Economy Watch

The process of growth will be the main benefit from a scaled up Kiwibank, while public acclaim will be a key measure of open banking's success, Commerce Commission Chairman John Small says.

Small spoke to interest.co.nz for the latest episode of the Of Interest podcast, which will be published later on Wednesday. The interview came after the Commission released the final report from its market study into personal banking services. The Government says it'll act on all 14 recommendations from the report.

Speaking in a previous Of Interest podcast episode, after the Commission's interim report was issued in March, Small said the most important of that report's 16 recommendations was; "The Reserve Bank should review its prudential capital settings to ensure they are competitively neutral and smaller players are better able to compete."

So why is that recommendation gone from the final report?

"We still feel that there's aspects of the regulatory regime that could be improved to promote competition. We've just, I suppose, got a bit more refined about how we're suggesting that that happens. And we've keyed in, particularly to a number of programmes of work that the Reserve Bank already has underway. So we've made a fairly broad overall suggestion about how the bank thinks about competition, which is essentially that we would like them to put a bit more focus on barriers to entry and expansion, so that it's more easily able for small players to get into the market, particularly the kind of players that we expect to be able to disrupt this industry who don't look like the traditional banks," Small says.

"Another one that applies more to the traditional banks is to think about the way that risk weights are calculated for reasonably standardised loans and make that more granular...so there's less averaging involved. It's a better, it's a more accurate, representation of risk and it gives them the ability to price loans differently depending on just how risky they are."

A helping hand for community housing

The Commission's also calling for the Reserve Bank to reduce the risk rating of lending to housing co-operatives and community housing providers to lower, and more accurate, levels. This is currently treated as commercial lending rather than housing lending.

Risk weightings are used to link the minimum amount of capital banks must hold, with the risk profile of the bank's lending activities.

"The work around mortgage advisors is also more nuanced, I should say, [is] probably the way to put it. We found out quite a bit about the mortgage advisor sector after the draft report and we had some of them around at our consultation conference... We [also] took some soundings in Australia about how their mortgage advisor sector works," Small says.

'The process of growth'

On the recommendation to scale up Kiwibank by getting it access to more capital, Small says the main competitive benefit "is about the process of growth rather than what happens once they're big."

"So we want them to be taking chunks of market share out of the big four on their way up, and for that to provoke a competitive reaction from the larger banks."

"What will really matter will be them [ANZ, ASB, BNZ and Westpac] perceiving a real threat of losing share, because that is what will stimulate them to fight back," Small says.

'Interesting stuff' from Westpac NZ's CEO

The Commission also calls for the acceleration and co-ordination of progress on open banking. In the podcast Small talks about lessons from the United Kingdom and hearing "some real interesting stuff" from Westpac NZ CEO Catherine McGrath. Prior to taking the Westpac job McGrath worked for Barclays and was involved in a Competition and Markets Authority open banking committee in the UK.

"We're just copying what we can, ruthlessly copying what we can," Small says. "So, you know, I absolutely grant you that in terms of overall open banking as distinct from payments, it hasn't been a roaring success in either of those places [Australia or the UK]. I think we can learn from both of them and do it a lot better."

Better bank switching desired

The Commission also says the bank switching service, operated through the bank-owned Payments NZ, needs investment and improvement.

"We were a bit surprised, to be honest, when we visited the headquarters of the big banks and asked them about this service and asked them in particular, 'if I was to come in off the street as a customer of someone else's bank and was interested in converting to you, would you recommend that I use this service?' And generally speaking no, they wouldn't."

"And they don't ask their staff to recommend that. So that tells me that it's obviously not being promoted. I think it could be improved, the actual functionality could be improved, it needs to be more visible and known and also they need to report on its usage, its success rates, what people think about it, and just that sort of basic transparency hygiene system would be very helpful indeed," says Small.

In terms of how open banking's success could be measured, Small suggests public acclaim is one way.

"I think if ordinary people on the street see it as being useful and working for them, then that's a great indicator...I would like to see it taking market share off the banks. Definitely. I'd like to see more variety of services out there and definitely like to see government agencies using it, because I think that's an important driver of success."

A message for consumers

And what's Small's message for bank customers?

"My message is you really should shop around. I don't like to just put everything back onto the consumers, but consumers can get better deals than I was aware of before I started this market study. For example, mortgages. You can usually drive a better bargain than you see on the headline [interest rate]. So shop around and be a savvy consumer."

"Also stand by and keep your eyes open for the innovation that we think is going to come. Some of this, by the way, is going to require change by consumers. There are a bunch of people out there, quite a large number of people in New Zealand, that are using somewhat dangerous banking technology that involves handing over their login details to a third party provider. We think that's something that has to be phased out. It's just dangerous. It's putting people at risk. So we think that what's coming up is going to be faster, safer, cheaper. Yeah. It won't happen tomorrow, but it will be here within 18 months or two years, I think."

What about splitting up the big banks?

Speaking earlier Wednesday Small said the Commission had considered recommending splitting big banks up.

"We did think about that, but we came to the view that the structure can be changed, the market structure can be changed through the two main levers that we're suggesting. One is a growing Kiwibank, and the main point about growing Kiwibank is that it will destabilise the big four as it grows. And then secondly, with open banking coming in, behind these are new business models that are not the same as the existing [ones]. And I think our view is that that's more disruptive and more enduring disruption, and more competitive innovation."

The Commission's final report is here.

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

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Kia ora,

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

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

Today we lead with news the northern summer is delivering positive economic vibes.

But first up today, the expected rise in dairy prices at today's full dairy auction actually came in slightly better than expected. In USD prices were up +5.5% with the key WMP price rising +7.2% and SMP up +4.0%. Volumes sold were elevated. But in NZD the gains were not as strong, up +2.3% as the Kiwi dollar has been strengthening lately.. Today's result could keep that going. China and other north Asian buyers were prominent bidders, making this the biggest rise since March 2021. But having said that, overall prices are still only back to June 2024 levels so really it is only a short-term recovery.

In the US, retail sales at physical stores were up +4.9% last week from the same week a year ago, reinforcing the rise in retail confidence.

In Canada, CPI inflation fell to 2.5% and a three year low. Actually there is no surprise here because that was what their central bank predicted for H2-2024 when they trimmed rates at the end of last month.

Taiwanese export orders rose a very healthy +4.8% in July from a year ago, up from a +3.1% increase in the previous month and exceeding market forecasts of a +2.6% rise. The increase was driven by continued strong demand for AI chips but elsewhere demand was also quite broad. There has been a good turnaround in 2024 because a year ago these export orders were retreating.

China held its Loan Prime Rates unchanged in August, as expected, after the cuts in July. The 1-year loan prime rate (LPR) is still at 3.45% while the 5-year rate was retained at 3.85%. Both rates are at record lows following unexpected rate moves down in July.

And China has approved a record increase to their nuclear power plant expansion, signing off on eleven new facilities to be built. Each one costs NZ$4.5 bln. This adds to the 55 nuclear power plants already active, not including the ten approved in 2023 and not yet commissioned. They see this as a central element of their drive for "clean and stable energy sources".

Turkey held its official interest rate at 50% in their overnight review. You may recall a year ago they had been battling ~70% inflation using an odd Erdogan-inspired approach. But that clearly wasn't working so a more conventional policy was adopted raising their policy rate from 6.5%. It is now bringing results with inflation easing from 75% in May to 62% in July in a notable drop.

German producer prices are still deflating, although 'only' at -0.8% from a year ago, half the July rate of decline. Lower energy costs are the key driver here so actually they will like this result.

Sweden cut its official interest rate by -25 bps to 3.50%, and signaled two or three more similar cuts this year are likely should inflation develop in line with the central bank’s outlook. It was the second rate cut of the cycle, easing further from the 4% interest rate first reached in September 2023.

The RBA released the minutes of its August 6 meeting (what takes them so long?) and those warned of upside risks to inflation and therefore monetary policy. The risk of inflation not returning to target within a reasonable timeframe had increased, those minutes showed. The situation came amid the slow pace of disinflation, signs that the gap between aggregate demand and supply was larger than previously anticipated, and the upward revision to the forecast for final demand. Markets didn't react immediately to the 'warning'.

The UST 10yr yield is now at just on 3.83% and down -4 bps from this time yesterday. 

The price of gold will start today up +US$9 from yesterday at US$2511/oz.

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

The Kiwi dollar starts today up almost another +½c from yesterday at 61.4 USc. Against the Aussie we are up +½c too at 91.2 AUc. Against the euro we are up +20 bps at 55.3 euro cents. That all means our TWI-5 starts today at 69.3 and up +30 bps from yesterday.

The bitcoin price starts today at US$58,833 and down -0.7% from this time yesterday. Volatility over the past 24 hours has been moderate at just over +/- 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.

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Kia ora,

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

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

Today we lead with news that US dollar has fallen to a seven-month low as American disinflation extends in their economy and that is raising expectations of rate cuts in each of the Fed's remaining three reviews this year.

US equity markets are rising on the same expectation, with the S&P500 moving back to again challenge its mid-July all-time high. They seem to be voting with their money that the US Fed has in fact engineered a soft-landing, or better, and that the trajectory from here is 'up' on the back of an aggressive easing cycle from the Fed.

However, the US Conference Board's leading indicators slipped a bit more than expected in July, but they also said the six-month trend no longer indicates a recession ahead.

Meanwhile, the Atlanta Fed's GDP Now tracker still sees good +2% growth in Q3-2024 for the US economy, better than the 'blue chip' analysts that they benchmark against.

Japan said core machinery orders, which exclude those for ships and electric power companies, rose by +2.1% in June from May, better than expected. It was on the back of an upturn in orders for the service sector. In JPY, these orders were up +2.6% from the same month a year ago.

Later today, China will release its latest review of its Loan Price Rates but no changes are expected. These rates are already at all-time lows.

The lackluster Chinese economy has sharp consequences for Australia. Australia shipped AU$138 bln of iron ore in the year to June. A Canberra report projected that to fall to AU$114 bln in the next 12 months and AU$102 bln in the following as prices continue to fall. That could leave a AU$3 bln hole from royalties in the Australian Federal results. The wider Australian economy will have downside risks from this too.

The UST 10yr yield is now at just on 3.87% and down -1 bps from this time yesterday. 

The price of gold will start today down -US$6 from yesterday at US$2502/oz.

Oil prices are down -US$2 at just on US$73.50/bbl in the US while the international Brent price is now just on US$77.50/bbl.

The Kiwi dollar starts today up +½c from yesterday at 61 USc. Against the Aussie we are a tad softer at 90.7 AUc. Against the euro we are up +20 bps at 55.1 euro cents. That all means our TWI-5 starts today at 69 and up +20 bps from yesterday.

The bitcoin price starts today at US$59,252 and down -0.5% from this time yesterday. Volatility over the past 24 hours has been modest at just on +/- 1.7%.

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

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.

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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 we are now in the final two weeks of the northern holiday season, and that is anchored by the central bank shindig at Jackson Hole, WY starting at the end of the week.

This week, China will review its Loan Price Rates later tomorrow. No change is expected. Canada will report July CPI inflation. And there is a dairy auction on Wednesday. So it will be a light data calendar.

But first up today, more evidence that foreign direct investment has stalled into China. We marveled at the stall in both May and June and it has extended into July although it was now a positive ¥40.6 bln (NZ$9.3 bln) in the month. The net inflows are still very small for a country the size of China. In July 2023 the inflow was ¥140 bln so in July 2024 it is down -70% from then. China has been masking the stall by only referring to the 'year-to-date' results rather than the monthly outcome. But even that approach will catch up with them soon. Now YTD 2024 is down -50% on YTD 2023. That is massive.

And it is not just FDI. Beijing stops reporting equity flows starting today, a key sentiment indicator to track their NZ$14 tln equity market. The data to Friday showed the year-to-date flows turning negative. So the rush seems to be on to get out. From here on, we just won't know how fast it develops. Concerned about the negativity, China told fund houses to stop displaying real-time mutual fund products’ net value. The last time it was available it wasn't good. But if it does turn positive, Beijing will be the first to tell us.

And the Middle Kingdom has had its weather/climate challenges this year too, more so than other large countries. The impact of floods, while common in China in summer, has grown more pronounced this year, affecting over 7 million people nationwide in July, when Beijing was struck by the worst rains in 140 years, after the capital's hottest June on record. The dramatic swings between extreme heat and intense rainfall have stressed China’s power grids and shut factories, while risking the country’s water security and causing widespread crop damage. Nationally, direct economic losses from natural disasters surged in July to almost NZ$10 bln in that one month, more than in January to June combined. There will be food security consequences.

Meanwhile, Taiwan reported its Q2-2024 GDP expansion at +5.1%. But that was down from +6.6% on Q1-2024 even if it was up from +1.4% in the same quarter a year ago. Beijing is probably looking on in jealousy.

In Japan, profits topped analyst forecasts for 70% of surveyed Japanese companies in the April-June quarter, led by the vehicle and artificial intelligence fields. Many are benefiting from the tailwind of the weak yen.

In India, 19 or their 38 states are running 3%-to-GDP deficits or more in their bids to shine economically. That is raising the national public debt sharply. Delhi is concerned and tightening up what is permissible. And the central government is having to restrain itself to cover aggressive state deficit spending. The catchup of their infrastructure deficit is essentially driving the pressure.

In the US the University of Michigan consumer sentiment survey index rose more than expected with its first increase in five months. The expectations index improved (the highest in four months) while both the year-ahead and the five-year inflation expectations were unchanged at 2.9% and 3%, respectively.

But that rising sentiment doesn't include their housing market. Housing starts fell sharply in July to their lowest level since July 2019 (pandemic excepted). Residential building consents also fell and back to 2022 levels. The US economy is expanding at pace without the support of their housing markets.

But it is very much better north of the border where Canada reported a surge in housing starts, up +10% in July from the same month a year ago.

And tensions are rising in Canada over the railway/union bargaining that is going down to the wire. If there aren't strikes, they will likely be lockouts.

The EU said its trade surplus is rising. But that is because imports are falling faster (-8.6%) than their exports (-6.3%).

The UST 10yr yield is now at just on 3.88% and down -1 bps from Saturday and down -5 bps from a week ago. 

The price of gold will start today up +US$1 from Saturday at US$2508/oz and a new all-time record high. A week ago this price was US$2427 so a +3.3% rise since then.

Oil prices are unchanged at just on US$75.50/bbl in the US while the international Brent price is now just on US$79/bbl and unchanged in a week.

The Kiwi dollar starts today unchanged from Saturday, still at 60.5 USc. A week ago (pre the OCR cut) it was at 60 USc so a +½c gain from then. Against the Aussie we are still at 90.8 AUc. Against the euro we are still at 54.9 euro cents. That all means our TWI-5 starts today at 68.8 and unchanged from Saturday.

The bitcoin price starts today at US$59,568 and up a mere +0.2% from this time Saturday. However it is down -1.2% from this time last week. Volatility over the past 24 hours has been low at just under +/- 0.9%.

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.

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Deputy Governor Christian Hawkesby says the Reserve Bank's (RBNZ) Monetary Policy Committee might have taken a different stance in May if the economic activity forecasts had been more accurate.

In May, forecasts had anticipated 1% GDP growth for the calendar year. But by August, that had been revised to a 0.4% contraction, with a deep decline in the June quarter.

The RBNZ chose to cut the Official Cash Rate from 5.50% to 5.25% last Wednesday partly in response to these lower economic activity forecasts.

Another key factor was that businesses have been adjusting their wage and price-setting behaviour more quickly than anticipated in response to the low inflation environment.

Speaking in the latest episode of interest.co.nz's Of Interest podcast, Hawkesby said the committee would not have adopted such a hawkish stance if these data points had been available during the May meeting.

“The uncertainty was around the speed and intensity that [tight policy] would be felt in the economy … Since then we've had a whole heap of evidence on the downside playing out”. 

Uncertain

He said the OCR projection, published in that Monetary Policy Statement, was “flat with a slight upward bias” but with “big uncertainties” that were outlined in the record of meeting.

Weaker than forecast GDP was not cited as a risk in the May meeting record, and uncertainty about price-setting behaviour was described as an upside risk. The committee agreed that interest rates need to “remain at a restrictive level for a sustained period.”

The chapter on economic projections included a disclaimer that said there was “significant uncertainty” about the assumptions used in the baseline forecasts. But the possibility of easing rates in the near future was not mentioned in the 60-page document.

This shift led some economists to describe the August decision as a 'U-turn.' However, there was consensus that it was the correct move, given the clear signs of a weakening economy.

Stay off the track

Hawkesby also said there had been a “misconception” that the central bank was going to keep the OCR at 5.50% until it saw inflation below 3%. 

“You need to work on the basis that monetary policy is going to work. You don’t have to wait until the number is within the band, you just have to have confidence it will settle there.” 

However, the May monetary policy statement projected the OCR would remain above 5.50% until September 2025, by which time inflation would have been below 3% for a full year.

This was true in the February 2024 and November 2023 monetary policy statements as well. 

Hawkesby said the OCR track that published in each statement often gets overanalyzed, without enough recognition that it is based on a set of assumptions.

“There's something quite peculiar that happens when someone sees a line on a chart, or they see a number in a table, it has this sense of being real and factual,” he said.

“My advice to people would be to focus more on the record of the meeting than the OCR projection."

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Kia ora,

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

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

Today we lead with news the gloomsters are going to have to wait even longer for a US slowdown and 'recession'. Markets are reducing the chance of a Fed rate cut in mid-September.

First up in the US, initial jobless claims came in less than last week, a surprise because an increase was expected. But to be fair the actual shift wasn't large.

But markets took more notice of the surprisingly strong +1% rise in retail sales in July, far more than expected. Americans are still spending big - on cars, appliances and furniture - in a surprise burst of activity that’s propelling their economy and helping shake off fears of an impending downturn. This was the largest jump in more than two years. Car sales were particularly strong. But there were gains across the board at restaurants and bars, as well in groceries, electronics, furniture and health goods. Year on year, American retail sales were up +4.0%, delivering real, inflation-adjusted gains.

Helping was that business inventory growth was minimal, so their inventory-to-sales ratio stayed quite healthy.

But spoiling the party somewhat was a small drop in industrial production in July and one that was more than expected from June but only easing -0.2% from a year ago.

However, the New York State factory survey improved more than expected, although the Philly Fed's similar survey turned lower. Both are positive about the future however.

In Canada, despite central bank rate cuts there, home sales fell in July. A looming rail strike there may not help future sales.

In Japan, they released their Q2-2024 GDP result late yesterday and it expanded a very strong +3.1%, way more than the +2.1% expected, and far better than the -2.3% fall in Q1-2024.

In India, their July passenger vehicle sales fell almost -2% in July from the same month a year ago. This was not expected, but to be fair these are settling into a higher level than has been seen in over the past 20 years, just not as high as you might expect given their booming economy. But two-wheeler growth was a very strong +12.5%.

In China, the data out yesterday reinforced their tough economic conditions are extending there. Retail sales were up just +2.7% from a year ago, industrial production rose less than expected at +5.1% but electricity production (a better metric?) rose only +2.5%, and prices for new houses dropped -4.9% and the most since 2015. For second-hand houses, who knows? No cities reported year-on-year gains, the first time that has happened.

In Australia, their July labour force rose with now 14.47 mln employed (+58,000). Their participation rate rose again (to 67.1%), and their jobless rate ticked up to 4.2%, or by +23,900 to 637,000. Full-time adult average weekly total earnings were up +4.6% to AU$1994 (NZ$2200).

And staying in Australia, consumer inflation expectations are high and not easing. They rose to 4.5% in August from 4.3% in July, the highest level since April and similar to what they were in April 2023. The RBA will be unhappy about the stickiness.

And we should probably note that UBS said it will sell-off the US$2 bln real estate fund it acquired when it bought Credit Suisse. It joins many other professional investors selling out of troubled commercial property markets, especially office buildings.

Global container freight rates eased ever-so-slightly again last week but they are still +280% higher than year-ago levels. The core pressures are unchanged. Bulk cargo rates are little-changed this week, but are still more than +50% higher than year-ago levels.

And we should probably note that iron ore prices have slipped below US$100/tonne now in a move down that started at the end of 2023, now back to levels first seen a decade ago. The 2021 peaks are long gone and the general trend will stay negative until China recovers. Even India can't arrest this slip.

The UST 10yr yield is now at just on 3.93% and up +10 bps from yesterday in reaction to the strong US retail sales data. 

The price of gold will start today up +US$13 from yesterday at US$2454/oz.

Oil prices are +50 USc firmer at just under US$77.50/bbl in the US while the international Brent price is up +US$1, now just on US$80.50/bbl.

The Kiwi dollar starts today little-changed from this time yesterday, still just on 60 USc. A week ago (pre the OCR cut) it was at exactly the same level. Against the Aussie we are down -30 bps from yesterday at 90.6 AUc. Against the euro we are up +10 bps at 54.6 euro cents. That all means our TWI-5 starts today at 68.5 and unchanged.

The bitcoin price starts today at US$59,326 and up a mere +0.3% from this time yesterday. Volatility over the past 24 hours has been modest at just on +/- 1.8%.

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

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.

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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 data in both the US and UK keeps rate cuts in play.

The widely-anticipated July American inflation rate came in largely as expected, dipping slightly to 2.9% from 3% in June. That is its lowest level since March 2021. The "core" rate dipped to 3.2%. Rents were up +5.1% in the year but petrol was down -2.2%. Financial markets saw little to worry about in this data and seem to feel comfortable that it won't deter the Fed from the rate cuts in the rest of 2024 they have priced in.

More falls may be due in August; American petrol prices are now down more than -10% from a year ago in a respected national survey.

Meanwhile US mortgage applications leaped more than +16% last week from the prior week, the biggest one-week rise since an outlier in early 2003, and before that, pre-pandemic. Triggering this was a sharp pullback in mortgage costs from the prior week as the rate on benchmark contracts fell nearly -30 bps since the start of the month, now 6.54%, and tracking the sharp decline in yields of long-dated Treasury notes and bonds due to the increasingly dovish expectations for the Fed.

There seems little reason for the US Fed to delay the market rate cuts priced in by financial markets, although those markets do seem to be doing that for them. They next meet on September 19 (NZT).

I know we have pointed this out before, but there are still two weeks to go in the US summer holiday season, one that end with their Labor Day on September 3 (NZT). It is after that that financial markets 'normalise'. In the meantime, central bankers will be getting ready for their annual retreat to Jackson Hole, WY, August 23-25 (NZT), which has become a bit of an economic obsession.

It is not only the holiday season in the US, it is also a national holiday in India today, their Independence Day.

In China, their leaders are at their summer retreat at the seaside resort enclave at Beidaihe.

But in Japan, Prime Minister Fumio Kishida has resigned after nearly three years in the role.

In Europe, there was CPI inflation data out for England. That remained low at 2.2% in July, but up from 2% in both May and June. They got higher rents (+8.6%) and their core inflation is running at 3.3% and kept down by lower petrol costs.

And we should note that both steel rebar and soybean prices are still moving sharply lower, both in response to tough conditions in China. They are not the only falls, but are the commodities leading the retreat.

Locally, the CBA profit result release heralds the start of the local earnings season reporting, one that is sure to colour where both the ASX and NZX goes from here.

The UST 10yr yield is now at just on 3.83% and down -3 bps from yesterday. 

The price of gold will start today down -US$24 from yesterday at US$2441/oz.

Oil prices are -US$1.50 softer at just over US$76/bbl in the US while the international Brent price is now just on US$79.50/bbl.

The Kiwi dollar starts today down -¾c from this time yesterday at just on 60 USc following the OCR cut. But to be fair it is only back to where it was last week. Against the Aussie we are down -70 bps from yesterday at 90.9 AUc. Against the euro we are down -80 bps at 54.5 euro cents. That all means our TWI-5 starts today at 68.5 and down -70 bps.

The bitcoin price starts today at US$59,138 and down -3.7% 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 again tomorrow.

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Kia ora,

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

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

Today we lead with news the downturn in China is something that could quickly spread regionally.

But first up today, the rise in retail sales at physical stores in the US was +4.7% last week, off the pace of the prior week's +5.1% gain, but still a healthy economic sign, and still well above inflation's level.

Speaking in inflation, American producer prices rose less than expected in July from June to be +2.2% higher than year-ago levels. These muted increases raised bets of a softer CPI result tomorrow, backing expectations of a Fed rate cut next month. Equity markets responded like this.

And the NFIB Small Business Optimism Index in the US jumped in July from June to its highest since February of 2022. It is recovering fast from quite low levels earlier in 2024, and is now +2% higher than year-ago levels.

Japanese machine tool orders rose +8.4% year-on-year in July 2024, slowing from a +9.7% growth in the previous month. This was built on the almost +18% jump in orders from export customers.

In China, their official media is talking up a story that says Beijing should provide additional direct support to consumers worth at least ¥1 tln (NZ$230 bln) either in cash or as vouchers for the rest of 2024 to "effectively address the pressing challenge of lackluster domestic demand".

And overnight China released its July new yuan loan data and it was especially weak. Bank customers are wary of borrowing in their stunted market, despite top-down pressure on banks to push out loans. Chinese banks extended just ¥260 bln (NZ$60 bln) in new yuan loans in July, the least since October of 2009. For a country the size of China, that is an amazingly low level.

We don't often report on South Africa, but today we probably should note that their unemployment rate rose to 33.5% in Q2-2024, the highest in two years, up from 32.9% in the prior period. That was a surprise deterioration because analysts had expected it to ease to 32.3%. The number of workers jobless rose by +158,000, reaching 8.4 mln, marking the highest figure since comparable records began in 2008. They are in a tough spot.

In Europe there was a sharp and unexpected fall in overall economic sentiment in August according to the widely-watched ZEW survey. But that is off a recent surge, taking it back to 2021 levels.

In Australia, the Westpac-Melbourne Institute Consumer Sentiment index rose by +2.8% from the prior month to a six-month high of 85.0 in August, although this is still quite a low level. Views on family finances bounced back from last month but remain weak. But there were some clearer signs of support from tax cuts and fiscal measures. Consumers seem less worried about further interest rate increases than last month, and Australians are still untroubled by jobs outlook. However, home-buyer sentiment sank to new lows as price expectations cooled noticeably.

Australian business sentiment is still positive even if it did ease in July and June's positive reading was revised down a bit.

The UST 10yr yield is now at just on 3.86% and down -5 bps from yesterday. 

The price of gold will start today down a minor -US$3 from yesterday at US$2465/oz.

Oil prices are -US$1 softer at just under US$77.50/bbl in the US while the international Brent price is now just on US$80.50/bbl. This pullback comes after the IEA warned of a looming crude oil surplus.

The Kiwi dollar starts today up +½c from this time yesterday at just on 60.7 USc. Against the Aussie we are up +20 bps from yesterday at 91.6 AUc. Against the euro we are up +20 bps at 55.3 euro cents. That all means our TWI-5 starts today at 69.2 and up +30 bps.

The bitcoin price starts today at US$61,392 and up +3.5% from this time yesterday. Volatility over the past 24 hours has been moderate at just under +/- 2.6%.

Join us at 2pm today for our coverage of the RBNZ's Monetary Policy Statement and the latest on the Official Cash Rate.

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 that is second tier today ahead of a string of key data releases. But there are many interesting bits today all the same.

First in the US, a national NY Fed survey of consumer expectations in July showed medium term inflation expectations are falling. The three-year-ahead inflation expectations fell by 0.6 percentage point to 2.3%, hitting a new series low since the survey’s inception in June 2013. Median one- and five-year-ahead inflation expectations were unchanged at 3.0% and 2.8% respectively. The labour market expectations were essentially unchanged too with consumers not expecting any significant rise in unemployment.

USDA's August WASDE revealed that they will have record output and yields for both soybean and corn this season although wheat production there will be down marginally. But they expect world wheat production to be up. Climate stress is not reflected in this global assessment of food production, yet anyway, even if global rice production is seen easing, but only by -0.1%. Lower Vietnam production is the reason.

US beef production will be lower they say, made up by imports. US milk production is easing off slightly but they still expect to be active in butter and cheese exports and they think those will rise.

In Canada, building consents were expected to rise more than +5% in June from May after a sharpish -12.7% fall in May from April. But that did not happen. In fact the June fall was down almost -17% from a year ago. It is rather a grim set of data for this sector.

In China, and although never far from the surface of Beijing concerns, demographic forces have moved them to act on the long awaited raising of their retirement age. The average life expectancy is now 78 years, but local males can claim their 'pension' at 60. For women it depends on their job, but it is as low as 55 years for them. Fast-shifting demographics mean the working aged population is down to 68% and falling. Ten years ago to was near 75%. (NZ is 59% currently.) Details are awaited but they may implement a +3 or +4 month-per-year rise in their retirement age, which would be quite a fast change.

And although they are not reported locally, it appears strikes and labour unrest is on the rise in China. Raising the retirement age when there are growing labour stresses isn't going to help sentiment.

Indian consumer inflation fell rather sharply in July and by a bit more than expected. It came in at 3.5%, down from 5.1% in June. (A year ago it was running at 11.5%.) This latest level is now below their central bank's mid-point in its target range of 4%, the first time it has undershot in almost five years. The reason for the fall is essentially because of food prices, and the reason foods prices fell to 5.5% from 9.4% in June is essentially because of year-ago base effects. So this easing of inflation will probably not last.

Meanwhile, the Indian industrial production expansion eased off rather sharply in the June data released overnight. It was up 4.2% from a year ago, sharply lower than May's +5.9% rise. +4.2% is still exceptional but clearly the rapid expansion is reverting to a more sustainable pace. Pharma product growth actually shrank.

The UST 10yr yield is now at just on 3.91% and down -3 bps from yesterday. 

The price of gold will start today up +US$38 from yesterday at US$2468/oz which is closing in on its record high.

Oil prices are +US$2 firmer at just over US$78/bbl in the US while the international Brent price is now just on US$81.50/bbl. We should keep an eye on the Straits of Hormuz. Iran seems to have seized a Malaysian ship travelling through there in what could a portend flashpoint.

The Kiwi dollar starts today up +20 bps from this time yesterday at just on 60.2 USc. Against the Aussie we are also up +20 bps from yesterday at 91.4 AUc. Against the euro we are up +10 bps at 55.1 euro cents. That all means our TWI-5 starts today at 68.9 and up +20 bps.

The bitcoin price starts today at US$59,340 and down -1.6% from this time yesterday. Volatility over the past 24 hours has been moderate at just over +/- 2.5%.

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

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