Economy Watch

Kia ora,

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

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

Today we lead with news China is struggling to revive consumer interest in spending and consumption.

But first, this coming week the key focus will be on the RBNZ Monetary Policy Review on Wednesday. A feature of the past month has been the volatility in the financial market pricing of this upcoming rate decision. Financial markets have had little conviction, shifting their pricing from 'zero change' to -50 bps cut. Currently they are guessing a -25 bps cut. But it is only a guess. We must remember, the new Government stripped jobs their mandate, leaving only inflation as they goal. And as we all know, inflation isn't beat yet. What we will all be looking for is whether the RBNZ committee thinks it is beaten on a semi-permanent basis. Two sleeps to know.

Also this week we will get the US July inflation results, both CPI and PPI. Analysts expect a 2.9% CPI and a 2.6% PPI there. Retail sales data along with industrial production data will also be released for the world's largest economy.

China will report new yuan loans for July later today, expected to be weakish, along with retail sales, house prices, and labour market data. In Australia, we will get the NAB business confidence report and a Westpac consumer sentiment survey, both probably tomorrow. And that will be followed later in the week by their July labour market data, expected to show only modest gains.

In China, their consumer inflation picked up from an ultra-low +0.2% in June to +0.5% in July. But food prices are still showing some deflationary effects. Although overall those food prices are up a tiny +0.2% year-on-year, that is only because of a +20% rise in pork prices (from very low levels a year ago). Beef prices are down almost -13% in the year, lamb prices down more than -6%. Milk prices are down -1.9% on the same basis. If you take out the base effect from some key items like pork, the deflationary threat in China is still very much alive.

And still in China, producer prices are still deflating, down -0.8% in July from the same month a year ago. That is the same fall recorded in June.

And Chinese July vehicle sales fell to just under 2.5 mln units or -2.4% lower than in June but +4.1% higher than the same month a year ago. China is the world's largest vehicle market. But those sales figures include exports. Domestic sales fared far worse, falling -10.1% on the year to just under 1.8 million units for a steeper drop than the -7.4% decline recorded in June. Wider than cars, others are reporting that consumer demand is weak in their categories too. The pall of 'value losses' from their housing 'investments' is weighing heavily on consumer sentiment there. It must be bad because their official consumer sentiment survey hasn't been updated since May, after it recorded a big drop from April.

In the US we should note that the US Fed is not shrinking its balance sheet as fast as it planned, with only a tiny -US$49 bln reduction in the past month. That takes it back to the level it first rose to at the outset of the pandemic four years ago. From its peak in April 2022, it is down -US$1.8 tln or -20% however. Progress now is slowing however.

In Canada, their labour market is marking time. Employment fell by -2,800 in July to 20.5 mln, a surprise because analysts expected a +22,500 rise. Still, the number of unemployed fell by -8,600. They also had a -0.3 percentage-point drop in their labour force participation rate, and that takes it to a two-year low of 65%, the lowest since 1998 if you exclude the pandemic.

In Russia, they are suffering the opposite through fast-rising inflation. In July it rose to 9.1% from 8.6% in June. Everything is rising faster there, especially food prices.

The UST 10yr yield is now at just on 3.94% and unchanged from Saturday. 

The price of gold will start today up +US$4 from yesterday at US$2431/oz.

Oil prices are marginally firmer at just under US$76/bbl in the US while the international Brent price is now just on US$79.50/bbl.

The Kiwi dollar starts today little-changed from this time Saturday at just on 60 USc. Against the Aussie we are down -10 bps from yesterday at 91.2 AUc. Against the euro we are up +10 bps at 55 euro cents. That all means our TWI-5 starts today at 68.7 and up +10 bps.

The bitcoin price starts today at US$60,318 and up a minor +0.2% from where we left it Saturday. Volatility over the past 24 hours has been low at just under +/- 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.

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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 Monday's equity dump is now a fading memory.

First up, the latest signals from the US labour market are that there is no rising stress. Initial jobless claims came in less than expected at 203,000 and there are now 1.9 mln people on these benefits. Both are lower than last week and -10% lower than the same week a year ago.

This was data financial markets noticed today. Along with confirmation that mortgage interest rates are falling.

It is the summer driving season in the US, so petrol prices are important there too. And they are lowish, for them, down almost -10% from year-ago levels. In some places they are under US$3/gal (NZ$1.32/L) at the pump.

US wholesale inventories were up marginally (+0.1%) in June from a year ago. However the steady rises recently have ticked up the inventory-to-sales ratio recently, although it is still lower than year-ago levels.

And there was a well-supported UST 30yr bond auction earlier today and that delivered a median yield of 4.23%, lower than the 4.33% yield at the equivalent event a month ago.

In India and as expected, their central bank's monetary policy review brought no change to their 6.5% policy rate. It has been held at that level since February 2023.

Taiwanese exports held steady at about +US$40 bln in July. But that was 'only' +3.1% higher than the same month a year ago. However it comes on top of a steady expansion since November 2023.

Later today, China will release its July CPI inflation data and it is expected to remain very low (+0.3% year-on-year). Their PPI is again expected to report deflation.

Global shipping freight rates for containerised cargoes slipped marginally again last week, down -3% from the prior week. But they remain three times higher than year-ago levels. Bulk cargo freight rates were unchanged from the prior week, up +50% from the same week a year ago (although that year-ago level was a bit of a low point).

We have noted low steel prices recently. But we should also note than both wheat and soybean prices are also low, now down near five year lows. If there is food stress it is not because the cost of basics are high.

The UST 10yr yield is now at just on 4.00% and up another +3 bps from yesterday. 

The price of gold will start today virtually up +UAS$31 from yesterday at US$2423/oz.

Oil prices are +US$1 USc firmer at just over US$75.50/bbl in the US while the international Brent price is just on US$79/bbl.

The Kiwi dollar starts today little-changed from this time yesterday at just over 60 USc. Against the Aussie we are back down almost -¾c at 91.1 AUc. Against the euro we are up +10 bps at 55 euro cents. That all means our TWI-5 starts today at 68.7 and down -20 bps.

The bitcoin price starts today at US$59,562 and up +6.5% from where we left it yesterday. Volatility over the past 24 hours has been very high at +/- 4.8%.

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 of a day of mostly restrained gains in economic metrics.

First in the US, mortgage applications rose nearly +7% last week from the week before, driven by a sharpish -27 bps retreat in mortgage interest rates. Despite the gain, they are still -11% lower than the same week a year ago, itself quite weak.

American consumer debt only rose a very modest +US$8.9 bln in June from May, less than the +US$10 bln expected and the +$11 bln gain the prior month. These levels are up just +1.8% in a year. Clearly, Americans are not being profligate in taking on new consumer debt.

The latest US Treasury bond auction was again well supported, this one their 10 year. It delivered bidders a median yield of 3.89%, sharply lower than the 4.22% at the prior equivalent event a month ago.

Across the Pacific, China released its July trade data late yesterday. Their exports were up less than expected, a three month growth low. An export-led recovery doesn't seem to be happening. Their imports rose more than expected and their strongest rise since April. That meant their trade surplus shrank in July.

The Chinese dairy industry is going through a tough time at present with a number of listed companies in the sector delivering operating losses and warning of tepid demand.

China's FX reserves rose to US$3.26 tln, an eight year high even if the monthly gain was relatively minor. But it is still somewhat short of their all-time US$3.98 tln high reached in May 2014.

In Europe, German industrial production rose by +1.4% in June from May, better than expected on strong new order growth and making back about half the prior month's retreat. However both metrics remain deeply negative on a year-on-year basis.

Australia released its five Living Cost Indexes for Q2-2024 today, supplemental to their CPI. For 'pensioners & beneficiaries' they were up +4.1% for the year. For 'aged pensioners' up +3.7%. For 'self-funded retirees, up +3.6%. For other benefit recipients, up +4.6%. For 'employees', living costs were up +6.4%. The overall CPI was up 3.8% in the same period.

The UST 10yr yield is now at just on 3.97% and up another +9 bps from yesterday. 

The price of gold will start today virtually unchanged from yesterday at US$2392/oz.

Oil prices are +US$1.50 USc firmer at just on US$74.50/bbl in the US while the international Brent price is just over US$78/bbl.

The Kiwi dollar starts today up almost +½c from this time yesterday at just on 60.1 USc. Against the Aussie we are up almost +¾c at 91.8 AUc. Against the euro we are up +40 bps at 54.9 euro cents. That all means our TWI-5 starts today at 68.9 and up +70 bps.

The bitcoin price starts today at US$55,912 and down -1.4% from where we left it yesterday. Volatility over the past 24 hours has been moderate, at +/- 2.0%.

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 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 global equity markets have essentially bounced back, consigning the Monday ructions to just a 'summer wobble'.

But first up, there was another full dairy auction earlier today. It was a much larger event with more than 35,000 tonnes sold. Overall prices rose +0.5% from the prior full event three weeks ago. More than a quarter of the volumes were for SMP which fell -2.7%. More than a half were for WMP which rose +2.4%. The rest of the products offered brought variable results too. Although the result was little-changed in USD, the much lower NZD brought a +1.9% rise in local currency.

Globally, world food prices are low and little-changed. If any category is changing, it is a slight uptick in meat prices.

In the US, the data released overnight was largely positive, assisting the financial market recoveries. The US Redbook index of retail sales at physical stores was up +5.1% last week from a year ago, rising from the prior week.

Their Logistics Managers Index (LMI) rose more than expected showing their logistics industry expanding more than expected in July and at a good clip.

The RCM/TIPP Economic Optimism Index for investors rose in August to its highest in seven months.

And US exports for both goods and services rose more in June than imports, allowing their trade deficit to ease back slightly. Those exports are now +5.9% higher than year-ago levels. As we have noted before, this deficit is just a rounding error for the giant US economy, even if it is a political football.

While none of these overnight data releases on their own are terrible important, the combination supported the sharp mood change. The earlier suggestion of imminent recession in the US may only have been from summer keyboard warriors.

Canadian exports also rose notably in June to be +10.6% higher than a year ago.

I know we have mentioned this before, along with the reasons, but the Chinese steel rebar price is turning into a bit of a rout, with extended sharp dives. It is now down almost -23% lower than year-ago levels. The copper price is wavering too.

In fact, aggressive price discounting in many Chinese sectors has become the norm there casting a pall over general business conditions. It probably can't go on like that without widespread enterprise failures.

Elsewhere EU retail sales volumes fell in June after the small rise in May. Most countries in the bloc struggled, but Spain, Portugal and Denmark were among the few that bucked the trend.

Yesterday the RBA left its policy rate unchanged at 4.35%. But its accompanying commentary was direct and specific; they haven't beaten inflation yet and the progress they may have made isn't sufficient. It was a hawkish hold. Markets bid up yields on benchmark bonds following the statement. The AUD rose. (And that pushed the NZD down.) It seems there will be no rate cuts in Australia in 2024. What will now be of interest is whether financial markets take the RBA guidance on board in its pricing.

Later this morning StatsNZ will release the June labour market report. Our unemployment rate is expected to come in at 4.7%, a rise from 4.3% in Q1. That would be an increase of +10,000 more people without jobs in the quarter. But it could be more than that. The rise of those on JobSeeker benefits was +8,450 in the same period but not everyone who is jobless claims for those benefits. But a notable rise above a 4.7% rate would probably be influential in the next week's RBNZ considerations (even if there is no longer a jobs mandate).

The UST 10yr yield is now at just on 3.88% and up +11 bps from yesterday. 

The price of gold will start today down -US$12 from yesterday at US$2391/oz.

Oil prices are +50 USc firmer at just under US$73/bbl in the US while the international Brent price is just over US$76.50/bbl.

The Kiwi dollar starts today up +¼c from this time yesterday at just on 59.6 USc. Against the Aussie we are down -20 bps at 91.1 AUc. Against the euro we are up +30 bps at 54.5 euro cents. That all means our TWI-5 starts today at 68.2 and up +20 bps.

The bitcoin price starts today at US$56,690 and up +3.9% from where we left it yesterday continuing the recent volatility. In fact, the volatility over the past 24 hours has been very high, at +/- 4.2%.

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.

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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 equity markets are under severe pressure today, in 'extreme fear' mode. And that is despite the current economic activity signals being relatively sanguine.

First in the US, the widely watched ISM service sector PMI bounced back to expansion in July with a better reading than was expected. The new order component expanded. The companion S&P/Markit services PMI told a similar story featuring rising output.

The US Fed's Loan Officers Survey for July noted that while credit standards were little-changed for consumers, demand was weaker especially for real estate loans. For businesses, banks tightened credit standards overall but demand for loans was holding positive and little-changed. This survey is not picking up any special sign of credit stress, for either borrowers or banks.

The Caixin services PMI suggests the Chinese service sector picked up the pace of its tepid expansion, coming in better than expected and better than the official measure.

In Japan it was the same. Japan's service economy returned to growth during July, following the slight dip recorded in June. Gains in both total activity and new business were solid amid improved customer numbers and demand conditions

In India, business confidence rose in their services sector and it maintained its rapid expansion. But inflation pressures from this high demand are now showing through and a warning flag that they may not be able to keep up the pace.

And in other big economies, like Brazil, their service sectors are also expanding at a positive clip. There are others like this, but you get the picture.

But in Australia, their services sector is easing back, no longer expanding. New order levels fell. And of course it will be a sharp contraction in New Zealand when we get the July services PMIs.

Later this afternoon the RBA will release the results of its monetary policy meeting today. A rate hike, talked about until recently, seems to be off the table now. A cut also seems unlikely as well. In fact markets aren't actually pricing in a rate cut there until November. That is in contrast to New Zealand where a full -25 bps cut is priced in for next week's RBNZ MPS - and another three cuts by the end of this year. That is a sharp repricing by markets in just one day.

The UST 10yr yield is now at just on 3.77% and down -2 bps from yesterday. 

Wall Street has started its week with the S&P500 down -3.2%. Overnight European markets were down about -1.8%, bookended by London's -2.0% drop and Paris' -1.4% fall. Yesterday Tokyo fell and amazing -12.4%. Hong Kong was down -1.5%, Shanghai down the same but Singapore fell -4.1%. The ASX200 fell its own very sharp -3.7% and its worst day since the pandemic, but the NZX50 got away relatively lightly with 'only' a -1.5% retreat in Monday trade.

We do need to remember it is 'silly season' in most markets with relatively light summer trading. Changes get magnified when volumes are light and many people are 'at the beach'. However, the sharp rise in fear has drawn in unusually heavy trading volumes now.

The price of gold will start today down -US$39 from yesterday at US$2404/oz.

Oil prices are -US$1 lower at just over US$72.50/bbl in the US while the international Brent price is just under US$76.50/bbl.

The Kiwi dollar starts today down -10 bps from this time yesterday at just on 59.3 USc. Against the Aussie we are down -20 bps at 91.3 AUc. Against the euro we are down -80 bps at 54.2 euro cents. That all means our TWI-5 starts today at 68 and down -60 bps. A sharply rising Yen had influence on this too.

The bitcoin price starts today at US$54,584 and down another extreme -6.2% from where we left it yesterday. That is a -US$3,600 drop in a day. Volatility over the past 24 hours has been ultra-extreme, at +/- 10.4%.

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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The balance of power in the labour market sits firmly with employers, with a big rise in job applicants over the past year chasing a significantly diminished number of jobs, says Frog Recruitment Managing Director Shannon Barlow.

"For our recruitment agency, we're probably experiencing around three to four times the volume of applications compared with last year. And that's across the board, across different industries and job types," Barlow says in the latest episode of interest.co.nz's Of Interest podcast.

"At the extremes, it can be even more than that. So for some business support [roles], other industries like supply chain or operational roles where we were happy to get, say, 30 applications, we'd be celebrating last year. Now those can reach up to nearly 300 applications and that's within a week. So you have to pull the ad so that you've got the time to get through all those applications."

"I'd say with the higher volumes of applications as well, I think the biggest factor isn't actually about there being more people looking for work...the big factor is there are less jobs available. So there's less than half the number of job postings in the market today compared with 2022," says Barlow.

Her comments come ahead of the June quarter labour market data from Statistics NZ, due out of Wednesday, August 7 and expected to show an increase in unemployment.

Barlow previously appeared on the Of Interest podcast in August 2022 at a time when the border had just fully reopened following its closure due to Covid-19, and the balance of power in the labour market was firmly in favour of job seekers, or workers.

Since then there has been a massive surge of inward migration, which hit a record high for a calendar year of 126,000 in 2023, according to Statistics NZ. Despite this Barlow says it hasn't solved skill shortages.

"The problem is that quantity doesn't always equal quality. There've been problems with the new accredited employer programme and the new government is still working through changes to those immigration settings. So we haven't got it quite right yet. So although we've refilled the talent pool, we haven't necessarily attracted the right people to be able to cover our areas of skill shortages;" says Barlow.

"Plus we might have had record migration, but we've also had record numbers of Kiwis leaving New Zealand this year."

Statistics NZ's latest figures show a net loss of 2,000 people due to migration during May.

In the podcast audio Barlow also talks about the regions were job seekers are really feeling the pinch, and regions where job listings are actually increasing, how and why some workers are having to take pay cuts, how the labour market has got harder for graduate or entry level roles, what the biggest challenge is for employers now, lingering effects of Covid-19 including attitudes and expectations for working from home, whether she thinks the jobs market has bottomed out yet, 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 investors globally are having a re-think about the valuation rises that have gotten embedded since the pandemic. Warren Buffett is now cashed up.

But before that, although it will be a relatively quiet week for international economic data releases, it is a big week at home. The important Q2-2024 labour market report gets released on Wednesday and there will be more real estate market data early in the week. Plus there is a full dairy auction on Wednesday morning.

There will be living cost data released in Australia. And before that we will get the RBA's rate review decision late tomorrow. And inflation expectations survey results will be released this week across the ditch. China will update its CPI and PPI. Plus there will be slew of services PMIs out everywhere too. Wall Street will start to wrap up its Q2 earnings season reports with some big later reports. By the way, Warren Buffet's Berkshire Hathaway reported its Q2-2024 position late last week - and it has about US$270 bln/NZ$450 bln in cash (or cash equivalents) on hand. See page 3 here. That is actually more than the NZ$409 bln NZ GDP over the past year.

But basically it is the Northern Hemisphere holiday season, so financial market activity will be relatively light for the rest of the month. (In fact, it is a public holiday in Canada today.) This tends to accentuate any changes more than they would otherwise be.

In China, their central bank said it will be pushing commercial banks to "do more" for the "real economy". It wants to shift the financial sector’s focus to "benefiting people’s livelihoods and boosting consumption" over the coming months. This change in emphasis follows pressure from the CCP Third Plenum meeting chaired by President Xi earlier in the week. The practical impact? Perhaps more debt issued for projects that have immediate effects but little long-term gains.

There are calls for monetary authorities to allow higher inflation as some sort of spur to 'growth'. Meanwhile, commodity prices keep on sinking as the overall stall extends. None of this is coming at a good time for China and they take their summer break. That tends to be when the leaders 'relax' at their seaside compound. If they don't return with better plans and actions, there will be some grumpy countrymen.

One initiative underway is to boost its urban living. In 2012, a bit over half of China's population lived in cities. In 2023 that had risen to two-thirds. Their new goal is to get it to 70% by 2029 thereby generating a surge in new economic activity. But there will be issues from this drive, not the least of which is food security.

Meanwhile, flooding pressures are not easing. And that too has implications for food security and agricultural output, especially for gains.

Singapore's widely-watched local PMI was modestly positive in July, but far less positive than the internationally-benchmarked version.

The US economy added only +114,000 jobs in July, well below a downwardly revised +179,000 in June and forecasts of 175,000. It is also the lowest level in three months, below the average monthly gain of 215,000 over the prior 12 months, signaling that their labour market is in fact cooling off. But most of the weakness was in the tech sector with almost all other sectors holding their own.

Pressure on wages is easing too, with weekly earnings up only +3.3%, again driven by their tech sector.

Their jobless rate rose marginally to 4.3%, up from 4.1% in June. (s.a.) There are now 162.0 mln people employed, a record high, in a 169.7 mln labour force. (not s.a.)

This weakish American report actually had little impact on global markets because they were mostly sharply lower before this release and there was no added change after. You can claim it was 'priced in' and perhaps it was. But there is a broader re-ranking going on with a settling back in risk appetites. We shouldn't be surprised - markets never go up forever. The US Q2 earnings season reporting has been strong, but it is the less-than-stellar outlooks that are influencing investors.

Meanwhile, US factory orders, which were expected to show a dip in June, did just that but the dip was larger at -3.3% than the -2.9% correction anticipated. The June fall comes after four consecutive rises however.

But American new vehicle sales rose more than expected in July to an annual rate of 15.8 mln, a good bounce back from the 15.2 mln vehicle sales rate in June.

We should also note that the UN-based International Seabed Authority has just elected a Brazilian scientist to lead it, it first scientists Secretary-General. This is expected to sharply slow seabed-mining activity everywhere.

The UST 10yr yield is now at just on 3.79% and unchanged from Saturday. 

The price of gold will start today up +US$9 from Saturday at US$2443/oz.

Oil prices are holding lower at just over US$73.50/bbl in the US while the international Brent price is just under US$77.50/bbl. A week ago these price were US$76.50 and US$80 respectively.

The Kiwi dollar starts today down -20 bps from Saturday at just on 59.4 USc. Against the Aussie we are holding at 91.5 AUc. Against the euro we are up +40 bps at 55 euro cents. That all means our TWI-5 starts today at 68.6 and up +20 bps. A rising Yen had influence on this too.

The bitcoin price starts today at US$58,163 and down an extreme -7.8% from where we left it on Saturday. That is a -US$9,330 drop in a week or an eye-watering -13.8%. Volatility over the past 24 hours has been moderate however, 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 tomorrow.

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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 global bond market is rallying (prices up, yields down) with traders now pricing in three US Fed rate cuts before the end of the year. There is a sudden risk-off mood appearing today.

We should remind ourselves that the Northern Hemisphere is well into its summer vacation season. Markets are relatively thin, and this is when changes can get amplified. "Silly season" news is usual fare (food scares, catastrophes, etc.) although this year it is rather dominated by the Olympics.

First up today, we should note that American initial jobless claims came in slightly higher than expected, +249,000 on a seasonally adjusted basis. This 'rise' attracted the headlines. But on an actual basis they were in fact lower at 215,000 and a decrease of -10,000 from the prior week. There are now 1.94 mln people on these benefits.

Their July job cut tally was unusually low at just over 25,000. However the same report suggested new hiring activity was low too.

Tomorrow's July non-farm payrolls report is still expected to reveal a +175,000 expansion.

Also low was the widely-watched ISM factory PMI for July. The extent of the retreat was more than expected, the sharpest contraction since November 2023. Shrinking new order levels was a key cause. Falling new orders were also a feature of the internationally-benchmarked S&P/Market PMI version although they do not see the American factory sector contracting. Both versions reported lower inflation pressures.

These reports have pushed Wall Street sharply lower today.

Globally, there were a number of factory PMIs released today. In Europe, the contraction was unchanged. In Japan, their marginal expansion slipped back into a marginal contraction in July. In India, their strong expansion continues but now features very frothy inflation.

South Korea they are holding a good expansion.

In Taiwan they are getting a good, sustained expansion. In China, it is back to [minor] contraction as new orders fall away.

And the fierceness of the housing falls in China was on full display again in July. The value of new homes sold by the top 100 developers fell -20% in July from a year ago. Sales fell -16% in June on the same basis. The declines in prior months were in the order of -30% to -40%.

In Europe, the English central bank cut its policy rate by -25 bps to 5%, as expected.

In Australia, some heat seems to be going out of some residential real estate markets. July prices actually fell in Melbourne, Hobart and Darwin, and were no-change in Canberra from June. That only leaves Perth Adelaide and Brisbane with rising prices. Sydney rose too but only a minor +0.3%.

And perhaps we should note that ANZ's purchase of Suncorp Bank, now finalised, has shifted ANZ ahead of NAB in market share of mortgages in Australia, no longer 'fourth'. It is a ray of 'good news' in the shadow of the bank's bond market manipulation scandal there.

Heat is also going out of the Australian factory sector with a spreading contraction in July. Output, new orders and employment are all retreating faster now.

However, the Aussie merchandise trade surplus rose in June to AU$5.5 bln. No surprises there. But interestingly there are stresses beneath the hood. They are seeing the falling global steel price hit some reasonably significant aspects of their terms of trade. Iron ores prices fell -9%, coal prices are down -13%. Gas prices are down -8%. Shipping more helped cushion the overall impact. And they were 'lucky' - the price of gold rose +12% offsetting some of the other falls.

Global container shipping freight rates eased an insignificant -1% last week, holding very high. The same causes are still in play. That is extending sailing time - and fattening shipping company profits. Bulk cargo rates fell -9% last week however.

The UST 10yr yield is now at just on 3.98% and down a sharp -12 bps from yesterday.

The price of gold will start today up another +US$9 from yesterday at US$2435/oz.

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

The Kiwi dollar starts today another +10 bps firmer at just on 59.5 USc. Against the Aussie we are +40 bps higher at 91.5 AUc. Against the euro we are up another +20 bps at 55.2 euro cents. That all means our TWI-5 starts today at 68.7 and up +20 bps from yesterday.

The bitcoin price starts today at US$62,304 and down a very hard -6.4% from this time yesterday. Volatility over the past 24 hours has been high, at +/- 3.6%.

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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The Government's push to have more apartments, including shoebox apartments, built should be welcomed over time by a range of buyers including first home buyers, property investors and retirees, suggests John Bolton, founder of mortgage broker, lender and savings product provider Squirrel.

Speaking in a new episode of interest.co.nz's Of Interest podcast, Bolton, also a former banker who has dabbled in property development, says apartments, including small ones, offer people who otherwise couldn't afford to buy in Auckland the opportunity to do so. He gives the example of a recent client who wanted an Auckland CBD shoebox apartment.

"He was actually just over 50 and a first home buyer. He had about $150,000 in savings and an income of about 120,000 and he was just keen to get something. Now, the interesting thing for him is that we worked it out and he could pay it off before retirement and that was his goal. So he was looking to pay it off in about 15 years and the only way he was gonna be able to do that was with a shoebox apartment. He was really happy with that...He'd be a classic example, I guess, of the target market for someone that otherwise couldn't buy."

Investors will always look at it on a yield basis, Bolton notes.

"The numbers have to stack up. The attraction for investors historically with the shoebox apartments has been purely yield, straight yield play. They [can] get much better yields on them than a standard apartment."

Bolton also says there's a growing number of retirees struggling to find places to live.

"When we talk about shoebox apartments or just small living spaces, it could be some single level brick and tile units in the suburbs. It doesn't have to be a traditional high rise apartment with shoeboxes in it, you know, just little living spaces out in the suburbs, all on one level, which gives them easy access."

"It's a really important market, and I think it's a market that is going to come with a whole lot of issues in the future because rents are so high. Retirees on the pension simply cannot afford to rent houses or even townhouses. And multi level townhouses are not the right product for them. And so I think getting affordable solutions that cater to our growing retiree market, of whom an increasing proportion of them don't own property, or if they do, they need to downsize because they're taking mortgage debt into retirement. I think there's a real market there, and I think it's not the inner city shoebox that we're talking about. What we're starting to talk about is how do you cater to those communities, and then how do you build a property that's appropriate for them, that's affordable? And I can see that being out in the suburbs, I can see that being in the provinces. So I think there's an opportunity here to reshape the way that parts of our market are operating," says Bolton.

Last month Housing Minister Chris Bishop gave a speech outlining the Government’s plans for housing.

Included in Bishop’s speech was a pledge to remove the ability for councils to set rules or guidelines requiring balconies, or floor areas of apartments to be of a minimum size. This, Bishop says, will increase housing supply by enabling more homes to be built at cheaper prices.

Auckland Council's rules currently set the minimum net floor size for an apartments at 30 square metres, or 35 in the city centre. The latter can be reduced by five square metres if there's outdoor living space, a balcony, ground floor terrace or roof terrace. The smallest apartment allowed by Wellington City Council is 35 metres squared, and the city centre also has requirements for outdoor living space area with the smallest a minimum area of five metres squared and a minimum dimension of 1.8 metres.

In the podcast audio Bolton also talks about the size of deposits needed to get bank loans to buy different sorts of apartments, banks' apartment lending appetites and why they can be reluctant to lend for smaller apartments, apartment developers and pre-sales, construction costs for apartments and financing of new builds, locations for apartments and more.

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

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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 two big central banks have been active in their signaling over the past 24 hours.

First up today, as many expected the US Fed sent a clear signal that they are more open to a September rate cut. That first came from changed wording in their no-change statement that was more balanced between the two aspects of their mandate: inflation and jobs. Powell then confirmed a potential September rate cut at his press conference.

Because this was largely what was assumed in advance, there has been no major financial market reaction, but the reactions there were, were 'positive'.

The US dollar slipped marginally on the news, the S&P500 rose after already being up sharply. The benchmark UST 10yr fell -3 bps.

The US ADP jobs report came in lower than the expected +150,000 gain. It reported a gain of just +122,000 in July. This is the precursor report to the official non-farm payrolls report which is expected to show a +175,000 gain when it is reported on Saturday (NZT). The ADP Report slowing is consistent with the Fed's expectation that the labour market is not pushing undue labour market pressure on the US economy.

The Chicago PMI also came in very much as expected, also not putting upward pressure on inflation from the heartland factory sector.

And neither are American pending home sales. They may have risen in June from May, but they are still lower year-on-year.

However, mortgage applications are still shrinking, despite mortgage interest rates staying well below 7%.

The Bank of Japan actually has raised its official policy rate, and from 0.1% to 0.25% with a +15 bps hike late yesterday. They also said they will cut their bond buying activity. This has been seen as an aggressive move that signals the central bank's growing confidence in the recovery of the domestic economy and its concern about the sharply weaker yen.

The yen appreciated significantly. Equities rose. Their benchmark bond yields rose.

Taiwan's GDP expanded +5.1% real in Q2-2024, high, but less than the very high +6.6% rate in Q1-2024. Both were the best results since the pandemic recovery, and back to their long golden economic expansion between 1994 and 2008.

China's official July factory PMI fell slightly into a further contraction. Their official services PMI fell to a very minor expansion. Both were about what was expected, but neither is very promising.

In Europe, their Euro Area inflation rate unexpectedly edged up to 2.6% in July from 2.5% in June, when forecasts expected it would slow to 2.4%. The larger economies kept it elevated, the smaller ones generally reported lower rates.

In contrast, Russian inflation hit 8.6% and well higher than the +6.3% rise in retail sales. War inflation is eating them up, which is why their central bank recently raised its policy interest rate to 18%. And it is not going to help that Russia is having to double its 'bonuses' for fighting in their invasion army.

The Q2-2024 CPI in Australia rose to 3.8%, exactly as analysts expected. Their June month inflation indicator came in at the same 3.8%. Markets seem to have focused on the 'trimmed mean' quarter-on-quarter rate of +0.8% which was lower than expected - and concluded the RBA is likely to hold rates unchanged next week.

The UST 10yr yield is now at just on 4.10% and down another -4 bps from yesterday. 

The price of gold will start today up another +US$20 from yesterday at US$2426/oz.

Oil prices are +US$3 higher at just over US$77.50/bbl in the US while the international Brent price is just over US$80.50/bbl. Rising Middle-East tensions are behind the move.

The Kiwi dollar starts today another +40 bps firmer at just on 59.4 USc. Against the Aussie we are almost +1c higher at 91.1 AUc. Against the euro we are up another +40 bps at 55 euro cents. That all means our TWI-5 starts today at 68.5 and up +40 bps from yesterday.

The bitcoin price starts today at US$66,595 and up +1.1% from this time yesterday. Volatility over the past 24 hours has been modest, at +/- 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 tomorrow.

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