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 China's drive for zero Covid is forcing a mounting economic toll, one that will be felt worldwide soon.

But first, American household debt rose to a record US$15.8 tln in the first quarter driven almost entirely by a +US$250 bln increase in home loan balances, but the rise was the smallest in a year and new mortgage and car loan originations declined for a third straight quarter. Home loans now account for 71% of all household debt, the highest share in roughly a decade. Total household debt only stands at 66% of annual economic activity (GDP). In New Zealand, that same level is 75%.

In China, their pandemic lockdown controls are sharply undermining economic activity. One indicator - the sale of cars - is down by more than a third in April, the steepest retreat ever. The overall economic impact of China's pandemic response is massive.

Others have noted that the economic stresses are showing up in mixed messages from the Beijing leadership - a truly unusual sign of diverging policy tensions at the top.

The iron ore price took a tumble yesterday on low Chinese demand. Oil prices did too.

Meanwhile, China is making progress in finding alternative sources of iron ore that importing from Australia or Brazil. It's not a game-changer yet, but the efforts are growing.

In Japan, the Russian invasion seems to have snuffed out household spending plans. Household spending dropped by -2.3% in March in real terms from the prior year, although that was less than market forecasts of a -2.8% fall. The latest figure marked the first decline in personal consumption since last December, as consumers were wary of rising living costs and despite some easing of pandemic restrictions.

In Germany, economic sentiment as measured by the ZEW survey got a little less glum in May, but they are still weighed down by the implications of the Russian invasion on their doorstep.

There are reports that Germany is getting ready for a retaliatory shutoff of Russian gas, a move that would hurt the world's fourth largest economy.

Aussie business confidence fell in April from March, perhaps due to their election campaign uncertainties. But business conditions improved as surveyed by the NAB Monthly Business Survey.

Australian retail volumes rose despite very strong inflation and falling consumer confidence in the March quarter. While large household savings buffers, low unemployment and growing wage pressure should hide negative impacts on spending of both inflation and rate hikes in the short term, analysts there will be watching consumption closely in the coming months for signs of headwinds.

The UST 10yr yield starts today down another -7 bps since this time yesterday at 2.99%. 

The price of gold starts today down another -US$13 since this time yesterday at US$1845/oz.

And oil prices are sharply lower again today by -US$2.50 at just under US$99.50/bbl in the US, while the international Brent price is now just over US$102.50/bbl.

The Kiwi dollar will open today another -40 bps weaker again at 62.9 USc and another near two-year low. The devaluation since the start of April is now up to -9.8%. Against the Australian dollar we are slightly weaker at 90.7 AUc. And against the euro we are also sharply lower at 59.7 euro cents. That all means our TWI-5 starts today at 70.4 and its lowest since mid February. On a TWI-5 basis the devaluation since the start of April is now up to -5.8%.

The bitcoin price is +1.4% higher than this time yesterday at US$31,684. Volatility over the past 24 hours has been very high again at just over +/- 4.8%.

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 equity markets are gripped by stagflation fears today, with substantial sell-offs underway worldwide, especially for tech firms.

An article by the Minneapolis Fed's Kashkari didn't help, suggesting a recession may be necessary to kill off inflation.

In the US, inflation expectations have fallen from record highs in data released overnight, but remain very elevated. For the year ahead they fell to 6.3% in April from a record high of 6.6% in March mainly because consumers see the price of fuel falling. They see house prices rising +6% and incomes up +3%. Three-year-ahead inflation expectations rose slightly to 3.9%.

Meanwhile, American wholesale inventory levels rose only a marginal +2.3% in price terms in March, confirming they remain very low in volume terms. More crucially, the inventory-to-sales ratio remains at cycle lows, showing there is no buildup usually associated with a looming recession.

In Canada overall building permit levels fell in March after a very strong February, mainly due to the non-residential sector and an absence of public projects in the month. But residential permit levels remained strong, rising almost +5%.

Exports from China rose by just +3.9% in April from a year earlier but beating market forecasts of +3.2% rise - and moderating sharply from an almost +15% rise in March. The latest data marked the slowest increase in shipments in nearly two years, as tighter COVID-19 curbs halted factory production and caused congestion at key ports. Sales increased to the US (+9.4%), the ASEAN countries (+7.6%), and the EU (+7.9%) but were worryingly weak elsewhere. China's imports didn't grow at all, emphasising the domestic stall underway there. Iron ore imports fell -7%, although oil imports were stable ('resilient'). It was a second consecutive month of zero import growth.

In contrast, Taiwanese exports rose +19% and imports rose +27% year-on-year in April, continuing their very healthy trade activity. April was only edged out as a record month by a couple of other recent months.

In the Philippines, the son of dictator Ferdinand Marcos is headed for a landslide win. He is from a family has been synonymous with kleptocracy for decades and is on the hunt to recover the wealth his family stole from the state in a prior period in power. The Philippines is about to become unstable again.

In Australia, early voting is now underway for their Saturday, May 21 federal election. Because of growing expectations the government will change, there is nervousness in the ruling party about how an incoming administration will define political corruption. And what a change could mean for Australian inflation going forward.

The UST 10yr yield starts today down -8 bps since this time yesterday at 3.06%. 

As expected, Wall Street has started its week lower. The S&P500 is down -2.6% in Monday afternoon trade. Overnight, European markets all fell about -2.3%. Yesterday Tokyo shed -2.5%, Hong Kong was closed for a holiday, and Shanghai ended little-changed. The ASX200 ended its Monday session down -1.2% while the NZX50 ended down almost -2.0%.

The price of gold starts today down -US$25 since this time yesterday at US$1858/oz.

And oil prices are sharply lower today at just under US$102/bbl in the US with a -US$7.50 drop, while the international Brent price is now just over US$105/bbl.

The Kiwi dollar will open today -¾c weaker again at 63.3 USc and another near two-year low. The devaluation since the start of April is now up to -9.2%. Against the Australian dollar we are slightly firmer at 91 AUc. And against the euro we are also sharply lower at 60 euro cents. That all means our TWI-5 starts today at 70.8 and its lowest since mid February. On a TWI-5 basis the devaluation since the start of April is now up to -5.2%.

The bitcoin price is down another -8.2% from this time yesterday at US$31,260. At the beginning of April it was at US$47,294 so it is now down -34% since then and down -54% since its November 2021 peak. Volatility over the past 24 hours has been extreme at just over +/- 5.9%.

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

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

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

Kia ora,

Welcome to 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 US economy is giving continuing signs of resilience even though more analysts think they can see a slowdown coming soon.

The US labour market just keeps on growing, defying those who thought it would be reversing by now. They added 428,000 jobs in April, the same as in March and above forecasts of 391,000. It marks a 12th straight month of job gains above 400,000 but easing from a February gain of 714,000 amid an increasingly tight labour market. Employment increased across all sectors, but that still leaves their economy down by -1.2 mln jobs from its pre-pandemic level.

Pay levels rose, but more modestly this month to be up +5.5% in a year, and far less than inflation's bite.

New data for American consumer credit demand revealed a surge in March, far above what was expected - double in fact. In fact, it was the biggest monthly gain in more than eleven years, driven across the board by sharp rises both revolving credit (like credit cards), and non-revolving credit (like car and personal loans). It isn't getting much attention, but the jump is quite something. February data was revised higher too. Inflation will be a part of it, but improved sentiment is as well.

Meanwhile, American mortgage rates accelerated their upward climb, reaching 5.27% for their benchmark 30yr mortgage and the highest level since August 2009.

The April jobs report for Canada wasn't positive this time, after a string of strong monthly results. This time, full-time employment fell and part-time employment rose, partly reversing months of the opposite gains. It is unclear whether this is just an aberration, or a turning point.

Chinese foreign exchange reserves slipped for a fourth straight month to $3.120 tln in April, the lowest value in a year even if this latest fall was small. Their gold reserves fell too.

It is hard to see them rising again any time soon. Over the weekend, Chinese Premier Li warned of a “complicated and grave” employment situation in the country. The shock waves from the extended lockdowns in Shanghai and Beijing are now rippling through their economy. The central government has instructed all regions to prioritise measures aimed at helping businesses "retain jobs and weather the current difficulties".

Global food prices eased by -0.8% month-over-month in April, but still remained close to the March record high. Prices of vegetable oil declined significantly and prices of cereals were down slightly. Meanwhile, dairy prices rose for the 8th straight month on sluggish production in Western Europe and New Zealand, and surging demand for butter amid shortages of sunflower oil and margarine in Western Europe. Lastly, prices rose firmly for meat (up +2.2%) on tight supplies in the northern hemisphere and disruptions in Ukraine.

The war in Eastern Europe is suppressing air-cargo trade. In March, international volumes fell -5.4% from the same month a year ago. Asia/Pacific volumes were down only -2.7% on the same basis however.

The cost of shipping cargo containers by sea slipped again, mainly of weaker rates out of China. But interestingly, rates to China are now showing some long-absent firmness. The cost of shipping bulk cargoes rose more sharply, and are now at their highest of the year, in a move up worth watching.

A presidential election in the Philippines is underway, and may return the family of a former dictator to power as amnesia grips the country.

In Australia, they are in the last two weeks of their election campaign and recent polling is showing up an increasing appetite for change. Other recent polls show a similar turn. Even the Murdoch press polling concedes the shift.

The UST 10yr yield starts today up another +2 bps since this time Friday at 3.14%. 

The price of gold starts today back up +US$6 since this time Friday at US$1883/oz.

And oil prices are almost +2% higher today at just over US$109.50/bbl in the US while the international Brent price is now just over US$112.50/bbl. After only minor gains for many months despite high prices, the American rig count is starting to move higher again now and is back over 700 for the first time in two years.

The Kiwi dollar will open today softer again at 64.1 USc and nearly a two-year low. That has been a -7.5% devaluation since the start of April. Against the Australian dollar we are slightly firmer at 90.6 AUc. And against the euro we are unchanged at 60.8 euro cents. That all means our TWI-5 starts today at 71.5 and its lowest since the end of February. On a TWI-5 basis the devaluation since the start of April is -4.4%.

The bitcoin price is down -5.4% from this time Saturday at US$34,057. At the beginning of April it was at US$47,294 so it is down -28% since then. 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 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 markets are roaring with positivity today.

First, US jobless claims came in as expected last week at +203,000 and the total number of people on these benefits remained steady at 1.45 mln, and still an historic low.

But the Q1 GDP number did not come in as expected, recording a surprising fall from the prior quarter when a rise was expected. But this was mostly due to a record trade deficit, softer inventory growth, and a drop in government spending. Meanwhile, personal consumption and non-residential and residential fixed investment remained strong. This same data showed that the inflation pressure might have eased in the period too, which was also a surprise. But we must note that these are 'advance' results, and there are two more revisions due over coming weeks, so they could change. And in nominal terms, American GDP rose at a +6.9% annual rate in the first quarter to be running at a rate of US$24.383 tln of economic activity and +10.6% higher than a year ago.

Markets picked up on the strong consumption data, seeing the other Q1 factors weighing on the overall result as temporary, and have turned bullish. The US dollar is surging.

Meanwhile, the Kansas City Fed's factory survey reported a continuing strong expansion, even if it was down from the March boom result.

The US Treasury has another bond auction overnight, this one for their 7-year bond and it too was well supported. The median yield was 2.84% vs 2.43% at the month-ago prior event.

In China, employment is being ‘hit quite hard’ by the pandemic. Tough enforcement of pandemic restrictions has forced factories and businesses to close over the last two months. The country's unemployment rate had already risen to 5.8% in March, and now a record 10.8 million college graduates are set to enter their jobs market this year, compounding the strain. There will be a growing cadre of disappointed workers there.

Meanwhile, China has cut its tariff on imported coal to zero, reinforcing the perception it is facing energy stress. It's a very rare move from Beijing.

Japanese housing start data for March surprised. It rose strongly in February and was expected to revert in March, but in fact that +6% expansion continued into March.

Taiwanese Q1 GDP was also released overnight and that came in marginally better than expected at a +3.1% annual rate. Although this was well down on year-ago rates the expansion in Q1-2022 over Q4-2021 surprised on the high side.

German inflation for April was reported overnight and it came in higher than expected at 7.4%. Some major costs like energy prices actually fell, which was a surprise. But that was more than covered by sharp rising food prices.

And Germany, which had been one of the main opponents of sanctioning the EU’s oil and gas trade with Russia, is now ready to stop buying Russian oil, clearing the way for an EU-wide ban on crude imports from Russia, government officials said. That comes just as energy utility Uniper said it would start paying in rubles for the gas it buys for Germany.

Sweden raised their official rates from 0% to 0.25% overnight and signaled that more hikes are on their way. This is something of a u-turn in policy, unexpected, and the Swedes are now joining in the global fight against inflation.

The slowdown in the Chinese economy is resulting in lower container shipping rates with yet another small retreat last week. But we are not really seeing the same trend for bulk cargoes.

The UST 10yr yield starts today up +4 bps at 2.86% as markets lock in their Fed bets for next Thursday's announcement. 

On Wall Street, the S&P500 is roaring today, up +2.7% in late afternoon Thursday trade. Overnight, European markets all rose another +1% overnight led by Frankfurt. Yesterday Tokyo ended its Thursday session up +1.8% and more than making up the prior day's retreat. Hong Kong was also up +1.7% on the day. And Shanghai gained a further +0.7% on the stimulus announcements. The ASX200 ended yesterday up +1.3%. The NZX50 ended also ended up +1.3%.

The price of gold starts today down -US$1 since this time yesterday at US$1890/oz.

And oil prices are up +US$2 at just on US$104/bbl in the US while the international Brent price is now just under US$107/bbl.

The Kiwi dollar will open today softer again at 65 USc and nearing a two-year low. Against the Australian dollar we are soft too at 91.5 AUc. And against the euro we are marginally softer at 61.9 euro cents. That all means our TWI-5 starts today at 72.5 and that is only a two-month low.

The bitcoin price is up +2.6% from this time yesterday at US$40,108. Volatility over the past 24 hours has been moderate at just over +/- 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.

This podcast is taking a break for a week.

Kia ora. I'm David Chaston and we’ll do this again on Monday, May 11.

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 there are growing concerns about the global growth trajectory - and wobbles in the US. Both equity and bond markets are picking up on the vibe.

American retail sales softened last week, as monitored by the Redbook survey, a noticeable shift lower than the week before.

And US new home sales took an unexpected fall in March, down -12% below year-ago levels and a rather sharp fall-away from February levels. Higher mortgage costs are probably biting this corner of their real estate markets rather hard now.

After they fell in February, US durable goods orders were expected to rise in March, and they did. But not by as much as was expected. The miss however is more to do with timing of "transportation" orders (read aircraft) which can be lumpy. Other than that, March durable goods orders actually rose more than expected and are up +9.9% from the same month a year ago. Orders for capital goods are up more than +10%.

The Richmond Fed factory survey has held its level in April, but the Dallas Fed services sector survey has weakened slightly.

American consumers however remain upbeat in the context of 2022, although still not back to pre-pandemic levels. But given the global challenges, the 2022 levels are quite positive.

The US Treasury had a very well supported 2-year bond auction earlier today. But the median yield was 2.53% vs 2.30% at the equivalent event a month ago.

Singaporean industrial production fell hard in March and that was not expected. But it is becoming a data item that has some sharp and unexpected retreats on a regular basis. 

In Malaysia there is an interesting real-time economic experiment underway. They are about to raise their minimum wage by +25% after a +25% rise over the prior three years. Will that aid consumer spending power? or just fuel inflation as low-paid job levels fall away? There is trepidation over the move.

The UST 10yr yield starts today lower by another -5 bps at 2.76%. 

The price of gold starts today up +US$2 since this time yesterday at US$1900/oz.

And oil prices are back up +US$4.50 at just over US$101.50/bbl in the US while the international Brent price is now just under US$105/bbl. In Germany, their Economy Minister said his country has already cut its reliance on Russian oil enough to make a full embargo “manageable”. A full EU ban that would upend the global trade in petroleum. Meanwhile, Russia has cut off Poland from gas supply. Russia is having trouble selling its oil now.

The Kiwi dollar will open today softer again at 65.8 USc and another -¼c fall. Against the Australian dollar we are little-changed at 92.1 AUc. And against the euro we are marginally firmer at 61.8 euro cents. That all means our TWI-5 starts today at 72.8 and little-changed since where we left it yesterday.

The bitcoin price is down -2.5% from this time yesterday at US$38,399. Volatility over the past 24 hours has been high at just under +/- 3.6%.

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 financial and commodity markets have turned sharply fearful on concerns the economic expansion is waning. Risk aversion was gripping markets earlier today, and a lockdown crisis in Beijing isn't helping.

But first in the US, the Chicago Fed's National Activity Index fell in March to its lowest in three months and February was revised lower. It was still recording an expansion, just a weaker one.

The more current Dallas Fed factory survey for April retreated to its lowest reading since October. Again, still expanding, but the track is weaker.

This overall pullback is being reflected in trucking demand stats, which are turning lower and quite sharply.

But April PMI data has actually been good. The US factory sector is expanding faster, even as those concerns about the future build. Their manufacturing PMIs came in at their strongest in 7 months due to faster rises in output, new orders and employment. A rise in export orders is coming too. 

Canadian retail sales were expected to slip in February, but they rose in data released overnight, even if only marginally. They would have risen much more except vehicle sales were weak there.

Canadian producer prices rose very sharply in March, now running higher than +18% pa. In fact that is their fastest pace in almost 50 years.

Japan finally seems to be getting some [minor] inflation. Consumer prices rose by +1.2% in March, the most since October 2018, after a +0.9% gain a month earlier. The latest figure marked the 7th straight month of annual inflation, with food prices rising at the fastest pace in over 5 years at +3.4%.

And the flash April PMI for Japan brought signs their economy is expanding this month. The latest data showed that Japanese private sector activity improved at a sharper rate. Services companies recorded an expansion in activity for the first time since last December, while manufacturers saw output levels rise for the second successive month. April data signaled the sharpest expansion in four months, though the pace of growth was only marginal, to be fair, mainly because new order levels weren't growing. But it is better than a contraction.

In China, there are now realistic fears that Beijing will need to be locked down just like Shanghai has been. This is having strong echoes in financial markets with equities falling very hard yesterday. The Chinese currency, already under pressure, took another tumble and their central bank took some measures to ease the pressure, although it is unclear they had any real impact.

Copper prices have retreated sharply today as growth fears build for China.

Meanwhile, Taiwanese industrial production expanded in March but the year-on-year gain was more modest this time. But retail sales, which has been barely growing for some time, exhibited a much stronger rise in March.

Singapore is getting inflation like everywhere else. They booked a +5.4% annual rise in March, well above the expected level and well above the 4.3% they recorded in February. The month-on-month rise in March was very sharp indeed.

In Germany, there has been surprise data released overnight (a surprise to me at least). Their latest business sentiment survey turned higher as companies were less pessimistic after the initial shock of the war in Ukraine. Both current conditions and expectations improved. This survey happened before the French election result was known.

And that positive French election result should help overall EU sentiment.

PMI surveys show EU growth is accelerating in April as reviving services demand offsets a near stalling in their manufacturing sector. But prices are rising at record rates. In Germany, a drop in manufacturing production contrasts with continued service sector growth. But in France, business activity is rising at its fastest pace in more than three years. The UK however is still recording an expansion, but at lower levels. British retail sales were particularly weak in March, recording a decline.

In Australia, Westpac's respected economist Bill Evans has noted that 'underlying' inflation will rise to 3.4% when the March data is released next week, and their jobless rate will fall below 4% in April, and "on the basis of those forecasts we expect the RBA will decide to lift the cash rate by 40 basis points at its Board meeting on June 7" to 0.5%.

The UST 10yr yield starts today lower by -10 bps bps at 2.80% and taking it back to pre-Easter levels. 

The price of gold starts today down -US$35 since this time Saturday at US$1898/oz. That is a large -US$80 drop in a week or -4% down.

And oil prices are -US$4.50 lower at just under US$97/bbl in the US while the international Brent price is now just over US$100.50/bbl.

The Kiwi dollar will open today a little softer at 66.1 USc and still about its lowest since mid-February. Against the Australian dollar we are +½c firmer at 92.2 AUc. And against the euro we are firmer too at 61.7 euro cents. That all means our TWI-5 starts today at 72.9 and little-changed since where we left it Saturday.

The bitcoin price is virtually unchanged from this time yesterday at US$39,400. Volatility over the past 24 hours has been moderate at just under +/- 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 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 Beijing seems to be on the back foot in a range of policy positions, and investors are not impressed.

But first, US jobless claims for last week fell marginally, but were at about the expected level. The number of people claiming these benefits also fell to 1.475 mln, that is to 1.1% of their workforce, and another all-time low.

Another American regional factory survey came in reporting a good expansion, but in this Philly Fed one there are signs the impetus could be fading. This survey’s indicators for current general activity, shipments, and new orders declined from last month’s readings even if they did remain positive. The employment index and both price indexes edged higher and remain elevated. But the future indicators for general activity and new orders fell sharply, even if overall, firms continued to expect growth over the next six months.

Meanwhile, Fed Chair Jay Powell made it clear when speaking as part of an IMF panel that the central bank remains committed to taming inflation, currently at 40-year highs, while virtually sealing in a +50 bps interest rate hike in May. Several other Fed policymakers, including regional presidents Mary Daly of San Francisco, Charles Evans of Chicago and Raphael Bostic of Atlanta, had delivered the same message earlier in the week. Now the outlier is hawk St Louis Fed President James Bullard who has been saying that hikes of +75 bps could be necessary to tame runaway inflation. No-one is out there saying a +25 bps is the right call.

China stocks were sharply lower yesterday as policy decisions to bolster a fading economy disappointed investors. The malaise runs deeper; capital outflows, triggered by market expectations of more aggressive rate rises in the US and Europe this year have alarmed officials in Beijing. And the Chinese yuan is depreciating in a worrying way as well. Investors are not optimistic that the side China is on in the coming new bipolar world will be the right one, and seem to be bailing. China's current economic policy making looks decidedly archaic.

The cost of shipping containers out of China fell again last week in a building trend. Bulk cargo rates remained static.

Inflation in the EU rose from 6.2% in February to 7.8% in March. This was marginally less than what was expected. It was less in the euro zone countries. (The US is at 8.5%, New Zealand at 6.9%. Australia is expected to come in at about 5%.)

In something of a surprise, EU consumer confidence improved in April. Didn't see that coming. Admittedly it is still at a very low level, but the grinding war in the east isn't weighing as much as you might have thought. But the pall hangs especially heavy over Turkey where war, inflation, and dodgy policy-making have driven them into a major funk.

And there were hawkish comments from the ECB that markets noticed as well.

In Australia, an annual study by KPMG and the University of Sydney Business School is reporting that Chinese firms invested NZ$900 mln in Australia during the 2021 calendar year, down very sharply from NZ$2.8 bln in 2020, as the pandemic accelerated a trend that started well before based on a falling out between the two.

Ratings agency Moody's has held its credit rating for New Zealand at Aaa, the maximum. Moody's said it "expects New Zealand's wealthy and highly competitive economy to continue its recovery, growing by 3.0% in 2022, from 5.0% in 2021. The economy demonstrated strong resilience in the face of the substantial shock of the Covid pandemic."

The UST 10yr yield starts today back up +8 bps bps at 2.92% and recovering up all of yesterday's fall. 

The price of gold starts today down -US$9 since this time yesterday at US$1947/oz.

And oil prices are marginally firmer at just under US$103/bbl in the US while the international Brent price is now just over US$107/bbl.

The Kiwi dollar will open today down more than -½c at 67.4 USc. Against the Australian dollar we are very marginally firmer at 91.4 AUc. Against the euro we are more than -½c weaker at 62.1 euro cents. That all means our TWI-5 starts today at 73.5 and -60 bps lower. 

The bitcoin price is up just +0.6% from this time yesterday at US$41,670. Volatility over the past 24 hours has been moderate at just under +/- 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.

Note that it is a public holiday in New Zealand on Monday, ANZAC Day.

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

that Germany has decided to suck up the cost consequences, and separate itself from its dependence on Russian oil. It is a move that will fast-track one of the world's largest economies away from fossil fuels. But it doesn't come without high risk.

But first in the US, residential resales fell -2.7% in March from February, a second straight decline and the sales rate is now it’s lowest since June 2020. Higher mortgage interest rates are weighing on this market. But median dwelling prices hit an all-time high of US$375,300 (NZ$552,000).

And mortgage applications fell -5% from the previous week, a 6th straight week of decline, as mortgage rates continue to march higher. The average contract rate on a 30-year fixed-rate mortgage increased to 5.2%, its highest since 2010.

The Fed's April Beige Book survey showed a resilient American economy despite high inflation and never-ending supply chain problems. They report their economy expanded at a moderate pace from February through early April even if there was little respite for businesses from high inflation and labour shortages.

Canada's CPI inflation came in much higher than expected. Analysts were looking for a 6.1% rate in March after a 5.7% rate in February. But it came in at 6.7% and that is a 31 year high. Actually, sharply rising dairy prices played a not-small part of this increase. The Bank of Canada has much work to do to tame inflation there. Join us for the New Zealand March CPI release at 10:45 am this morning, where our market is anticipating a 7.1% rise which for us would be a 32 year high.

China hasn't followed is reserve ratio cut with lower prime loan benchmarks. It kept its benchmark interest rates unchanged for corporate and household loans at its April fixing. The one-year loan prime rate (LPR) was left unchanged at 3.7% following cuts of 5 and 10 bps in December and January, respectively; while the five-year rate was kept at 4.6% after a 5-basis-point cut in January.

Taiwan export orders, which are a bellwether of global technology demand, rose faster than expected in March, setting a new high for the month. But their government warned of much slower growth for April as a consequence of the Ukraine war and ongoing supply bottlenecks.

German producer prices were expected to rise sharply in March, even faster than for February, and their highest in more than 70 years. But those forecasts proved to have under-stated that actual rise which exceeded a +30% rate, almost all driven by sharp increases for Russian fuel. This is steeling them for a complete break from that Russian stranglehold. Overnight their Foreign Minister declared Germany will halve oil imports by July, and take them to zero by the end of 2022. Germany currently buys a quarter of its oil and 40% of its gas from Russia. The dramatic policy shift won't be without some tough costs, but it looks like it is happening, and fast.

In Russia, panicked citizens withdrew foreign currency worth US$10 bln from their accounts in March and banks cut new corporate lending by around one third.

The UST 10yr yield starts today down -7 bps bps at 2.84% and giving up all of yesterday's jump. 

The price of gold starts today down -US$22 since this time yesterday at US$1956/oz.

And oil prices are unchanged at US$102.50/bbl in the US while the international Brent price is down -US$1 and now just on US$106.50/bbl.

The Kiwi dollar will open today up +¾c at 68 USc. Against the Australian dollar we are very marginally firmer at 91.3 AUc. Against the euro we are nearly +½c firmer at 62.7 euro cents. That all means our TWI-5 starts today at 74.1 and +50 bps firmer. We should also note that the Chinese yuan slipped to a six month low against the US dollar yesterday.

The bitcoin price is up just +0.2% from this time yesterday at US$41,440. Volatility over the past 24 hours has been modest at just under +/- 1.4%.

Kia ora,

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

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

Today we lead with news of growth downgrades amid bond yields that continue to march higher.

First and as anticipated, today's dairy auction was a negative one, with prices falling -3.6% on average in USD terms. That is on top of falls at the two prior events, so they are down -4.1% since early March. But today's event wasn't as dire as analysts had feared. WMP fell less than the futures market had indicated. SMP fell marginally more. But more importantly, the currency has come to the rescue, falling -3.2% since the last auction so in NZ dollar terms today's overall result was a decline of only -0.2% in local currency.

Given the currency effect, today's results are unlikely on their own to alter any farm gate payout forecast, but it will certainly now push downgrade thoughts to front-of-mind if the trend continues. Fortunately, the current season is in the bag. Any softness will all be about the upcoming season.

In the US, the data released overnight continued its strong run. American housing starts came in above estimates for March and above the prior month which was revised up. The same is true for residential building permits. Both are at historically high levels.

American retail sales for last week were also strong, improving to be +15.2% higher than the same week a year ago, so the strength is much more than 'just inflation'.

Canada housing starts also came in high, but although it was not quite as high as expected, the miss was minor.

But the Canadian housing market is showing signs it has topped out now.

Japan chimed in with an unexpected rise in industrial production, up year on year to February, but more importantly the rise from the prior month was much more than expected.

The IMF has released its lower global growth forecasts, and both the US and China have had chunky lower revisions. The US was cut from 4.0% to 3.7% and for China from 4.8% to 4.4%, and in their case amid intense efforts by state media to play down concerns about the country’s slowing growth outlook. These lower estimates had an immediate effect on the oil price.

For Australia, they now see 2022 growth at 4.2% and in 2023 at 2.5%, down from 4.7% in 2021. For New Zealand their estimate is that we sink from +5.8% in 2021 to 2.7% in 2022 and 2.6% in 2023. 

Meanwhile, China has announced it has actually signed a security deal with the Solomon Islands.

The UST 10yr yield starts today up another +5 bps to 2.91% and rising.

The price of gold starts today down -US$22 since this time yesterday at US$1956/oz.

And oil prices are -US$5.50 lower at just under US$103/bbl in the US while the international Brent price is now just on US$107.50/bbl.

The Kiwi dollar will open today little-changed at 67.3 USc. But against the Australian dollar we are softer at 91.2 AUc. Against the euro we are marginally softer at 62.3 euro cents. That all means our TWI-5 starts today at 73.6 and a little firmer, mainly on the fall of the Japanese yen.

The bitcoin price is up +2.3% from this time yesterday at US$41,346. Volatility over the past 24 hours has been modest at just over +/- 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 next 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 forecasts for global economic expansion are being downgraded on the consequences of the Russian invasion, the Chinese slowdown, and the worrying rise in food prices globally.

But first, China reported that its economy expanded at an annual rate of +4.8% in the March 2022 quarter, better than analysts estimates of +4.4% and the +4.0% rate in the prior quarter.

But this result defied electricity production that actually shrank marginally in March (-0.2%). It also defied retail sales that also shrank in March (-3.5%). And housing sector activity was unusually weak in the period. Further, household incomes were reported up +4.2% and less than the rise in household expenditures which were reported up +6.1% over the year-ago equivalent quarters. Their jobless rate rose sharply to 5.8% in March from 5.5% in February and now back near its pandemic highs.

Chinese industrial production did rise +5.0% above the same quarter a year ago but that was despite their capacity utilisation rate being its lowest since the pandemic hit in 2020. Overall, it is a tough ask to reconcile their 'good' reported Q1 GDP outcome with a general slide in most factors that go into it.

Things are unlikely to have improved in April. And because of the tough actual trading conditions, China has pulled the trigger on more generous credit expansion settings. As expected it has cut its reserve ratio, this time by -25 bps. After this cut, the weighted average deposit reserve ratio of financial institutions becomes just 8.1% - that is, on average their financial institutions now only need 8.1% of reserves backing up their all their new lending activity. China's prime loan rates are expected to fall soon too, and their term deposit rates could fall too. But in the grand scheme of things, it has been a modest set of moves so far.

Far more impressive is its rush to get big new infrastructure projects approved and underway. They have already approved 32 projects worth NZ$120 bln for new transportation, energy, and high-tech activity. In all of 2021 they approved 90 projects worth NZ$180 bln, so the pace is startlingly faster in 2022. And the private sector is getting regulatory encouragement too. "Multiple tools" is now the catch-cry for how they are dealing with the slowdown.

They need it right now, because the pandemic lockdown in Shanghai is close to causing a widespread business stall there. (Also see this and this.)

In Japan, updated its population statistics to show it has recorded its largest fall ever. There were 125.5 mln people in the country, down -644,000. Tokyo's population shrank for the first time in more than 25 years, and every prefecture recorded a decline, except Okinawa.

In India, wholesale price inflation was recorded as +14.6% in the year to March, higher than expected. Within that, food inflation was up +8.7%. These are troubling rises for a country like India, but not not a total surprise given the global situation.

The price of rice rose to a two year high, and the price of corn rose to an all-time high overnight. The price of soybean and wheat remain unusually high too. The grip of high food prices isn't going to work out well unless they normalise soon.

In Europe, there appears to be a building consensus in Europe that they can cut dependence on Russian energy supplies much quicker than they imagined even a month ago. But that will come with higher costs.

The IMF and World Bank are meeting and about to update both their economic forecasts, and its financial stability analysis. They are widely expected to downgrade expectations of economic expansion later today from +4.1% to +3.2% for 2022, effectively signaling that the world is entering a stagflation phase.

The UST 10yr yield starts the week on the shoulders of the +14 bps Friday gain and up another +3 bps today to 2.86%. 

The price of gold starts today at US$1978/oz and up +US$4 since this time yesterday.

And oil prices are +US$2.50 higher at just over US$108.50/bbl in the US while the international Brent price is now just over US$113.50/bbl.

The Kiwi dollar will open today a little softer at 67.3 USc. But against the Australian dollar we are unchanged at 91.5 AUc. Against the euro we are marginally softer at 62.4 euro cents. That all means our TWI-5 starts today at 73.5 and a little lower.

The bitcoin price is up +0.8% from this time yesterday at US$40,416. 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 next again tomorrow.