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 we are in the shadow of tomorrows US Fed rate decision. There almost certainly will be a rate cut, but the size of it is still in doubt. Place your bets.

Meanwhile, today's dairy auction was a relatively tame affair, largely delivering what the derivatives markets signaled. But AMF and butter slipped, with the rest of the powders and cheese all rising about +3%. But there was more of the weak milkfats in this auction than normal so the overall price rose only +0.8%. In NZD terms it was similar. There will be little to shake farmgate payout forecasts in this event's results.

And staying local, we should note that there is another electricity crunch underway this morning from 7am to 8:30am. Prices are under pressure as you would expect.

Elsewhere in the US, the data released overnight delivered another set of positives. August retail sales grew when a slip was expected. And July retail sales were sharply revised higher. Last week's Redbook index rose +4.7% from the same week a year ago.

US industrial production rose and by more than expected in August. And that means on a year-on-year basis it is no longer negative.

And their NAHB/Wells Fargo Housing Market Index rose in September beating expectations. This breaks a string of four consecutive monthly declines.

There was a well-supported but relatively small UST 20yr bond auction today where the median yield came in at 3.97%, down from 4.10% at the equivalent event a month ago.

In Canada, their CPI inflation rate fell to 2.0% and back to where their central bank needs it to be. It was a slightly larger adjustment lower than expected. The Bank of Canada next reviews rate on October 23 and there is growing talk of a -50 bps reduction then.

Meanwhile Canada housing starts in August came in lower than expected.

Across the Pacific, Singapore's August exports came in softer than was anticipated.

But India's August exports beat estimates, even if the rise seems minor and overall Indian exports are not large by world scales.

Remember, China is on holiday today.

The UST 10yr yield is now at just on 3.64% and up +1 bp from this time yesterday. 

The price of gold will start today at US$2566/oz and down -US$15 from yesterday's high.

Oil prices are up +US$1 at US$71.50/bbl in the US while the international Brent price is now just under US$74/bbl.

The Kiwi dollar starts today at 61.8 USc and down -10 bps from yesterday. Against the Aussie we are down -20 bps at 91.6 AUc. Against the euro we are down -10 bps at 55.6 euro cents. That all means our TWI-5 starts today at 69.4, and down a minor -10 bps from yesterday.

The bitcoin price starts today at US$60,835 and up +4.9% from this time yesterday. Volatility over the past 24 hours has been high at just on +/- 3.3%.

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.

Audio soundtrack opening is licensed from Shutterstock, Track 1219389 Monetization ID TFGEPGEI0LHEIJAI

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 markets are now expecting a -50 bps rate cut from the US Fed later in the week.

But first up in the US, the next regional factory survey came in surprisingly strong. The NY Empire State Manufacturing Index unexpectedly jumped sharply in September to its highest since April 2022. A key driver was new order growth.

Also coming in better than expected was Canada's July manufacturing levels. Oil and coal production drove that. Also probably helping was an unexpected rise in Canadian vehicle sales. But that monthly gain only limited the retreat from a year ago to -1.1%.

As regular readers will know, Canada has had longstanding housing affordability issues. Today it loosened some eligibility rules for first-home buyer access to 'insured mortgages'. But this is a demand side move. So these changes are likely to have the unintended consequence of adding more competitive pressures to already stressed markets.

In China, the typhoon that hit Shanghai yesterday has come at a tricky time for China and its financial capital. Delayed and cancelled transport connections will have undermined their Mid Autumn Festival holiday spending in the region.

In Australia, the ASX200 closed at an all-time high yesterday, fueled by bets the US Fed would cut interest rates by -50 bps on Thursday (NZT).

But the same financial market 'bets' are pushing the USD lower, along with benchmark interest rates. Falling rates are having a global effect, except perhaps in Australia where there is widespread acknowledgement that the RBA hasn't tamed inflation yet. But they may be able to hold on with unchanged policy rates as the gap with others widens over the next few months.

Interestingly, financial markets are also betting heavier that the next RBNZ rate change, on October 9, will also be -50 bps.

The UST 10yr yield is now at just on 3.63% and down -3 bps from this time yesterday. 

The price of gold will start today at US$2581/oz and up +US$3 from yesterday's high.

Oil prices are up +US$2 at US$70.50/bbl in the US while the international Brent price is now just under US$73/bbl.

The Kiwi dollar starts today at 61.9 USc and up +30 bps from yesterday. Against the Aussie we unchanged at 91.8 AUc. Against the euro we are up +10 bps at 55.7 euro cents. That all means our TWI-5 starts today at 69.5, and up +20 bps from yesterday.

The bitcoin price starts today at US$57,987 and down -3.0% from this time yesterday. Volatility over the past 24 hours has been moderate at just on +/- 2.3%.

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.

Audio soundtrack opening is licensed from Shutterstock, Track 1219389 Monetization ID TFGEPGEI0LHEIJAI

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 world's second-largest economy is having trouble convincing anyone it is under control.

This coming week it will be all about the US Fed rate decisions, and the size of the rate cut. We will get that on Thursday NZT. And there will be central bank rate decisions this week from Japan, Norway, China, the UK, and Turkey. Australia will release its labour market updates. And of course, the New Zealand Q2 GDP result will also come Thursday.

But over the weekend it was mostly about China.

China’s industrial production rose by +4.5% in August from a year ago, falling short of market forecasts and slowing from July. This was the softest growth since March, and the fourth straight month of a slowdown. But at least it was confirmed by their electricity production data, up +5.8%. It is rare that electricity use exceeds industrial production expansion, so perhaps that is an encouraging signal for them.

But China's retail sales underperformed, rising just +2.1% from a year ago in August, moderating from +2.7% growth in the prior month and missing market consensus of +2.5%. Lower car sales kept a lid on this sector amid unusual weather events this summer.

New home prices in 70 cities fell faster, down -5.3%in August, after a -4.9% fall in the previous month. It was the 14th straight month of decrease and the steepest pace since May 2015, despite Beijing's extensive measures to reverse a downturn in the property sector, such as trimming mortgage rates and reducing home buying costs.

Every one of those cities recorded a fall in these official stats for used houses. The largest was the -13% fall in Wuhan. When resales lose money it will be very hard to sell new ones.

So it will be no surprise that their August data shows new loan growth remains very subdued in what is extending to be unusual difficult trading conditions. Chinese banks extended +¥900 bln in new yuan loans in August, above a fifteen-year low of ¥260 bln in July, but less than the expected bounce-back. It is also the lowest value for an August month since 2015.

And it won't be a surprise to that August FDI was particularly weak, down more than -48% in the year to August from the same period in 2023.

We have noted the trend before, but the weak Chinese economy is driving a bond rally there. Yields fell to a new record low on Thursday, and state banks have been drafted in to sell some of their long-dated bonds to try and stem the rally. But until more confidence returns to the Chinese economy generally, it unlikely to work. If Beijing institutions don't have the firepower to move this market, it is unlikely the core SOE banks do either.

In a rare statement with the loan growth data release, the central bank indicated that new stimulus is on the way to shore up the economy. Late last week, President Xi exhorted his government to ensure the 5% growth target is reached this year. Xi's intervention came after widespread voices warned that the 5% target was probably out of reach.

Coming at a time that isn't convenient for their economy, China is going into an end-of-summer period of public holidays. First there is the upcoming Mid-Autumn Festival, September 15 to 17, a total of 3 days off - but where Saturday, September 14 has been declared a workday. That will be followed by the seven-day "National Day" holiday from October 1 to 7. But that is being offset by making it full workdays on September 29 (Sunday) and October 12 (Saturday). One consequence of all this time off is that foreign travel is expected to boom. Visa-free policies and lower air fares is seeing the number of Chinese booking holidays abroad surge.

In India, officials there are chaffing over creditor moves in the US to put Byjus into bankruptcy. Indian officials have arbitrarily removed the creditors who petitioned the US court that ruled on bankruptcy, from the creditor processes in India. It might get quite messy.

In Europe, July industrial production (real) was flat from June in the EU, but lower in the wider Euro Area. From a year ago the declines are -2.2% and -1.7% respectively.

In Russia, their central bank increased its policy rate by +100 bps to 19% in a move markets did not expect. They are battling high inflation in a war economy that is distorting faster than their central bank is comfortable with.

And in the US, the University of Michigan consumer sentiment survey increased for a 2nd month in September, to its highest level since May. This was above what was expected. Both current conditions and expectations improved, topping estimates. Meanwhile, inflation expectations for the year-ahead declined to 2.7% but those for the next five years rose marginally to 3.1%.

You will recall that the Bank of Canada cut its policy rate two weeks ago, by -25 bps to 4.25%. But now the talk there is of much bigger cuts at their next meeting on October 24 (NZT). Maybe -50 bps, or more.

And in Australia, the trend well established here is showing up there. Sharply more listings, lower auction clearance rates, and falling prices. Now observers are saying it has turned into a buyer’s market, especially in the eastern States.

The UST 10yr yield is now at just on 3.66% and unchanged from Saturday. 

The price of gold will start today at US$2578/oz and down -US$4 from its Saturday new all-time high.

Oil prices aresofter by -50 USc at US$68.50/bbl in the US while the international Brent price is now just over US$71.50/bbl.

The Kiwi dollar starts today at 61.6 USc and unchanged from Saturday. Against the Aussie we have dipped slightly to 91.8 AUc. Against the euro we are unchanged at 55.6 euro cents. That all means our TWI-5 starts today at 69.3, and unchanged from Saturday.

The bitcoin price starts today at US$59,791 and virtually unchanged from this time Saturday. Volatility over the past 24 hours has been low at just on +/- 0.7%.

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.

Audio soundtrack opening is licensed from Shutterstock, Track 1219389 Monetization ID TFGEPGEI0LHEIJAI

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 it is Friday the 13th, so don't expect too much from the day.

The actual number of American jobless claims last week were +178,000, a one year low, taking the total number of people on these benefits to 1.71 mln, a nine month low. But the seasonally adjusted level reported was +230,000. It is unclear why the variance is so large this week.

Meanwhile, American producer prices rose +1.7% in the year to August, the lowest in six months, easing from a downwardly revised +2.1% gain in July and below market expectations of +1.8%. Their 'core' PPI rose +2.4% however emphasising the role much cheaper energy costs are playing in keeping inflation down.

The September USDA WASDE report confirmed global wheat and rice production will be higher than expected earlier in the year, coarse grains slightly less. They also say American beef imports will rise on rising demand. American milk production is expected to slip on lower local production.

There was another well-supported US Treasury 30 year bond auction overnight delivering a 3.95% median yield. That is down sharply from the 4.22% yield at the prior equivalent event a month ago.

India's inflation rate rose to 3.65% in August from an upwardly revised 3.60% in July (which was the lowest since August 2019). But the August level was above forecasts of 3.55%.. However, these levels are below the RBI's targets, and while food prices are still rising at a +5.7% rate, that is down from year-ago levels of +9.9%. It is this base effect change that is making overall price increases look low.

Meanwhile, India's July industrial production was up +4.8%, about the average level it has been for all of 2024.

In China, markets are expecting some significant cuts for interest rates for home loan borrowers soon. These were signaled earlier, but are now imminent. At the same time Beijing is rounding up investment bankers, taking passports, and investigating them for 'corruption'. Despite all this, their government bond sector is rallying sharply today in defiance of Beijing's efforts to calm matters. Equity prices are falling, also on the uncertainty, and in contrast to what is happening in other global markets.

As expected the ECB cut its policy rates but they varied a lot this time by type of facility. The deposit rate was cut by -25 bps to 3.50%. But the main refinancing operations rate and the marginal lending facility rate were lowered to 3.65% and 3.90%, both from 4.00%, so these cuts are larger. They see a better inflation outlook and "better transmission of policy". They are also facing a weaker level of economic activity in the bloc. Their balance sheet reductions continue at an unchanged pace.

It seems the Australian central bank is right to be sceptical inflation is trending in the way they need it to. Consumer inflation expectations are still at 4.4% in September in Australia, only slightly down from August's 4-month high of 4.5%. Perhaps the situation will turn soon. The same survey showed that respondents expected total pay was expected to grow by just +1.4% over the next 12 months.

World container freight rates fell a rather sharp -13% last week as the shipping industry adjusts to the Suez Canal risks, and the Panama Canal drought impacts fade. Prices were down -13% last week from the week before to be only about double what they were a year ago. This is counted as 'progress'. The biggest falls were for cargoes outbound from China. But bulk freight rates are rising, up +3% over the past week but they are +60% higher than a year ago

The UST 10yr yield is now at just on 3.68% and up +3 bps from yesterday. 

The price of gold will start today up a significant +US$40 from yesterday at US$2554/oz and almost touching its record high of US$2555 on September 12, 2024. In fact, as we publish, it may have bested that ATH level.

Oil prices are up another +US$1.50 at just on US$69/bbl in the US while the international Brent price is now just over US$72/bbl.

The Kiwi dollar starts today at 61.6 USc and +30 bps firmer from this time yesterday. Against the Aussie we are down -10 bps at 91.9 AUc. Against the euro we are +20 bps firmer at 55.8 euro cents. That all means our TWI-5 starts today at 69.5, and +20 bps higher from yesterday.

The bitcoin price starts today at US$58,242 and up almost +1.0% from this time yesterday. Volatility over the past 24 hours has been modest at just under +/- 1.1%.

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 on Monday.

Audio soundtrack opening is licensed from Shutterstock, Track 1219389 Monetization ID TFGEPGEI0LHEIJAI

Kia ora,

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

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

Today we lead with news inflation is easing in the world's largest economy.

First up today, the American August CPI inflation rate slowed for a 5th consecutive month to 2.5%, its lowest since February 2021 and below market expectations of 2.6%. But it was up +0.2% from July, which was as expected. Meanwhile, their core inflation rate steadied at a 3-year low of 3.2% but this core rate was up +0.3% from July. So some mixed signals here. Energy costs were much lower, rents and travel costs a little higher.

There were only modest market movements after this data. Benchmark bond yields firmed slightly, the USD rose, and Wall Street took it in its stride shaking off the pre-release jitters.

None of this will change the Fed meeting discussions a week from today. Today's data probably locks in a -25 bps rate cut rather than the option of a -50 bps cut.

American mortgage application levels were little-changed last week, continuing at a low level. But mortgage rates fell with the benchmark rate falling to under 6.3%. However, that was not enough to entice any significant change in housing market activity.

Lower yields were also on full display in the UST 10yr bond auction. Today's event was strongly supported with a median yield of 3.61%, down from 3.98% at the prior equivalent event a month ago.

Across the Pacific, China's August vehicle sales were soft. They were 2.45 mln units in the month, -5.0% lower than for August 2023. And this was despite a Beijing program to boost this key domestic market. 1.1 mln of the sold units (45%) were EVs or hybrids. In July, sales were -5.4% lower than a year ago. Without the support, you have to wonder what levels they would be at.

Chinese long-term government bond yields hit a fresh low yesterday, underscoring strong investor appetite for these expected capital gains even as the central bank intervenes to tamp down what it considers a bubble. The yield, which moves inversely to price, on the China government 10 year bond fell to 2.106% at one point. That is its lowest level since 2015, the starting point for comparable data. That has Beijing officials scrambling (and threatening traders).

And that is not the only problem they face in their financial sector. Recently Beijing cracked down on banks offering higher than official rates for deposits. That had the perhaps-predictable outcome that depositors - especially corporate depositors - withdrew their deposits from banks and shifting them to places they get better returns. The effect on bank balance sheets was substantial. And there is a new scramble on to shore up this sudden distortion.

In a key update from an RBA official yesterday, they reinforced their guidance that the tight labour market is a key element in their hawkish views on inflation and its likely trajectory. They see it staying tight enough to prevent inflation from falling to where they need to get it. That reinforced last week's comments by Governor Bullock who said that monetary policy will need to remain sufficiently restrictive until inflation actually moves toward the central bank’s 2-3% target range on a sustainable way. Clearly they don't think they are there yet. Rate cuts are a ways off in Australia.

The UST 10yr yield is now at just on 3.67% and up +3 bps from yesterday. 

The price of gold will start today up an insignificant +US$1 from yesterday at US$2514/oz.

Oil prices have recovered +US$1.50 at just under US$67.50/bbl in the US while the international Brent price is now just over US$70.5/bbl.

The Kiwi dollar starts today at 61.3 USc and -20 bps softer from this time yesterday. Against the Aussie we are down -40 bps at 92 AUc. Against the euro we are -20 bps softer at 55.6 euro cents. That all means our TWI-5 starts today at 69.3, and -30 bps lower from yesterday.

The bitcoin price starts today at US$57,692 and up +0.9% from this time yesterday. Volatility over the past 24 hours has been moderate at just under +/- 2.2%.

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.

Audio soundtrack opening is licensed from Shutterstock, Track 1219389 Monetization ID TFGEPGEI0LHEIJAI

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 that while oil producers see sharply lower demand, the world's largest economy shows rising retail demand.

But first, the overnight dairy Pulse auction saw SMP dart higher than expected to US$2800/tonne, its highest level since February 2023. The WMP component however slightly undershot expectations at US$3438/tonne, but holding its level of four weeks ago. It is not a serious weakness in over a series of auction events where the WMP price has been a little volatile.

And staying with commodities, OPEC cut its demand forecast - for the second time in two months. That suddenly dropped the price of crude in all markets by almost -5%.

So it might be a surprise to know that US retail demand at physical stores rose last week by +6.5% than in the same week a year ago, far outpacing inflation, and to it's fastest growth since the end of 2022 when it was recovering from the weak pandemic base. Prior to that anomaly, it is its highest growth rate since 2006 !

Away from the business community and the Masters of the Universe crowd, a comprehensive review of US incomes for 2023 revealed a +4.0% rise in the year, and no-change in their poverty rates, which stand at income levels below US$30,900 (NZ$50,000). Their poverty rate was marginally lower at 11.1%.

The NFIB Business optimism index slipped in August, but only off a very high level in the prior month. Even after this slip it is still near its highest since the end of 2022.

There was another very well supported US Treasury bond tender today, this one for their 3 year Note. It brought a 3.40% yield. That is much lower than the 3.75% yield at the prior equivalent event a month ago.

In China, foreign demand for their exports was strong in August. They increased by +8.7% in August from the same month a year ago, the most since March 2023, and to a 23-month high of US$309 bln. That was more than the expected rise of +6.5% and more than July's growth of +7.0%. It was the fifth straight month of expansion. The Chinese factory sector is being held up by international demand, not domestic demand.

New Zealand and Australian demand for Chinese exports is falling however Ditto the EU, Japan and South Korea. Demand from the US is up but only by +2.8%. The countries with the largest demand increases are Brazil, South East Asia, and interestingly, Taiwan.

In China, they are about to require basic military training for high school and university students, part of a broader push by Beijing to place a greater emphasis on national security in education.

Outside their borders, China will help to train 3,000 foreign law enforcement officials over the next year to tackle global security issues and better protect Chinese interests beyond its borders, the country’s public security minister said.

Australia's Westpac-Melbourne Institute Consumer Sentiment index dipped by +0.5% in September from August, the sixth time of decline in 2024. Consumers are still concerned their economy is heading for a harder landing. They are less fearful of interest rate rises, but more fearful of losing their jobs.

The drop in business sentiment in Australia was a surprise, an outsized slump to a nine-month low and the weakest August since 2021.

Aussie prudential regulator APRA has started the process to have banks cull their hybrid capital issues. They say these won't work as intended in a crisis. They are learning the lessons from the 2023 US and EU bank fizzes. Banks who need more capital will have to raise it directly, as full loss-absorbing shareholder support.

The UST 10yr yield is now at just on 3.64% and down -6 bps from yesterday. 

The price of gold will start today up +US$11 from yesterday at US$2513/oz.

Oil prices are down -US$2.50 at just under US$66/bbl in the US while the international Brent price is now just over US$69/bbl and these levels are a three year low.

The Kiwi dollar starts today at 61.5 USc and marginally softer from this time yesterday. Against the Aussie we are +10 bps firmer at 92.4 AUc. Against the euro we are also +10 bps firmer at 55.8 euro cents. That all means our TWI-5 starts today at 69.6, and little-changed from yesterday.

The bitcoin price starts today at US$57,169 and up +1.3% from this time yesterday. Volatility over the past 24 hours has been modest at just under +/- 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 tomorrow.

Audio soundtrack opening is licensed from Shutterstock, Track 1219389 Monetization ID TFGEPGEI0LHEIJAI

Kia ora,

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

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

Today we lead with news the EU has suddenly realised it is on the wrong track, with an unstainable mix of policies which are leading them into blind social and economic alleys.

But first, US consumer inflation expectations for the year ahead were unchanged at 3% in August, the same as in July and June. The five-year-ahead inflation expectations was also steady at 2.8%. These same consumers said median one-year-ahead expected earnings growth is expected to be +2.9% and up from 2.7% in July, and above its 12-month trailing average of 2.8%. There is nothing here suggesting consumers expect inflation to be a problem, or that it threatens their real earnings.

Also not a problem is the level of wholesale inventories which continue to run at normal levels in July, showing no early signs of business stress.

But perhaps some more current data points to an issue. Total vehicle sales in the US ran at the annual rate of 15.1 mlnn much lower than the 15.8 mln rate in July. That was softer than the expected dip to a 15.4 mln annual rate.

American consumer debt rose by more than +US$25 bln in August, about double what was expected and the biggest rise since the end of 2022. The outsized +6.0% jump was driven by higher 'revolving' debt, like credit cards. It is a change that is sure to raise a few eyebrows.

Across the Pacific, Taiwan said its exports were particularly strong in August at US$43.6 bln. That was more than +16% better than the same month last year and far more than the expected +7.4% rise. Imports rose too, by almost +12% but that was less than expected. Taiwan's economy is certainly starring in the region. And this data reveals another big trend. Taiwan's largest export market is no longer Mainland China. It is the US. The shift has been swift. It also mirrors what is happening in other East Asian nations.

In China, the threat of deflation, a risk high on Beijing's agenda, is not fading as fast as they would like. Their CPI inflation rate edged up to +0.6% in August from a year ago, from +0.5% in June, but less than market forecasts of +0.7%. Still, it was the highest level since February, mainly due to a strong pick-up in food prices, especially fresh food. However, beef prices are down nearly -13% in a year, lamb prices by -6.3%. Milk prices are down -1.7% on that same basis.

Meanwhile, Chinese producer prices fell by -1.8% year-on-year, the most since April, and steeper than the expected -1.4% drop.

And a large investment bank, China Renaissance, has seen its share price collapse after Beijing apparently arrested its chairman on unknown charges. The bank was an important funder of China's digital economy. 

Local economists aren't as positive about China's immediate prospects any more. Beijing is losing the hearts and minds of and important set of influencers.

Halfway around the world, a new EU report said they must be spending about €800 bln per year on investment if they are not to lag the US, China or Japan in productivity projects. Without that they would be “forced to choose” between climate, economic and foreign policy goals. That is about 5% of the bloc's GDP and would require a massive new commitment. Without this extra investment, the reports ays the EU will be unable to finance its social model and will have to "scale back some, if not all, of [its] ambitions".. It is a tipping point moment for Europe as their competitiveness wanes. They need to change direction.

In Australia, all eyes are on the fast-falling iron ore price. In some markets it is now below US$90/tonne which represents a -23% fall in the year, down a massive -38% since the start of 2024.

The UST 10yr yield is now at just on 3.70% and down -2 bps from yesterday. 

The price of gold will start today up +US$5 from yesterday at US$2502/oz.

Oil prices are up +US$1 at just on US$68.50/bbl in the US while the international Brent price is now just under US$72/bbl.

The Kiwi dollar starts today at 61.6 USc and and marginally softer from this time yesterday. Against the Aussie we are -30 bps softer at 92.3 AUc. Against the euro we are unchanged at 55.7 euro cents. That all means our TWI-5 starts today at 69.6, and little-changed from yesterday.

The bitcoin price starts today at US$56,426 and up +3.8% from this time yesterday. Volatility over the past 24 hours has been moderate at just under +/- 2.4%.

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 tomorrow.

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The integrity of bond markets on both sides of the Tasman is at stake as regulators probe issues of potential market manipulation, Australian Financial Review senior reporter Jonathan Shapiro says.

Shapiro is covering the Australian Securities and Investments Commission (ASIC) probe of the ANZ Group's role in a A$14 billion 2023 Australian government bond sale, and taking an interest in the Financial Markets Authority's probe into possible manipulation in New Zealand's wholesale interest rate and government bond markets. 

Speaking in the latest episode of the Of Interest podcastShapiro says the ASIC probe of ANZ boils down to allegations of interest rate rigging, allegations of providing false information to the Australian Office of Financial Management (AOFM), which manages the Australian government's debt portfolio and hired ANZ as risk manager for government bond issues, and workplace culture issues.

"What is alleged is in that role they [ANZ] might have moved the market in their favour and made trading profits. And those trading profits came at the expense of the [Australian] government because ultimately their alleged actions forced up the government bond [borrowing] rate. We calculated about five basis points extra ... and that's for $14 billion of debt over 11 years," Shapiro says.

ANZ Group CEO Shayne Elliott says the bank itself has found no evidence misconduct or market manipulation by ANZ in connection with the bond issues cost the government financially. Elliott also says whilst some information provided to AOFM may have been incorrect, this was a mistake, rather than a deliberate act. Meanwhile, three traders have left the bank and a fourth has been warned.

Shapiro says what's being alleged is very serious and everyone in Australia has an interest in the outcome because the government was ANZ's client.

In New Zealand the Financial Markets Authority (FMA) says it's investigating two complaints about possible market manipulation in NZ's wholesale interest rate and government bond markets.

Shapiro says market integrity is absolutely critical, with pension funds, sovereign wealth funds, central banks and other investors trading government bonds.

"They don't want to be on the other side of of any funny business...it's extremely important that these markets are trustworthy."

Because they're viewed as the risk-free rate of return, government bond rates underpin the whole market, Shapiro notes.

"So regulators should absolutely be looking at any issues in these markets and making sure that they're transparent, that they're clean, and that there's nothing untoward going on. And one would think that participants in that market, especially the big banks of countries like New Zealand and Australia, would have an interest in making sure that, firstly, they're doing everything they can for their client, the government, but also making sure the bond market works as efficiently as it can."

The ANZ Group has been left out of the last three Australian government bond issues, Shapiro says.

In the podcast Shapiro also talks about why he refers to the ASIC probe as the biggest scandal in the ANZ Group's 182-year history, goes into detail on the three key issues at stake and the ANZ Group's responses, what's at stake for the bank potentially financially and reputationally, as well as for Elliott, possible similarities with what's at issue in the FMA investigations and more.

*You can find all episodes of the Of Interest podcast here.

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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 expectations of flatter demand are hurting commodity prices. And that includes some key food prices which are also impacted by healthy supply levels.

But first, this coming week will bring more attention to inflation rates. We will get monthly updates from the US, China, and India. And we will get industrial production data from India. There will also be sentiment data from the US and Australia. The ECB meets again this week and the results will be released Friday morning (NZT). Most see a -25 bps cut coming then, to 4.0%. And locally the focus will be on Wednesday's migration and tourism data.

Over the weekend the data showed the US economy created fewer new jobs in August than expected, adding +142,000 in August, and below market expectations of +160,000. July's increase was revised sharply lower. Most job gains occurred in construction and healthcare while manufacturing employment declined. But their jobless rate edged lower to 4.2% in August from 4.3% in July.

But we do need to note that the +142,000 rise is the seasonally-adjusted number. The actual rise is +263,000 from July which is pretty healthy, it must be said. From a year ago, payrolls are +2.3 mln larger. The economic impact of +2.3 mln more people employed is not insignificant. And that is after the March revision.

Weekly earnings are up +3.5% from a year ago, hourly earnings up a bit more, and that was better than expected.

The US job market is cooling, but not cracking. This fact will give the US Fed more room to maneuver at their meeting on September 19, in ten days time.

Separately, Canada said it added +22,000 jobs in August, a recovery from the small dip in July. Almost all the August increase was for women.

But their local, and widely-watched Ivey PMI fell sharply in August, down to its lowest level since December 2020. However it wasn't matched by the internationally benchmarked S&P/Markit version which reported a stable situation. One of them isn't right.

In China, the end is nigh for struggling developer China Vanke. They reported terrible July metrics, and their liquidity situation worsened notably. Not helping them, China's regional banks are moving faster to quit nonperforming real estate loans. That is leaving the majors holding the bag as the government urges them to lend more to support a weak housing market. It is hard to see how the management of their real estate crisis won't end very badly. China's neighbours are increasingly concerned.

Germany reported a very tough situation for industrial production in July, down -5.3% from the same month a year ago and worse than the June result. But at least exports are limiting the downside. These were up +1.7% from June and that was a gain that was better than expected and one that clawed back its year-on-year dip.

In Australia, home loan activity for owner-occupiers picked up in July, adding +AU$18.9 bln in the month and the most in two years. For investors the rise was +AU$11.7 bln which was an even faster rate of increase and the most since January 2022.

Prices for iron ore, nickel, cobalt, and lithium are all falling, and are all at or near their five-year lows.

World food prices actually dipped in July with declines in cereal and meat prices in the month. (Dairy prices rose.) Overall prices remain their lowest in three years. Good agricultural conditions have persisted for some time now, boosting output. Updated forecasts for global cereal production point to a weather-driven drop in coarse grains offset by expected increases for wheat and rice. So far there is no indication yet that the world can't feed itself, and more than adequately, despite some high-profile pressures.

The UST 10yr yield is now at just on 3.72% and unchanged from Saturday.

The price of gold will start today up +US$4 from Saturday at US$2497/oz.

Oil prices are -50 USc lower at just over US$67.50/bbl in the US while the international Brent price is now at just on US$71/bbl. Both are down -US$6/bbl in a week, or -7.5%.

The Kiwi dollar starts today at 61.7 USc and unchanged from Saturday. That is -¾c lower in a week. Against the Aussie we are +10 bps firmer at 92.6 AUc. Against the euro we are also unchanged at 55.7 euro cents. That all means our TWI-5 starts today at 69.7, unchanged from Saturday, but down -75 bps in a week.

The bitcoin price starts today at US$54,341 and up +1.5% from this time Saturday. Volatility over the past 24 hours has been low at just under +/- 1.0%.

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

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 tomorrow.

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Grocery Commissioner Pierre van Heerden wants a third supermarket competitor to set up shop in New Zealand in order to tackle the country’s supermarket duopoly, but reducing the barriers to entry won’t happen overnight.

“What we've been told by these players is when they come and they want to open up a large store in New Zealand, the cost to get a spade in the ground is double that of Australia,” he says in a new episode of the Of Interest podcast. 

“Now that is significant. And when they look at 'do we open up a store in Wagga Wagga or Tamworth or wherever in Australia' versus coming to open up in Auckland where there is massive demand or any of the other centres, really, the cost is double that of Australia. And the timeframe often is more than double as well. So when they do their business cases, they look at that and say, 'well, we're going to be better off by going elsewhere rather than here.' Now the government is saying that they're going to change things to make New Zealand more competitive for international players. And that's really what we're looking at.”

The Commerce Commission released its first annual grocery report on Wednesday which revealed ComCom’s efforts to boost grocery competition over the past year hasn’t had much impact. 

The report found between 2019 and 2023, price-cost margins on non-fresh products across the New World, Pak’nSave, and Woolworths brands increased by 3.1 percentage points on average, while fresh food margins rose a lesser 0.4% on average.

The Commission defines price-cost margins as a measure of the difference between the price a firm receives for the sale of an item and the direct supply costs incurred.

Broken down, the price-cost margins for non-fresh products in that period rose the most at Foodstuffs North Island’s New World stores which reported a 3.9 percentage point increase in that period.

In second and third, Woolworths NZ’s Countdown stores, now renamed back to Woolworths, reported a 3.6 percentage point increase, and Foodstuffs South Island reported a 2.9% percentage point increase during 2019 and 2023.

The consumer watchdog said the report provided “clear evidence for stronger action” in NZ’s $25 billion grocery sector.

Speaking on the Of Interest podcast, van Heerden says the Commission wants to make sure the barriers to entry are reduced enough to make NZ’s supermarket sector more competitive. 

Barriers to entry for potential new supermarket hopefuls also include things outside the Commission's control like planning regulations including zoning requirements within the local council’s District Plan, and the resource consent process in some cases. 

The Overseas Investment Act 2005 can also create additional costs, delays and uncertainty in relation to site acquisition by overseas entities looking to enter or expand in the New Zealand grocery industry, van Heerden says.

Asked if a giant entity would be needed to enter NZ’s supermarket sector – which is currently controlled by Woolworths NZ and Foodstuffs – as a third entrant or if a smaller grocery player could work as well, van Heerden says it can be a combination.

“We would like to see someone who can come in and has the scale to do it nationally, because that's the way they're going to get the best prices from suppliers. You know, they can get good trade spend or discounts in their stores as well. Because when I look at Auckland as an example, in Auckland, the concentration or the market share of the major supermarkets has come down by 4% from 74 to, I think it's 70%. What has caused that – Costco coming into the market. A lot of the Asian supermarkets are growing and we've just seen Foodies open and they sold out from what I've seen, you know, four weeks' stock in three days,” he says.

“So consumers are anxious and they want to get better deals and they will support these players. But I want to see that same level of competition out in the smaller areas. And if a big player comes in and as in Australia, a hard discounter where they really give very good prices, I think that will shake up the industry and it will ensure that the big players are more competitive.”

Van Heerden says the supermarkets have “said all the right things” when contributing to the Commission’s work on the grocery sector

“If you look at the comments that both the major supermarkets have brought out since the report came out, they all say they work, they work with us, they support the objectives. But I want those words to change into actions. I want to actually see it happening. I look at, for instance, the refund policies and the pricing issues. We've raised that now with them since I started. And quite honestly, the response has been, 'yes, we're getting it done,' but the actual actions have been slow. So I'd like to see them ramping up those actions and letting their actions be the same as what they're telling us, that they're happy to work with us to get things done,” he says.

The Commerce Commission's grocery report can be found here.

*You can find all episodes of the Of Interest podcast here. 

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