26/oz from this time yesterday.

And oil prices start today down -US$3 at just under US$88.50/bbl in the US, while the international Brent price is now just over US$94/bbl. These are back to week-ago levels.

The Kiwi dollar will open today at 63.7USc which is more than -¾c lower than this time yesterday as the greenback makes a bit of a comeback. Against the Australian dollar we are holding at 90.6 AUc. Against the euro we have slipped marginally to 62.7 euro cents. That all means our TWI-5 starts today at 72.1, and down -60 bps.

The bitcoin price is down a mere -0.6% from this time yesterday at US$24,109. Volatility over the past 24 hours has been moderate at just over +/-2.7%.

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 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 seems to be moving into a classic liquidity trap situation.

Chinese banks extended ¥679 bln in new yuan loans in July, the lowest reading in three months and well below ¥1.08 tln a year earlier. The level also disappointed investors which were expecting an expansion similar to last year. But the ongoing property crisis weighed on consumers mood and government bond issuance has slowed. Low interest rates, a fast-rising M2 money supply, and banks willing to lend but clients unwilling to borrow, and savers saving harder, is a classic liquidity trap.

In Malaysia, they reported an economic expansion in the June quarter that was more than expected, charging up at an almost +9% annualised rate and impressive even if it is off a lowish base.

India has reported positively on their June industrial production levels, a fourth consecutive month of outsized gains.

EU industrial production data was released for June and that also brought a positive surprise. It grew +3.2% in the whole EU from a year ago, very much better than the +1% expected. UK industrial production rose +2.4% on the same basis.

In the UK, their economy contracted in the second quarter from the prior one as households facing soaring inflation cut back on spending, and programs to contain the pandemic were wound down, signaling tough times for an economy that is expected to enter a lengthy recession.

In Russia, their economy also contracted but more steeply in the June quarter as the economic consequences of its war in Ukraine took hold. Their economy shrank -4% from April through June compared with a year ago. It is the first quarterly gross domestic product report to fully capture the change in the economy since the invasion of Ukraine in February, when Western sanctions shut Russia off from much of the global financial system, and many countries severed trading relationships with Moscow. It was also a sharp reversal from the first quarter, when the economy rose +3.5%.

In the US, the latest sentiment survey, this one for August and by the closely-watched University of Michigan series, indicates rising optimism. But to be fair, it is only off its deep low for current conditions. However, the year-ahead economic outlook rose substantially and that is probably significant - and may indicate consumers are turned off by the silly 'steal' political shenanigans.

The July USDA WASDE report paints a much more relaxed picture for the international grain situation. Despite the European war, they now think most regions will have production increases, especially for wheat. Corn and other coarse grains might become a bit tighter they say, but the rice trade will have plenty available even if slightly lower than last year. They also see slightly higher dairy prices, and higher beef prices, but few supply issues.

In Australia, new home sales plunged -13% in July from June, swinging from an almost +2% gain in June. The sudden slump is being blamed on the recent increases in the cash rate, with builders reporting fewer enquires and visits to display sites.

The UST 10yr yield starts today at 2.84% and ery little different from week-ago levels. 

The price of gold will open today at US$1804/oz which is up +US$2/oz from this time Saturday, and up +US$28/oz in a week, up +1.6%. It is also the first time above US$1800 in seven weeks.

And oil prices start today unchanged at just under US$91.50/bbl in the US, while the international Brent price is now just under US$97.50/bbl. A week ago these prices were US$88.50 and US$94.50/bbl respectively, so a +3% weekly rise.

The Kiwi dollar will open today at 64.5 USc which is more than +2c higher than this time last week and its highest since early June. Against the Australian dollar we are holding higher at 90.6 AUc. Against the euro we up at 62.9 euro cents. That all means our TWI-5 starts today at 72.7, our highest in more than three months. It is a +2.4% appreciation in a week.

The bitcoin price is up +0.7% from this time Saturday at US$24,248. Volatility over the past 24 hours has been modest at just under +/-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 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 bond curves are steepening again as progress in the fight against inflation shows some promise.

American producer prices actually fell in July from June, an unexpected dip. There are now +9.8% higher than the same month a year ago, and that is much less than the +11.3% rise recorded in June. This is more evidence the current inflationary surge has topped out. The July dip in their PPI is their first in more than 2 years.

American petrol prices have fallen again, now below US$4/gallon on a national basis for the first time since March. It follows effective action from the federal administration. These falls are now showing up in both consumer price monitoring as well as today's producer price data.

US jobless claims rose to +204,000 last week (actual) and there are still only 1.454 mln people on these benefits, unchanged in a week and still near a record low. But note that the seasonally-adjusted rise was to +262,000 last week, so other media are reporting this is a nine-month high.

In a sign that recession fears may be waning, American high-yield bond funds are attracting heavy investments, a turnaround from the selloffs of the first half of this year. Investors are essentially betting that the Fed will limit future interest rate hikes to try to avert an economic slowdown. But one prominent Fed voter, Mary Daly, is saying it is too early to declare victory against inflation's pressures.

The Mexican central bank has pushed through a +75 bps official interest rate increase to 8.5% in the face of 8.2% inflation. Their new policy rate is their highest ever.

But it is conservative compared with Argentina's new rate, up +950 bps to 69.5% where they are battling inflation running at over +5.3% per month, 64% per year.

Turkey is also battling very high inflation with theirs running at +80% still, in their case partly cause by running an excessively low policy interest rate of just 14%.

In China, passenger car sales surged 30% in July from a year earlier to 2.42 million units in the month, extending a recovery that began in June with the help of eased COVID curbs and government incentives. Sales of new energy vehicles, which include pure electric vehicles, plug-in hybrids and hydrogen fuel-cell vehicles, accounted for much of the recovery. China's car market is the world's largest.

Reflecting an uptick in Chinese industry, the price of copper is back rising again and is at a six week high.

The Singapore economy grew by +4.4% on a year-on-year basis in the second quarter, faster than the +3.8% growth recorded in the first quarter. On a quarter-on-quarter seasonally-adjusted basis however, their economy contracted slightly by -0.2%, a reversal from the +0.8% expansion in the March quarter.

Inflation expectations in Australia are slipping. The respected Melbourne Institute's August survey pegs the one year expectation at 5.9% now, down from 6.3% in July and 6.7% in June (which was a 14 year high).

And staying in Australia, regulator ASIC says "there are limited protections for crypto-asset investments given they have become increasingly mainstream and are heavily advertised and promoted. There is a strong case for regulation of crypto-assets to better protect investors." ASIC is Australia's integrated corporate, markets, financial services and consumer credit regulator.

Global container shipping freight rates fell faster last week, down -3% in a week, and the 24th consecutive weekly decrease. These freight rates have now dropped by -32% when compared with the same week last year. The rates to and from China are falling the fastest. Bulk cargo rates are lowish and stable. Tanker rates are rising.

The UST 10yr yield starts today at 2.88% and +10 bps higher than this time yesterday. 

The price of gold will open today at US$1789/oz which is down -US$7/oz from this time yesterday.

And oil prices start up +US$2.50bbl from this time yesterday at just under US$94/bbl in the US, while the international Brent price is now just over US$99/bbl.

The Kiwi dollar will open today at 64.3 USc which is holding yesterday's jump. Against the Australian dollar we are holding higher at 90.5 AUc. Against the euro we still up at 62.3 euro cents. That all means our TWI-5 starts today still just on 72.3, our highest in more than three months. A higher exchange rate will help in our fight against imported inflation.

The bitcoin price is essentially unchanged from this time yesterday at US$24,332. Volatility over the past 24 hours has been high at just under +/-3.0%.

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.

New Zealand is poised to end its role as an international outlier when it comes to deposit insurance.

The Deposit Takers Bill is expected to be introduced to Parliament in the third quarter of this year. Included within it are proposals for a depositor compensation scheme to cover bank depositors in the event of bank, or non-bank deposit taker such as a building society, failing. Depositors will be covered for a total of $100,000 per institution, per depositor.

Speaking in interest.co.nz's Of Interest Podcast, Geof Mortlock explains what deposit insurance is and what its objectives are.

Mortlock is an international financial regulatory consultant who undertakes work for the International Monetary Fund and World Bank, specialising in financial system stability, resolution of bank failures, deposit insurance and related matters. 

Mortlock also explains why it has taken NZ so long to adopt deposit insurance. According to the International Association of Deposit Insurers, at least 145 jurisdictions have some form of explicit deposit insurance.

Additionally he talks about the $100,000 limit, how the deposit insurance fund will be established including how much this will cost and what this is likely to mean for the interest rates depositors are paid.

Mortlock also talks about which products are likely to be insured, or covered by the scheme, and which are unlikely to be, whether a depositor preference regime should be introduced in the event of a bank failure, how the Crown's deposit insurer should operate, and more.

The Reserve Bank expects the Deposit Takers Bill to be passed into law in mid-to-late 2023, with a depositor compensation scheme expected to be up and running in early 2024.

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 NZD has leaped, and an aggressive risk appetite is back in favour on equity markets, as the perception grows that the global inflation surge is past its peak and will ease from here. But so far, the bond market isn't so sure and seems to be sitting this one out.

Triggering the sudden mood change was an unexpected easing in the American CPI inflation rate.

Analysts had expected the American headline inflation rate to ease from 9.7% in June to 8.7% in July. But it actually came in under that, at 8.5%. This was largely because petrol prices have retreated more than expected. But food prices haven't shown the same retreat. So their 'core' inflation rate (headline, less food and energy) is unchanged at 5.9% year-on-year.

Equity markets like this news because it might mean the US Fed will take its foot off the rate-rising accelerator sooner. That does seem unlikely any time soon, however.

But in a building worry, American wholesale inventories keep on rising, up by +US$182 bln in the year to June, which is a +25% surge. But to be fair, sales have risen sharply too on a nominal basis (+20%), so the inventory-to-sales ratio, while higher, isn't yet out of range.

US mortgage applications rose marginally last week because there was a +3.5% jump in refinancing, offset by a -1.4% fall in those wanting to buy a home. Meanwhile, the average rate on a 30-year fixed-rate mortgage increased 4 bps to 5.47%.

We have noted it before, but the spectacular budget repair by the US Government has extended into July, although slowing somewhat. In July 2021 they had a -US$302 bln deficit. This July it was -US$211 bln, a 30% improvement.

Also helping the mood in financial markets was a short statement from the Chinese military saying they have completed their exercises around Taiwan.

China's annual inflation rate rose to 2.7% in July from 2.5% in June, but this was below market forecasts of 2.9% for July. Even so, this was the fastest rise in consumer prices there since July 2020, mainly due to a surge in food prices with cost of pork bouncing back sharply. Beef prices held, but sheep meat prices fell sharply. Milk prices are stable.

Meanwhile, China's producer price inflation eased to a 17-month low of 4.2% in July, an easing from 6.1% in June and less than market consensus of 4.8% for July. The latest figure represented the 19th straight month of slowing producer price rises, from a drop in raw material costs as construction activity slowed.

Germany confirmed its July CPI inflation rate and it held at 7.5%, 8.5% on an EU harmonised basis. Given the Russian energy threats, this is actually a very creditable outcome for them.

The EU’s ban on Russian coal that begins very soon will boost their demand for imports from other countries like Indonesia and Australia. Coal prices are at historic highs.

And shipping costs for mid-size oil tankers from the US Gulf to Europe are near the highest levels since early in the pandemic as energy flows change rapidly.

In Australia, they are preparing for a record winter grain harvest. This comes at a lucky time for them as international demand is rising just as international supply is constrained because of war and drought.

The UST 10yr yield starts today at 2.78% and -2 bps lower than this time yesterday. 

Wall Street is up in its Wednesday trade with the S&P500 up a strong +2.0% from this time yesterday. 

The price of gold will open today at US$1796/oz which is up another +US$2/oz from this time yesterday.

And oil prices start up +US$1.50bbl from this time yesterday at just over US$91.50/bbl in the US, while the international Brent price is now just under US$97.50/bbl.

The Kiwi dollar will open today at 64.3 USc which is an overnight jump of +1½c from this time yesterday. Against the Australian dollar we are up +¼c at 90.6 AUc. Against the euro we are +¾c higher at 62.3 euro cents. That all means our TWI-5 starts today at just on 72.3, up +110 bps and now well above the tight range we have been in for the past month - in fact, our highest in more than three months.

The bitcoin price has moved up from this time yesterday, up +3.9% to US$23,929. Volatility over the past 24 hours has been high at just over +/-3.3%.

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 rapid wage growth is heaping pressure on American inflation, and undermining their labour productivity.

But first, last week may have been a turning point for American retail sales with the weekly Redbook survey reporting an unusual softening. It's only one week, but this result is right out of range and one we should keep an eye on.

Meanwhile, inflation and the pandemic is really hurting American labour productivity. Unit labor costs surged by more than +10% from the same June quarter a year ago and well above analyst forecasts. The data for Q1 was revised up to almost +13%. The Q2-2022 data reflects some chunky movements, a +5.7% jump in hourly compensation and a -4.6% fall in productivity. It put this into historic perspective, American unit labor costs increased +9.5% over the full prior year, the biggest rise in 40 years.

All eyes now turn to the American CPI data for July which is now expected to come in at 8.7% and lower than the 9.1% reported for June.

Separately, there are problems on American cattle farms. Drought and high feed costs are undermining viability for both pasture ranches and feedlots and herds are being culled, a shift that will tighten beef supplies for years ahead.

There was another very well supported US Treasury bond tender this morning, for their 3 year maturity. It went for a median yield of 3.14% which was up on the 3.04% at the prior equivalent event a month ago.

In Japan, machine tool orders slipped in July from June and have been reported up only +5.5% from year-ago levels. That is sharply lower than the June gain of +17% year-on-year

In Australia, the Westpac-MI consumer confidence survey found slipping sentiment - not huge from June, but it is the ninth consecutive monthly decline they have recorded. Consumers may be drooping, but business sentiment actually improved in July, according to the widely-watched NAB survey. It's an unusual and unexpected rally in the face of headwinds from inflation and rising interest rates, as well as a deteriorating global economic outlook.

The OECD is reporting that historically high inflation, low consumer confidence and declining stock markets in the main economies are showing a global loss of growth momentum. The latest assessment for the giant US economy has their Q3 expansion running at a very tepid +1% currently.

The UST 10yr yield starts today at 2.80% and +3 bps higher than this time yesterday. 

The price of gold will open today at US$1794/oz which is up another +US$6/oz from this time yesterday.

And oil prices start up +50 USc/bbl from this time yesterday at just on US$90/bbl in the US, while the international Brent price is now just on US$96/bbl. 

The Kiwi dollar will open today at 62.8 USc which is little-changed from this time yesterday. Against the Australian dollar we are up a little at 90.2 AUc. Against the euro we are marginally softer at 61.5 euro cents. That all means our TWI-5 starts today at just on 71.2 and still in the tight range we have been in for the past month.

The bitcoin price has moved down from this time yesterday, down -3.8% to US$23,033. Volatility over the past 24 hours has been moderate at just over +/-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 China is duplicating Russia's bully-play of a smaller neighbour, albeit with different means so far.

But first, northern hemisphere holidays are in full swing now and financial markets are quiet as a consequence, even if war and geopolitical fights seem to be escalating.

In the US, the New York Fed has released its national consumer inflation expectations survey. These fell to 6.2% in July, down from a record high 6.8% in June. Driving this retreat were expectations that the price of petrol would fall sharply. Food prices are also expected to fall back. The same survey reported the recent household spending surge will ease back to more normal levels - and that the jobless rate is unlikely to rise. The point of these surveys isn't as a predictor of the future, rather they inform how household budgets are being set.

This better inflation outlook comes just as the US Congress has passed a huge social and climate program, the centre-piece of the Biden Administration's re-orienting of the giant US economy after the battering it has taken over the past six years.

Across the Pacific, China is making a concerted play to snuff out the democratic government in Taiwan with a semi-permanent "live fire" military exercise surrounding the island nation. At the same time Taiwan reported healthy export orders in July, up +14%, its second-best level ever. Its monthly trade surplus remained over +US$5 bln. But the question remains, how can that continue with the military squeeze tightening? Democratic talking can't compete with military bullying. Regional concerns are rising.

The number of ships navigating around the island on Friday was far lower than usual, down to a handful of vessels from an average of 240 a day over the prior week. Ship owners can no longer get political risk insurance in these waters.

And in an escalation of its pique, China has stopped cooperating with the US in a number of areas including controlling is fentanyl export trade. China may be weaponising the drug trade. It is also signaling that it needs to 're-educate' the Taiwan population away from democracy.

At home, China has a number of issues it is grappling with, including the recent pandemic spread. More than 80,000 tourists are now stranded in China's holiday island of Hainan (China's "Hawaii") as its main city is locked down to prevent spread. And in Xinjiang, tourists have been told to go home early due to a widening outbreak there as well.

In Europe, Norway has said it will cut back electricity supplies to the EU because its hydro lakes are low. It is raising its subsidy on electricity to households to 90% and prioritising local customers.

The UST 10yr yield starts today at 2.77% and -6 lower than this time yesterday. 

The price of gold will open today at US$1788/oz which is up +US$12/oz from this time yesterday.

And oil prices start up +US$1.50/bbl from this time yesterday at just on US$89.50/bbl in the US, while the international Brent price is now just on US$95.50/bbl.

The Kiwi dollar will open today at 62.9 USc which is +½c higher than this time yesterday. Against the Australian dollar we are -½c weaker at 89.9 AUc. Against the euro we are firmer at 61.6 euro cents. That all means our TWI-5 starts today at just on 71.3 and still in our usual range.

The bitcoin price has moved higher from this time yesterday, up +3.0% to US$23,954. Volatility over the past 24 hours has been moderate at just over +/-2.5%.

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

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

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

Kia ora,

Welcome to Monday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.

I'm David Chaston and this is the International edition from Interest.co.nz.

Today we lead with news global inflation pressures seem to be easing off sharply.

First, the benchmark for world food commodity prices dropped sharply in July, with major cereal and vegetable oil prices recording double-digit percentage falls. But meat prices held, and the dairy price fall was modest in the circumstances, both still very close to their all-time record highs. But the retreats for cereals are impressive and will certainly ease global inflation pressure. The overall index fell -8.6% in July from June even if it is still +13% higher than a year ago. Along with the sharp falls in crude oil prices recently, perhaps Team Transitory will have its day yet.

Chinese exports rose +18% in July from year-ago levels, a bit better than expected but very similar to the June result. Imports rose only +2.3% and less than expected suggesting their domestic demand is soft, especially as they fell from June. If it wasn't for the US economy firing on all cylinders and drawing in imports from all over, China's trade result wouldn't have held up. In fact, the surplus they reported was a record high.

They had a trade surplus of +US$41.5 bln in July with the US, a deficit of -US$6.9 bln with Australia, and a deficit of -US$0.4 bln with New Zealand, according to their Customs data. All these three data items are 'larger'; that is, a bigger surplus with the US, bigger deficits with Australia and New Zealand.

In China, all eyes are on signs their moribund property markets are recovering. Cement production remains unusually low, but there are signs high stocks are falling, drawn down as some projects get back underway. But there is no sign that iron ore prices are rising from a demand rise. And at the same time, there is no sign China has yet succeeded in driving down the iron ore price as part of it new bulk-buying program.

The Japanese have reported something of a surprise with household spending rising quite sharply in June to be +3.5% higher than a year ago, up +1.5% from May alone. No analyst saw that jump coming. These are 'real' gains, after adjusting for inflation. True it is only one month and that doesn't make it a trend. But quite a string of Japanese data has been positive recently, so this household data may have legs and underpin the inflation rise the Bank of Japan has been seeking for decades. Separately, they reported better than expected incomes growth as well.

Over the weekend in the US, their non-farm payrolls report for July has heaped pressure on the Fed with a much larger than expected rise. Their labour market remains hot with employers adding +528,000 jobs in the month, double what analysts had expected. This is not data that suggests the US is in recession. July is normally a month when overall payrolls shrink as firms go into their summer shutdown mode. But this year that hasn't happened with the employed labour force now over 152 mln workers, and a hugely impressive +5.8 mln gain from a year ago (or if you like seasonally adjusted data, +6.1 mln more). Apart from the 2021 recovery from 2020 there has never been a July quite like this one. The rise in the number of women being hired is impressing analysts too.

The US jobless rate fell to 3.5% matching the pre-pandemic level, and their best since 1969. Their participation rate didn't change much however.

Meanwhile, American consumer debt rose much more than expected, in fact almost at +US$40 bln in June from May, that was almost double the +US$25 bln expected, and the May rise was revised up. The June rise was the second biggest jump ever.

The Canadians also released jobs data for July and that wasn't anywhere near as impressive; in fact they reported the summer decline that didn't happen in the US. They lost -31,000 jobs in July on top of the -43,000 they lost in June. (A +20,000 gain was expected.) 

Singaporean retail sales fell in June from May, and that undermined their good year-on-year gains. Apart from fuel sales which were boosted by inflation, the falls were widespread and somewhat unusual for them. If the Chinese posturing on Taiwan is extended, that probably won't help economies like Singapore.

In India, their central bank reviewed their policy rate late on Friday. It was 4.9% and markets had expected a +35 bps rise to 5.25%. But the RBI pushed through a full +50 bps hike to 5.4%. It’s a sharper than expected rise because they too have inflation concerns, and they need to shield their exchange rate which has come under pressure since war broke out in Europe.

Turkey has reported an 80% annual inflation rate for July (well, 79.6% to be exact). Nothing the Turkish president seem to actually work for him. Now he is talking with the Russians on a new economic pact. We will see how that works out. Its the weak and the weak, and a sign of desperation.

The UST 10yr yield starts today at 2.83%, jerked higher by +16 bps on the US jobs data. 

The price of gold will open today at US$1776/oz which is up +US$2 /oz from this time Saturday. A week ago it was US$1765/oz, so a +US$11 gain since then.

And oil prices start down a mere -50 USc from Saturday at just on US$88/bbl in the US, while the international Brent price is now just on US$94/bbl. A week ago these prices were US$98 and US$104/bbl respectively, so basically a drop on -US$10/bbl in that time. That is a drop of -22% from early June, and basically back to prices in effect before the Russian invasion of Ukraine.

The Kiwi dollar will open today at 62.4 USc which is -½c lower than this time last week. Against the Australian dollar we are marginally firmer at 90.4 AUc. Against the euro we are firmer too at 61.4 euro cents. That all means our TWI-5 starts today at just on 71. It has been in a very tight range at about this level for three weeks now.

The bitcoin price has moved marginally higher from this time Saturday, up +1.8% to US$23,251. Volatility over the past 24 hours has been low at just over +/-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.

The Reserve Bank's response to the Covid-19 pandemic followed a misdiagnosis of the problem, and we ought to use an inquiry to develop a blueprint for managing future challenges, says The Opportunities Party (TOP) Leader Raf Manji.

Speaking in interest.co.nz's Of Interest Podcast, Manji says any inquiry into the Reserve Bank's response to the Covid-19 pandemic should be as apolitical as possible.

"Let's look at what we did, could we have done things differently, what were the impacts of what we did, and could we have changed that response at an earlier stage? And I think clearly the answer to that is yes," Manji says.

"One of the first focus points was the misdiagnosis of what was happening. And I think for me when I go back, and it's important that we all reflect on what we said at the time, I was very, very clear that this was a liquidity crisis. It wasn't particularly a credit crisis, it was not a business cycle recession or depression, yet that's how it was being treated."

In terms of quantitative easing, or the Reserve Bank buying up tens of billions of dollars worth of government and local government bonds in the secondary market from banks, Manji says he'd have preferred Treasury and the Reserve Bank to deal directly with each other rather than "providing huge amounts of profit for the banks."

"New Zealand's problem, which is always our problem, is the huge focus on the property market and the impact that has. And there's no doubt that probably, whichever data you look at, probably a third of our inflationary impulse was from the housing market and the follow on effects of that, the renovations, the squeeze in capacity, and just the extraordinary rise in property prices," says Manji.

"I think if the Reserve Bank had looked a little bit more carefully at the outcomes of its policy towards the end of 2020 they might have gone 'okay everyone, let's get in a room, what has happened here, do we need to change our policy'?"

"We're in a position that could've been avoided to some extent," Manji says.

In the podcast Manji also talks in depth about interest rates, inflation, government debt, overt monetary financing, the Government's fiscal policy response to Covid-19 and more.