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.

And today we lead with news it is expected that the US will announce reciprocal tariffs today, although the phase-in time might be months. To be revealed. This will be seen as the formal start of a global trade war. New Zealand won't be any focus but it won't be immune. The tariffs will be on goods. But the retaliatory tariffs will likely come on services where the US runs large surpluses. Both will tend to drive countries away from US influence.

Every country is going to learn how to play hard-ball in a zero-sum struggle. None of this will be good for trade, or any sense of cooperation for mutual benefit.

Meanwhile, US initial jobless claims came in at 231,000 last week, almost exactly as expected. There are now just under 2.2 mln people on these benefits, quite similar to this time last year.

The expected easing in the rise in American producer prices didn't happen in January. They were up +3.5% in December and that was expected to ease to a +3.2% January rise. But in the end the pace of cost increases stayed unchanged at +3.5%. Although it is not a key metric, it is more data that will encourage the Fed to hold its settings and put off a rate cut. Tariffs are likely to make matters worse for them.

US household debt pushed on up through US$18 tln at the end of Q4-2024 in new data released today. That is 62% of US GDP, so compared with other countries, not a huge load. In fact it rose only +3.1% from a year ago, basically keeping pace with inflation.

There was a UST 30 year bond auction earlier today and that brought a median yield of 4.68%. That compared with the 4.87% at the equivalent eventa month ago.

Across the Pacific, Japanese producer priceswere expected to rise in January from December's 3.9% to 4.0%. In fact it came in at 4.2% for the year to January in a broad-based trend higher. And apart from the pandemic period, this is a ten year high for them.

It may seem an odd economic 'win' but EU industrial production fell -2.0% in December. This was marginally more than the November -1.8% drop, but very much less than the -3.1% fall expected. It was toughest in Austria, Italy and Hungary, all countries ruled by right-wing populists. So far they are not making their countries great again.

Container freight rates fell -5% last week to be +118% higher than pre-pandemic but -19% lower than the same time a year ago. Outbound freight rates from China brought the largest retreats. Bulk cargo rates remained near all-time low levels, but were unchanged over this past week.

The UST 10yr yield is at 4.54%, back down -9 bps from yesterday at this time.

The price of gold will start today at just under US$2913/oz and up +US$18 from yesterday.

Oil prices are down nearly -US$1.50 at just over US$71.50/bbl in the US and the international Brent price is now just on US$75/bbl.

The Kiwi dollar is now at 56.5 USc and up +20 bps from this time yesterday. Against the Aussie we are unchanged at 89.8 AUc. Against the euro we are down -10 bps at just on 54.2 euro cents. That all means our TWI-5 starts today just on 66.7, essentially unchanged from yesterday at this time.

The bitcoin price starts today at US$95,526 and virtually unchanged from this time yesterday. Volatility over the past 24 hours has been modest at +/- 1.5%.

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

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

Kia ora. I'm David Chaston. And we will 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.

And today we lead with news the instability feared over the new US tariff approach is hitting their economy.

First up today, we need to note that US headline CPI inflation rose in January to 3.0% when no change from the December 2.9% was anticipated. Core inflation was expected to fall to 3.1% from December's 3.2%. But in fact it rose to 3.3%. Rents were a key factor. This has set financial markets on edge.

Although not as aggressive, this official data confirms the University of Michigan consumer sentiment survey that reported a sharp jump in consumer inflation expectations.

US mortgage applications rose slightly, almost all on refinancing demand. So it was driven by churn, rather than new demand. But overall levels remain very low; in the past two-plus years these levels have remained static, and down to levels last seen 25 years ago.

All this unwelcome data had a big effect on benchmark interest rates with the UST 30 year yield jumping +11 bps. Clearly the Fed is right to wait before cutting its policy rate. Markets aren't pricing any rate cut until December now. Wall Street equities turned negative after this news too. The USD firmed on risk aversion. None of this was liked by the US President who vented on social media. But behind it all are building fears about the effect of his very misguided tariff policies which everyone but him sees as sharply inflationary.

While all this was going on, there was a UST 10yr bond auction and that delivered a yield today of 4.56%, lower than the 4.63% at the prior equivalent event a month ago. Investor support isn't wavering but bids here were made before the CPI data release. There will be some large paper losses by these bidders now.

(And we should probably also note that with the new Administration kneecapping the Justice Departments monitoring and enforcement of the area, foreign lobbyists are pouring into Washington DC to plead their cases for special treatment. It's open slather.)

Across the Pacific, Japanese machine tool orders came in at an average level in January, up +4.7% from the same month a year ago, but nothing like the spurt in December.

In China, it won't be news to regular readers, but their property development sector woes are now in crisis territory. The fundamental problem has never been sorted and many companies can no longer hang on. They are going from the zombie phase to actual liquidation now.

India's industrial production is leaking growth and at a faster rate than expected. It was up +4.3% in December, down from +5.0% in November and well below what was anticipated. You can see why their recent Union Budget moved into stimulus mode, and the central bank cut its policy rate. India needs a boost to keep the expansion going.

Meanwhile, India's CPI inflation rate is easing, down to 4.3% in January from 5.2% in December. Food inflation fell sharply, but it is still at 6.0%.

In Australia, December home loan data revealed modest changes. The total number of new loan commitments for dwellings fell -0.4% in the December quarter while the value rose +1.4%. Owner occupier activity was positive, but investors pulled back. The number of new investor loan commitments for dwellings fell -4.5% in the quarter while the value fell -2.9%.

And staying in Australia, we should probably note the recently-retired NAB CEO, kiwi-Ross McEwan, has been appointed chairman of the board of Aussie heavyweight miner BHP. That is a long way up for an ex-ASB banker.

The UST 10yr yield is at 4.63%, up +9 bps from yesterday at this time.

The price of gold will start today at just under US$2894/oz and down -US$10 from yesterday..

Oil prices are down nearly -US$1 at just on US$73/bbl in the US and the international Brent price is now just under US$76/bbl.

The Kiwi dollar is now at 56.3 USc and down -30 bps from this time yesterday. Against the Aussie we are down -10 bps at 89.8 AUc. Against the euro we are also down -40 bps at just on 54.3 euro cents. That all means our TWI-5 starts today just on 66.7, down -10 bps from yesterday at this time, limited because we rose sharply against the yen.

The bitcoin price starts today at US$95,555 and again down -0.9% from this time yesterday. Volatility over the past 24 hours has been modest at +/- 1.3%.

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

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

Kia ora. I'm David Chaston. And we will 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.

And today we lead with news the USD is wavering (down -1.7%) as policy missteps especially on the impact of the trade war hostilities. Benchmark interest rates are rising as risk premiums rise. Estimates for US growth are getting downgraded, while estimates for US inflation are being raised. These latest shifts will have global echoes.

And in a shameless move, the US President has ended enforcement of the Foreign Corrupt Practices Act, saying bribing foreign officials is now a part of US diplomacy. Previous you could go to jail for that, and many people did. The lack of enforcement will probably only apply to Trump's supporters.

The US Fed boss Powell is testifying before Congress, newly hostile because Trumps troops are gunning for lower policy interest rates. He also pushed back on 'being rushed' on rate cuts. At the accusation the Fed is overstaffed, he countered that they aren't, but they are overworked.

Last week's American retail Redbook index rose +5.3% above year-ago levels, a slowing but still a notable rose.

Also at a good level is SME business optimism. But uncertainty is on the rise. This January survey by the NBIB was expected to rise from December, but it fell.

There was another large, but well-supported US Treasury three year bond auction earlier today and that went for a yield of 4.26%. This was slightly below the prior equivalent event a month ago at 4.29%. Fear is being priced in more than uncertainty.

The February USDA WASDE report has been released. It shows the US will likely produce more beef in 2025, and import levels will remain unchanged. But prices are rising they say on rising demand. They also so US milk production is in a declining phase with fewer cows milking. They see prices holding, in USD terms of course.

In Canada, December building permit levels rise sharply and by much more than expected. They were +11% more than in November and a massive +30% higher than in December 2023. Although this metric does tend to jump around a bit, there are some substantial gains here.

In India, their central bank has intervened in currency markets frying to stop the fall and speculative shorting of the rupee. It had ballooned out to almost 88 to the USD and the intervention brought it back to 87. However even that level is a notable devaluation. The RBI probably doesn't have the resources to fight market shorters.

In China, President XI is out visiting the regions, and emphasising the importance of food security. Beijing must be worried if they give it this much repeated exposure.

And yet another large property developer is throwing in the towel, not opposing its winding up.

The social-media-recorded pushback during the Covid lockdowns in China that "we are the final generation" is continuing to echo, and echo loudly there. After rising slightly in 2023, marriages fell sharply in 2024 and to their lowest since China's public records began in 1986. This means the public efforts to stop the sharp fall in births are not working. (And yes, if you try to follow the link to the data, you may well find yourself blocked. But it is the source data for this item.)

In Australia, the Westpac-Melbourne Institute consumer sentiment survey reported no improvement in January from the flat levels that have been around for the two prior months. But the NAB Business Sentiment survey is reporting that their responders are finding a more positive mood.

The UST 10yr yield is at 4.54%, up +5 bps from yesterday at this time.

The price of gold will start today at just under US$2904/oz and up +US$4 from yesterday.

Oil prices are up +50 USc at just on US$73/bbl in the US and the international Brent price is now just under US$77/bbl and back to week-ago levels.

The Kiwi dollar is now at 56.6 USc and up +10 bps from this time yesterday. Against the Aussie we are down -10 bps at 89.9 AUc. Against the euro we are also down -10 bps at just under 54.7 euro cents. That all means our TWI-5 starts today just on 66.8, essentially unchanged from yesterday at this time.

The bitcoin price starts today at US$96,409down -0.9% from this time yesterday. Volatility over the past 24 hours has been modest at +/- 1.2%.

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

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

Kia ora. I'm David Chaston. And we will 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.

And today we lead with news of more signaled tariffs on imports into the US, specifically on metals. A new inflation surge seems inevitable, as does less trade and low growth - in other words we need to prepare for a new bout of stagflation.

But first, American consumer inflation expectations for the year ahead remained at 3% for a third consecutive month in January, according to the NY Fed national survey. This is far more sanguine than the University of Michigan survey we noted yesterday which reported a 4.3% year ahead level. The NY Fed survey noted that households now expect to pull back their spending in the year ahead, however.

The Musk takeover of US spending priorities is leaving many losers, including US farmers. 

In Canada, a survey by their central bank of about 30 significant financial "market participants" at the end of 2024 showed that those polled expect the Canadian 3% current policy interest rate still has another -50 bps of cuts to come, but that it will level out at 2.5% from mid-year for the next long period. This survey also showed an expectation of a +1.8% or +1.9% economic growth rate over the next two years, although the largest risk to that is from policy uncertainty in the US.

And staying in Canada, falling residential values are leaving some very tough positions for buyers who bought off the plan, and now find the contract price now far exceeds what a bank would value their purchase for a mortgage.

In India, the one-two public policy push to "go for growth" with tax cuts and a lower policy interest rate, isn't getting plaudits from financial markets. They have driven the Indian currency to a record low against the USD, although it has come off that in the past few hours. (But of course some of that is due to the overall strength of the USD.)

In the face of new US tariff threats, some targeted metals prices have risen. Essentially they are pricing in the higher prices American buyers will have to pay. Aluminium is at a two year high and running at long term high levels, steel comes in may varieties, but rebar steel hasn't moved much because that has China-focused demand. Other commodity-metals are flat, but specialty metal prices are rising. And copper is back near its all-time highs suddenly at just over US$10,000/tonne (NZ$17,750). These shifts higher will underpin global inflationary impulses that no-one can avoid.

And we should probably note that the new aggressive new US Gaza policies probably mean there will be no end to the risks of using the Suez Canal, extending its inflationary impact.

The UST 10yr yield is at 4.49%, down -1 bp from yesterday at this time.

The price of gold will start today at just under US$2900/oz and up +US$40 from yesterday. This will be a new record closing if it holds this level.

Oil prices are up +US$1.50 at just under US$72.50/bbl in the US and the international Brent price is now at US$76/bbl and back to week-ago levels.

The Kiwi dollar is now at 56.5 USc and down -10 bps from this time yesterday.  Against the Aussie we are down -20 bps at 90 AUc. Against the euro we are unchanged at just under 54.8 euro cents. That all means our TWI-5 starts today just on 66.8, down -10 bps from yesterday at this time.

The bitcoin price starts today at US$97,281 and up +0.7% slip from this time yesterday. Volatility over the past 24 hours has been modest at +/- 1.8%.

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

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

Kia ora. I'm David Chaston. And we will 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.

And today we lead with news it doesn't look like our trading partners are going to be that helpful getting us out of recession.

This week we will be watching for the Selected Prices inflation indications on Friday. And financial markets will be doing their final jostling for the following week's set of monetary policy decisions, first from the RBA on the Tuesday of that week, and the RBNZ the next day. But this coming week the US will release its CPI and PPI reports, and the Fed will face a partisan Congress to explain the Monetary Policy Report they released over this past weekend. India will release updated inflation data, and the EU its Q4 GDP growth result. And this week a set of sentiment surveys will be released in Australia.

Over this weekend there were some major releases from the US.

First, the Fed released its semi-annual Monetary Policy Report. Although it got almost no wider media coverage, it does point to some very interesting stresses they are going to have to work their way through. And they are issues that could have global consequences. While they see banks having 'ample' liquidity at present (previously they saw 'abundant' levels, so a shift), in fact as a proportion of their economy it is historically low. If banks have low liquidity, that puts the Fed in a tough spot if it want to keep shrinking its balance sheet. The Fed's 'normalisation' is an economic tightening process that only works without consequences if the banking system has excess liquidity. When that shrinks, as it seems it is, then overall low liquidity could jerk benchmark interest rates higher. Something will give, and the Fed may have to stop its QT process. Announcing that is a big market signal and this MPR suggests it is close.

Secondly, total US consumer credit surged by almost +US$41 bln in December, far exceeding the forecasted +US$$12 bln. In fact it was the largest increase in the history of this metric. Revolving credit, which includes credit cards and personal lines of credit, jumped by +US$23 bln. Meanwhile, non-revolving credit, which covers car loans and student debt, increased by +US$18 bln. The overall +2.4% year-on-year rise suggests consumers are only modestly taking on more debt however, similar to inflation's rise. 

Third, US January non-farm payrolls growth came in less that expected, up +144,000 when the average of market estimates was +170,000. In 2024 that would have been regarded as a "big miss'.

The data collectors said that wildfires in LA and severe winter weather in other parts of the country, had “no discernible effect” on employment in the month.

Their jobless rate ticked down to 4.0% and average weekly earnings rose +4.2% from a year ago, so overall a mixed picture.

And fourth, the University of Michigan consumer sentiment survey for February fell from January and quite sharply. It's the second straight month of retreat and is now its lowest reading since July 2024. Both the 'conditions' and 'expectations' measures fell. There was also a large slide in buying conditions for durables, in part due to a perception that it may be too late to avoid the negative impact of their tariff policy. In addition, inflation expectations for the year ahead soared to 4.3%, the highest since November 2023, from 3.3%. This is only the fifth time in 14 years we have seen such a large one-month rise in year-ahead inflation expectations. Many consumers appear worried that high inflation will return within the next year.

Not only is this measure of sentiment down in February from January (-4.6%), it is down even more sharply from February a year ago (-12%).

And it is not going to get better. Trump is signaling 'reciprocal tariffs' on many countries, also expected to raise costs for Americans. It will be a major international escalation. No indication here on how that will affect New Zealand that basically doesn't have any tariffs with anyone. (In his alternate reality, he may just invent that we have some, of course.)

An uncertain and fearful American middle class may have a much bigger impact on the global economy than even their new public policy direction. Of course the two are related.

North of the border, Canada turned in a very strong jobs report again, it's second consecutive big gain. +76,000 new jobs were added in January, far higher than the +25,000 expected. Their jobless rate fell to 6.6%. Of course, this too is much more uncertain when looking ahead, for the same US-based reasons.

As the New Zealand dairy industry knows, Canada has an [illegal] trade protection scheme operating for its dairy industry, a system of "supply management". Their industry leaders "don't think it [is] being threatened" in the current stoush with the US.

And while we are reporting about dairy, we should note that American milk consumption rose +3.2% in 2024 while artificial 'plant milk' consumption fell -5.9% in the year. (Source.) That happening at a time when US milk production is steady (+0.7%) will no doubt create some interesting market supply stresses. But these signals may turn that around in the next season. The cost of feed for the mostly barn-housed industry will be the main indicator of how enthusiastic the response will be.

Japan is reporting that household spending jumped in December and by very much more than anticipated. It was up +2.7% in December from November when only a +0.5% rise was anticipated. That large monthly shift now means that the year-on-year rise is +2.3%. If Japanese consumers are opening their wallets, it is both a sign that sentiment is rising, and it will be some counterbalance to the US ructions and the Chinese slowdown. We should not forget that Japan is the world's fourth largest economy, larger than India. It is similarly important for New Zealand exports.

India cut its policy rate by -25 bps to 6.25%, its first cut since April 2020. Their forecasts indicate rising growth and falling inflation. Although that will be what PM Modi wants to hear, they may be 'brave' forecasts. But they are juicing up the stimulus, with this rate cut part of a two-part action to compliment last week's income tax cuts.

In China, their January CPI inflation is meandering close to zero, although it picked up to +0.5% from a year ago in this latest update, and that was because of the +0.7% rise in the month from December. So perhaps they have avoided deflation - in this official data at least. But beef prices were little changed month-on-month but down -13% from a year ago. Lamb priced were up marginally, to be -5.6% lower than a year ago. Their milk prices fell rather sharply in January, taking the annual dip to -1.7%. China's producer prices remained disinflationary, down -2.3% year-on-year.

China said its official reserves rose marginally in January, now at US$3.2 tln. US$769 bln of that is US Treasury debt, and falling (Nov-24). (Those holdings may now be lower than those the UK holds in US Treasuries.)

Global world food prices were little-changed in January and are still running lower than a year ago. There was a small dip in sheepmeat prices, a rise in beef prices, and big rise in dairy prices. In fact dairy prices are now at two year highs, but are still -10% lower than when they peaked in June 2022.

The UST 10yr yield is at 4.50%, up +5 bps from Saturday at this time. 

The price of gold will start today at US$2860/oz and little-changed from Saturday. But this is up +US$50/oz from a week ago. In between, gold hit its record high of US$2883/oz. Also note, China is now allowing its insurers to 'invest in gold'.

Oil prices are little-changed at just on US$71/bbl in the US and the international Brent price is still at US$74.50/bbl. But these levels are -US$1.50 lower than week-ago levels.

The Kiwi dollar is now at 56.6 USc and up +10 bps from this time Saturday.  Against the Aussie we are unchanged at 90.2 AUc. Against the euro we are also unchanged at just under 54.8 euro cents. That all means our TWI-5 starts today just on 66.9, and the same as on Saturday, down -30 bps from a week ago.

The bitcoin price starts today at US$96,463 and a minor -0.3% slip from this time Saturday. And it is -6.8% lower than this time last week. Volatility over the past 24 hours has been low at +/- 0.8%. And we should note that El Salvador has ended its experiment where bitcoin was legal tender. It isn't anymore.

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

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

Kia ora. I'm David Chaston. And we will 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.

And today we lead with news the American rich get insulated from legal scrutiny, while the US economic data loses its shine.

First in the US, their services sector expanded slower in January than expected, according to the widely-watch ISM survey. It is still a good expansion, just with lower new order flows and business activity than they have had over the past five months. And the internationally benchmarked S&P/Markit version essentially told the same story, although that one had a faster retreat.

We get the US labour market report for January on Saturday. The precursor ADP Employment Report showed a rise of +183,000 private jobs in January, better than the +150,000 expected. The good momentum was based on customer-facing payrolls; the business services and production sectors shrank in the month. Tomorrow’s non-farm payrolls are expected to rise by +170,000 in January.

Announced job cuts were modest in January.

We should perhaps note that as part of the revenge purges of US government agencies, the FBI white-collar crime division has been virtually closed down. Not only are ethics out the door, corporate and financial activities that are illegal won't be investigated by them. Even national security cases are on the back burner. It open slather.

But US initial jobless claims rose slightly more than expected with 240,000 more claims added last week. Seasonal factors had suggested this level should have fallen slightly. There are now 2.25 mln people on these benefits, well above the 2.1 mln at this time last year.

US mortgage interest rates were little-changed last week, although now just shy of 7%. And mortgage applications moved little, still bumping along the low levels that have existed for the past five years.

As is usual in the US, vehicle sales fell sharply in January from December, but this year the retreat was it bit more pronounced than last year. Prior to that, sales 'usually' rose. Having noted that, they were up +4.9% from January 2024, although the 2025 level is still -4.9% lower than in January 2020 and just before the pandemic.

Later today, the Reserve Bank of India will release the results of its monetary policy review and is widely expected to cut rates by either -25 bps or -50 bps, maybe to 6%. They have a new governor who is de-emphasising inflation control and re-emphasising growth. He was appointed by PM Modi for that shift. Currently inflation is running at 5.2% and the 4% goal is no longer a priority.

As widely anticipated, the Bank of England cut its policy rate for a third consecutive time, taking it down to 4.50%. No surprises here and this time it was a unanimous decision.

Australia's merchandise trade surplus fell in December and November's surplus was revised lower, both to levels less than markets expected. The December result was the smallest trade surplus since last September, as exports rose less than imports.

The pullback on global trading volumes are showing up in container freight rates. They fell another -3% last week with general softness. They are now below year-ago levels, but still +130% higher than pre-pandemic. Trans-Atlantic rates outbound from the US are very low. Bulk cargo rates remained very low, still at about the level that prevailed more than 50 year ago.

The UST 10yr yield is at 4.44%, up +2 bps from yesterday at this time. 

The price of gold will start today at US$2850/oz and down -US$16 from yesterday and from its record high record high.

Oil prices are down -US$1.50 at just on US$71/bbl in the US and the international Brent price is now US$74.50/bbl.

The Kiwi dollar is now at 56.7 USc and down -20 bps from this time yesterday. Against the Aussie we are down -20 bps at 90.3 AUc. Against the euro we are up +10 bps at just on 54.7 euro cents. That all means our TWI-5 starts today just on 67, and down -10 bps from yesterday.

The bitcoin price starts today at US$96,526 and down -1.4% from this time yesterday. Volatility over the past 24 hours has been modest at +/- 1.5%.

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

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

Kia ora. I'm David Chaston. And we will do this again on Monday.

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.

And today we lead with news it remains unclear what happens next after the chaotic round of US tariffs on their closest trade partners, and then their unexpected suspension.

But first up this morning, we can report a strong dairy auction result, with prices up +3.7% in USD terms and up +4.0% in NZD terms. The key WMP price was up +4.1% in USD terms and is now sitting much higher than the anticipated US$4000 level. There were a couple of key factors at play today. First, despite rising NZ production, the volume of product on offer was down, and along with lower US and Australian milk production, there is a supply squeeze. And secondly, there was strong pre-Ramadan buying although not so much from China as anticipated. Where each component has landed can be checked in our dual-currency charts that also interleave the Pulse results for SMP and WMP as well. There are some new high benchmarks achieved today, especially the WMP price in NZD.

And, yes, the strength of this auction will have analysts reassessing their payout forecasts. But they will probably hold back because of where we are in the season. However, the base is now quite strong.

US job openings fell by -556,000 to 7.6 million in December, to a lot less than anticipated and indicating a definite cooling of the American labour market. Clearly employers were uncertain about how the post-election landscape would play out. And this came well before the aggressive purging of Federal government jobs now underway.

Perhaps worse, new orders for manufactured goods sank -0.9% in December from November, extending the revised -0.8% drop in the previous month, and firmly below market expectations of a lesser decline. It was the sharpest monthly drop since June.

But retail sales were up +5.7% last week from the same week a year ago on a same-store basis and that was an improvement. However you have to wonder whether this rise was motivated by buying ahead of expected price rises flowing from the signaled tariff increases.

Surging inventory levels has seen the US Logistics Manager’s Index jump in January from December to its fastest expansion of the logistics since June 2022. Underlying growth and the uncertainty surrounding trade regulations, particularly the tariffs on Mexico, Canada, and China, drove the defensive inventory moves.

On the trade war front, the US delayed its tariff imposition in both Mexico and Canada by a month, but China set in motion is retaliation, a mixture of its own countervailing tariffs especially on coal, oil and natural gas, plus major 'investigations' of Google, Nvidia and Intel. It also banned exports of some key minerals. But analysts thing there is more symbolism here than hard penalties. They are being saved for later in the game.

In Canada, consumer boycotts may have a bigger effect than official retaliation. Other major economies are also readying their retaliation, including Japan and the EU. If all of them act in unison, the impact of just these five big trading blocs will be substantial for the US (and themselves of course).

China thinks it can win the trade war with the US just by letting the yuan sink. In fact, all currencies vs the USD are falling. That way imports become cheaper for US buyers, and US exports become more expensive (and less attractive) to overseas customers. It is lose-lose for the US. Trump is fighting natural market forces with unnatural tariffs.

Join us at 10:45am this morning when we will report the Q4-2025 unemployment rate. Markets expect it to have risen to 5.1% from the Q3 4.8%. Any variance from that will have implications for the February OCR review due on the 18th of this month.

The UST 10yr yield is at 4.52%, unchanged from yesterday at this time.

The price of gold will start today at US$2840/oz and up +US$23 from yesterday and another new record high.

Oil prices are virtually unchanged again at just on US$72.50/bbl in the US and the international Brent price is now US$76/bbl and a tad firmer.

The Kiwi dollar is now at 56.2 USc and up +20 bps from this time yesterday. Against the Aussie we are down -20 bps at 90.3 AUc. Against the euro we are up +10 bps at just on 54.4 euro cents. That all means our TWI-5 starts today just on 66.9, and up +20 bps from yesterday.

The bitcoin price starts today at US$99,502 and up another minor +0.6% from this time yesterday. Volatility over the past 24 hours has been moderate at +/- 2.2%.

We should finally note that tomorrow (Thursday, February 6, 2025) is a public holiday in New Zealand and there won't be a Breakfast Briefing edition. It will return on Friday.

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

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

Kia ora. I'm David Chaston. And we will do this again on Friday.

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.

And today we lead with news Trump's tariffs are bringing the same level of global uncertainty back as we had from China's pandemic. This time however, officials in charge lack the credibility or the instinct to change policy for the common good, or the courage to withstand the nutters. In fact, the nutters are in charge of this latest mess.

However their tariff policy took a jerk overnight with the US announcing a one month delay to the start of them against goods from Mexico. Meanwhile, Canada released the list of products that they will hit with counter-tariffs for US products. Probably more importantly, there is widespread evidence Canadians are already boycotting US products, tariffs or not. That will have a more immediate impact that official actions.

But the effects have yet to show up in the data, and there was a lot of PMI data out today for surveys that pre-dated the tariff news.

The ISM factory PMI for the US rose to a modest expansion in January from a downwardly revised small contraction in December. This was a better result than expected and is the first expansion in the factory sector by this survey after 26 consecutive months of contraction. New orders increased at a faster pace and that drove the change.

Separately the globally-benchmarked S&P/Markit factory PMI came in with a similar recovery recorded, and slightly better than the ISM one.

In Canada, their factory expansion slowed slightly in January. But it is still at a level higher than either of the US surveys.

Although the internationally-benchmarked China Caixin factory PMI slipped to a no-expansion/no-contraction state in January, the underlying data did feature a rise in new orders. Prices eased and at their fastest pace since July 2023. Looking ahead will be difficult now given the unknowable impacts of the impending tariff war.

The Singapore Manufacturing PMI for January slipped to a marginal expansion but it was the 17th consecutive month of expansion, even if it was the weakest in three months. Slower increases were recorded in new orders, new exports, factory output and employment.

EU inflation in January rose marginally, to 2.5% from 2.4% in December. What is interesting about this is that it is the first where energy prices weren't the restraining factor they were in 2024. But it is the 3.9% rise in services costs that is keeping this elevated.

EU PMIs were contracting for their large economies, expanding in the smaller ones. Overall the contraction was less in January than December.

And the S&P Global Australia Manufacturing PMI was revised higher to 50.2 in January from a flash of 49.8, and compared to 47.8 in December. It's their first expansion in the manufacturing sector in a year, as output returned to growth. New orders fell at a softer rate and employment levels increased, supporting the clearance of backlogged work.

Retail sales in Australia fell by -0.1% in December from November, the first such retreat in nine months, though the drop was milder than the forecasted -0.7% contraction. The result points to weakening consumer spending, fueling expectations that the RBA may start cutting interest rates at their February 18 meeting. Year-on-year, retail sales only rose 3.0%, barely more than inflation's 2.5%.

And staying in Australia, building consent levels were essentially unchanged in December from November to be more than +12% higher than in the same month in 2023. For all of 2024, they were +4.7% higher than in 2023. Despite those gains, the powerful construction lobby is calling for a "$12 billion injection into infrastructure" to have the taxpayer subsidise its activities.

CoreLogic reported that Australian house prices and sales activity were weaker than usual in January. They had a -0.2% price dip in January, the same as December and the fourth consecutive monthly decline. Annual price growth has continued to slow, dropping below +4% now.

The UST 10yr yield is at 4.52%, down -2 bps from yesterday at this time. 

The price of gold will start today at US$2817/oz and up +US$18 from yesterday and back to a record high.

Oil prices are virtually unchanged again at just on US$72.50/bbl in the US and the international Brent price is now US$75.50/bbl and also holding.

The Kiwi dollar is now at 56 USc and down -40 bps from this time yesterday. It fell -60 bps lower during the day but recovered some of that. Against the Aussie we are down -20 bps at 90.5 AUc. Against the euro we are down -10 bps at just under 54.3 euro cents. That all means our TWI-5 starts today just on 66.7, and down -50 bps from yesterday.

The bitcoin price starts today at US$98,885 and up a minor +0.8% from this time yesterday. Volatility over the past 24 hours has been high though at +/- 3.9%.

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

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

Kia ora. I'm David Chaston. And we will 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.

And today we lead with news about the start of a tariff trade war, a reprise of a 1930s effort, also started by the US, and one that ended badly for everyone.

The week ahead was supposed to be basically about jobs, both here and in the US with our HLFS data for December out on Thursday, and the US non-farm payrolls report out for January on Saturday. But Trump's imposition of 25% tariffs on Canada and Mexico, and 10% tariffs on China will no doubt dominate the news with its consequences.

However there will be other economic data news coming, including key Wall Street earnings reports, January PMIs, central bank decisions from India and the UK, and China's financial markets will return to work after their CNY break on Wednesday. Also, Chinese buyers may be back at Wednesday's GDT dairy auction on Wednesday, which will be an important event after last week's sharp run-up in the WMP price at the Pulse event.

And don't forget, this will be an interrupted week with a public holiday in New Zealand on Thursday, Waitangi Day. So Friday is likely to be a day many people also take off to get a four-day weekend. (But not us, of course.)

The big news over the weekend was the US imposing 25% tariffs on its neighbours Canada and Mexico. Worryingly, these mean the US has unilaterally broken its (Trump-imposed) CUSMA (or NAFTA 2.0) trade treaty obligations. And more of an issue for any country contemplating making a treaty with the new US Administration is that the basis for these new tariffs are essentially jingoistic and trumped-up, that pretend anecdotes are "common sense" when they are just raw self-servicing prejudice.

Mexico and Canada hit back immediately. Canada also imposed a 10% tariff on their oil exports to the US. China is going through the WTO dispute process.

An easy way to keep an eye on US inflation is to watch the daily US petrol price. As at today it is US$3.10/gal. We will check back regularly to watch how tariffs impact that. Of course demand will impact that too.

How will this affect New Zealand? Here are some early thoughts.

Earlier the alternate US inflation measure, "the one the Fed watches", their personal consumption expenditures price index, rose +0.3% in December from November, the highest gain in eight months, but it was the rise expected. That means their year-on-year PCE inflation came in at 2.6% and it’s highest in seven months by this measure. The new tariffs are likely to mean higher inflation, something Trump acknowledged in a Fox interview.

There were no surprises in any of the income, consumption, or savings data in the PCE release. This may turn out to be the low point in their inflation cycle.

The January Chicago PMI recovered from the weak December result on the back of better new order inflows and higher production levels. But it remains in deep contraction territory. The outlook responses in this regional survey weren't very bright.

In Canada, apart from the new tariffs from the US, they are wrestling with what the 25 year 'extreme' difference means between their policy interest rate, 3.00% and the US Fed's "4.25% to 4.50%". In market terms that is a 140 bps discount the Canadians carry. It has been thought that +/-100 bps is in the comfort zone for financial markets, so we may start to see reactions and implications. There could be lessons for other economies, although Canada may be facing extra pressures from the tariffs.

Japanese industrial production rose in December from November and that limited the year-on-year decrease to less than expected.

Japanese retail sales rose +3.7% in December from the same month in 2023, up from a +2.8% gain in November, and better than market expectations of a +3.2% rise. This is the 33rd straight month of expansion in retail sales and the fastest growth since June 2024. Rising pay levels are getting the credit for the expansion.

In India, a new Union (national) Budget has cut income taxes (see pages 28 and 29), in the hope it will arrest the cooling of their economic activity by enhancing domestic demand. Those earning about NZ$24,000 pa will pay no tax, and the tax bands above that have been indexed higher. They will still run a deficit of -4.4% of GDP if they can maintain a +6.8% growth rate. They will pay for the tax cuts by restraining their spend on updating their infrastructure. India also cut tariffs.

In Argentina, their central bank cut its policy interest rate by -300 bps to 29% on Friday NZT, as inflation eased again. But annual inflation in Argentina was still at 118% in December, the softest increase since July 2023, down from 166% in November.

EU inflation expectations rose to 2.8% in the ECB's December survey, taking it back to early 2024 levels. In the ECB MPS, they noted there is still more work to do to quash these expectations. Actual EU inflation ended 2024 at 2.7% and it too is rising.

Aussie producer prices rose +3.7% in December from a year ago, but even if that is high, it was their slowest rise since early 2021.

The UST 10yr yield is at 4.54%, up +3 bps from Saturday at this time. 

The price of gold will start today at US$2799/oz and down -US$10 from Saturday and off its all-time high.

Oil prices are virtually unchanged at just on US$72.50/bbl in the US and the international Brent price is now US$75.50/bbl and holding the Saturday retreat.

The Kiwi dollar is now at 56.4 USc and down -40 bps from this time Saturday. Against the Aussie we are down -10 bps at 90.7 AUc. Against the euro we are little-changed at just under 54.4 euro cents. That all means our TWI-5 starts today just on 67.1, and down -10 bps from Saturday.

The bitcoin price starts today at US$98,142 and down a sharp -6.5% from this time Saturday. Apparently isolationism and tariffs are not good for crypto. Volatility over the past 24 hours has been moderate at +/- 2.1%.

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

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

Kia ora. I'm David Chaston. And we will 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.

And today we lead with news of some all-time high benchmarks that are impressive.

The first estimate of Q4-2024 GDP was out earlier today and it came in at a +2.3% growth rate, less than the +3.1% in Q3. It was also lower than most market analysts had anticipated. Consumption came in at the 3% level, the trade deficit had no material impact, but it was the -1.0% fall in investment activity that capped the result. For all of 2024, the US economy grew +2.8%. That all means that the US economy grew by a nominal +US$1.46 tln in 2024. (To put that in perspective, the NZ economy probably shrank to US$238 bln and that total economic activity here for the year represents just 15% of their growth, 1/125th of their total economic activity in one year.) No-one else comes close either. Per capita, nominal US GDP rose +4.1% in 2024. Across all these factors, 2024 was the best year ever for them.

That is the third year in a row that US growth has outstripped China's who is now falling behind in absolute terms. The EU is an also-ran with virtually no expansion. Japan and India are still in the game however.

US initial jobless claims fell back sharply on an actual basis because of seasonal effects, to 227,000, and that was a larger fall than those seasonal trends would have indicated. There are now 2.18 people on these benefits, almost exactly the same level as a year ago. No special labour market stress is showing in this data tracking.

But there was a sharp, and unexpected fall in pending home sales for December, down -5.0% from a year ago and down at a slightly faster rate from November. The still-high home loan rates are getting the blame from the industry, but they would say that wouldn't they?

As expected, the ECB cut its policy rates by -25 bps with the main one now 2.90%. It was its fifth consecutive cut.

The January update of the EU business sentiment survey reveals a pickup in confidence, a rise in inflation expectations, and an improvement - and a rather sharp one - in in their expected jobless rate.

And we should note that the South African Reserve Bank cut it policy rate by -25 bps too, to 7.50%.

Global container freight rates fell -2% last week as the pre-tariff rush faded. But they remain +137% higher that per-pandemic. The US adventure in Panama may now pose a new threat to shipping risks. Bulk cargo rates fell -18% and are now down near all-time lows.

Global passenger demand for air travel reached an all-time record high in December, leaving the pandemic hesitation behind it. Apparently we don't care about the climate implications enough to curb our wanderlust.

The UST 10yr yield is at 4.53%, down -2 bps from yesterday at this time.

The price of gold will start today at US$2788/oz and up +US$7 from yesterday to bump up near its all-time high.

Oil prices are down -50 USc at just under US$73/bbl in the US and the international Brent price is now at US$77/bbl.

The Kiwi dollar is now at 56.5 USc and unchanged from this time yesterday. Against the Aussie we are down -10 bps at 90.7 AUc. Against the euro we are little-changed at just under 54.3 euro cents. That all means our TWI-5 starts today just on 67, and down -10 bps from yesterday.

The bitcoin price starts today at US$105,710 and up +3.6% from this time yesterday. Volatility over the past 24 hours has been moderate at +/- 2.5%.

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

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

Kia ora. I'm David Chaston. And we will do this again on Monday.