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 the Bank of Japan will grab the headlines later today.

But first up, there was another dairy auction event overnight, the shorter Pulse event of SMP and WMP only. This one delivered results very little-changed from the prior event last week, essentially locking in those earlier price dips.

In the US retail sales at physical stores rose +4.5% last week from a year ago, the smallest rise since late March. But at least it is still well better than inflation.

Meanwhile, job openings in June were little-changed from the prior month - but that is better than it sounds because May was revised higher. Both levels are better than analysts had expected. And their quit rate fell to its lowest since November 2020.

Remember, we get the July non-farm payrolls data on Saturday (NZT) this week and markets now expect a +175,000 gain. There is nothing in the JOLTS data to suggest this is at risk - if anything perhaps an upside chance.

Perhaps supporting that is that the widely-watched Conference Board survey of consumer sentiment rose in July and by more than expected. However, this survey shows that consumers are less upbeat about the present than they are about the future. Election jitters are at play now. (But despite the overall gains, the levels in this survey are still quite low.)

And there was a follow-up from the US oil patch. The Dallas Fed services sector survey came in much less negative in July than June, and much less negative than their factory survey.

Later today we will get the Bank of Japan monetary policy decisions. Most analysts see them holding with a +0.1% policy rate. But a growing cohort see a rise to +0.25% today as wages and inflation rise there. Also of interest is what they do with their bond buying program. It would not be a surprise if they signal they will be reducing it from about NZ$65 bln per month to about half that.

And now we can report the June foreign direct investment data for China. And no wonder they held it back. It was terrible. They attracted only a net +¥1.6 mln in the June month from May. That is their worst level almost ever. In June 2023 it was a worryingly low +¥13.6 bln. In June 2022 it was ¥24.2 bln. In NZD the June inflow was virtually nothing - NZ$350,000 ! Even for New Zealand that would be very low. For the second largest economy in the world, it is a stunningly negative result. Beijing will be worried that these flows have dried up. Now their worry is that a net outflow by foreign investors beckons.

We have noted this recently, but it is worth updating again. The fall in Chinese steel rebar prices is turning into a rout with sharp daily drops now. They are now at eight-year lows. It is hard to know where tis will end.

In Europe, their Q2-2024 GDP expansion came in low again, but a +0.7% gain from the same period a year ago, similar to Q1-2024 but slightly better than expected. Expansions in Spain and France drove this result, but it was lagging in Germany.

Meanwhile German CPI inflation rose a very modest 2.3% in July (2.6% on an EU harmonised basis). This was little-changed from June.

In Australia, they are waiting for the Q2-2024 CPI data to be released later today (1:30 pm NZT). Markets expect that to come in at 3.8% and up from 3.6% in Q1. And they will release the June month inflation indicator at the same time where a 3.8% rate is expected, down from 4.0% in May. This data will go a long way to setting the RBA stance expectations for their Tuesday, August 6 MPS review.

Meanwhile, Australian building consent levels for June came in weak, led by low apartment and townhouse construction intentions. In fact, the levels for these dwellings that are not stand-alone houses are now down at levels last seen in 2011. Over the past 12 months, there have been a total of 162,892 dwellings approved, compared to 177,936 in the 12 months prior, representing a -8.5% decrease. This is the lowest number of dwellings approved on a June year basis since 2011/12.

The UST 10yr yield is now at just on 4.14% and down another -3 bps from yesterday. 

The price of gold will start today up +US$28 from yesterday at US$2406/oz.

Oil prices are almost -US$1 lower at just over US$74.50/bbl in the US while the international Brent price is just under US$78.50/bbl.

The Kiwi dollar starts today is +20 bps firmer at just on 59 USc. Against the Aussie we are +40 bps higher at 90.2 AUc. Against the euro we are up +30 bps at 54.6 euro cents. That all means our TWI-5 starts today at 68.1 and up +30 bps from yesterday.

The bitcoin price starts today at US$65,882 and down -US$1046 or -1.6% from this time yesterday. Volatility over the past 24 hours has been modest, at +/- 1.5%.

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

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

Kia ora. I'm David Chaston. And we will do this again 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 in the growing shadow of upcoming central bank decisions.

Financial markets are having a toughish time reading the tea-leaves on what the US Fed will do at this week's meeting. The PCE result for June left open every interpretation and the prior presumption of a September rate cut is in question. Will it give the Fed members enough confidence to hold off until after the election in November? their usual non-change stance around elections. Or will they still feel the need to go now to prevent a monetary policy mistake?

And then there are even bigger questions about what the Bank of Japan will do this week. They have now got the moderate inflation they have been seeking for decades, but seem uncomfortable with the consequences.

Meanwhile, manufacturing in the US oil patch is going backwards. The last time it was positive was April 2022. Since then it has been steadily contracting according to the Dallas Fed's factory survey. The July survey showed little reason to expect that trend to change. It will be touch-n-go whether tomorrow's services survey improves from its narrower negative position.

Another corner of the US economy that isn't doing so great is commercial real estate. According to MSCI, lenders foreclosed on more than $20 bln of loans in this sector in Q2-2024, a +13% jump from Q1-2024 and the most in any quarter in almost a decade.

Across the Pacific, positives are much easier to find in Taiwan where consumer sentiment rose in July to its best result in three years. It was sentiment driven by significantly improved family financial situations, employment prospects, and general feelings of prosperity.

In contrast, we should note there is still no sign of China's June foreign direct investment report. This might be a part of a wider pattern to keep tough news from markets to prevent them "over-reacting". Their equity exchanges have agreed to stop publishing daily data that gives investors the ability to calculate net flows at the end of each trading day.

And their weak equity markets have many piling in to Chinese government bonds, pushing prices up to record levels and yields down to record levels in a sharp risk-aversion mood. Some analysts expect Beijing to intervene by borrowing and selling bonds to reverse the moves. It's a bond bubble built out of fears for China's immediate economic prospects.

The UST 10yr yield is now at just on 4.17% and down -3 bps from yesterday. The China 10 year bond rate is just under 2.14% and a very sharp -6 bps lower and easily a record low. 

The price of gold will start today with a small -US$8 move down from yesterday at US$2378/oz.

Oil prices are another -50 USc softer at just over US$75.50/bbl in the US while the international Brent price is just under US$79/bbl.

The Kiwi dollar starts today marginally softer again at just under 58.8 USc. Against the Aussie we are marginally softer too at 89.8 AUc. Against the euro we are little-changed at 54.3 euro cents. That all means our TWI-5 starts today at 67.8 and down another -10 bps from yesterday.

The bitcoin price starts today at US$66,928 and down -1.3% from this time yesterday. Volatility over the past 24 hours has been moderate, at +/- 2.6%.

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 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 we may now be much closer to rate cuts in some major economies.

But first, this week we are looking at some big set-piece data and policy items from the US, mainly at the end of the week. The week will end with their non-farm payrolls and another +185,000 gain is expected there. Before that, Thursday's (NZT) US Fed decision will no doubt give some greater clarity as to when their rate cut is coming. Inflation and labour-market developments should allow them to signal that a cut is very possible at their following meeting, in September. And the upcoming third week of their Q2 earnings season will be full of majors reporting.

Elsewhere there will be important data coming too. Japan, Brazil and England will deliver central bank rate reviews. CPI data will come from Australia, the EU and South Korea. And Q2-GDP will come from the EU. And there will be a wider set of PMIs for July released, including from China.

And over the weekend, China said profits earned by their industrial firms rose by +5.6% in June from the same month a year ago. But that was a weak base. From June 2022 they were actually down -8.4%. These latest figures came amid a fragile economic recovery in the face of sluggish domestic demand, deflation risks, and a persistent property weakness. Profits in state-owned enterprises rose a mere +0.3% while those in private sector continued to rise, up +6.8%.

Although we should note that steel rebar prices have sunk to their lowest level in over seven years, amid poor demand and ample supply in China, we also need to know that the Chinese government mandated fresh quality standards for steel rebar to start in late September, driving mills and traders to flood their market with old stockpiles before the new standards for the metal are applied. Export rebar will also be unusually cheap at present. All this is coming while their general economy is weak.

Staying in China, they have some other rather serious flooding problems. We haven't made a big deal about this because it happens every year. But this year is extreme even for them, and it has come earlier. Beijing is worried and had a special meeting about these risks. Also unusual is that they issued a statement after the meeting. “China's climate conditions are abnormal, with frequent and prolonged heavy rainfall, early and rapid development of river floods, and some areas repeatedly hit by heavy rains, making the flood control situation severe and complex” they said.

And this is a guess on our part, but the Chinese data on foreign direct investment is unusually late for June. Perhaps it doesn't look good?

In the US, their annual PCE inflation rate released over the weekend eased to 2.5% in June from 2.6% in May, in line with market forecasts. The month-on-month change was minor. The core PCE rates are marginally higher than the overall rates, but trending lower. Markets are assuming the US Fed will like this data, and reacted accordingly.

Inflation expectations In the Euro Area remained unchanged at 2.8% in June. (A year ago, these inflation expectations were running at 3.5%.) Inflation Expectations in the Euro area have averaged 3.4% from 2020 until 2024, reaching an all time high of 5.8% in October 2022 - and a record low of 1.9% in October 2020.

The Russian central bank hiked its policy rate +200 bps to 18%. This was not unexpected however. They are seeing domestic demand outstripping the limited supply capacity that the Russian economy is able to offer, triggering aggressive inflationary pressures and warranting higher borrowing costs. Besides the pressure on supply capacity from Western sanctions, they also noted that labour shortages are building fast in the fallout from the military mobilisation and the resulting sharp diaspora of working-age men.

The UST 10yr yield is now at just on 4.20% and unchanged from Saturday. 

Week two of the Wall Street earnings season shows that more companies are delivering earnings results above analyst estimates, but investors are rewarding that out-performance less than they usually do.

The price of gold will start today with a small +US$3 shift up from Saturday at US$2386/oz.

Oil prices are 50 USc softer at just over US$76/bbl in the US while the international Brent price is just over US$79.50/bbl. These are the lowest levels since early June.

The Kiwi dollar starts today marginally softer at just under 58.9 USc. A week ago it was at 60.1 USc so -1¼c lower since. That is a -3.4% devaluation since the start of the month. Against the Aussie we are holding at 89.9 AUc. Against the euro we are softish at 54.2 euro cents. That all means our TWI-5 starts today at 67.9 and unchanged from Saturday and near a two year low. This is down -110 bps from the start of last week.

The bitcoin price starts today at US$67,772 and up a +0.4% from this time Saturday. A week ago this price was US$66,552 so up +1.8% since then. Volatility over the past 24 hours has been modest, at +/- 1.8%.

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

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

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

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Mainstream economics courses teach students money is a scarce resource and nature has boundless capacity to be exploited when in fact it's the other way around, argues Modern Monetary Theory (MMT) economist Steven Hail.

Advocates say you don't do MMT, rather it's a description of how the monetary system works. And countries like New Zealand, where the Government - via the Reserve Bank - is the monopoly issuer of a fiat currency, are monetary sovereigns and thus can't run out of money. 

"We think the monetary system is central to the way modern economies work. And so it's really important to base a discussion of macroeconomics and public finance on having a proper description of the monetary system," Hail says in the latest episode of interest.co.nz's Of Interest podcast.

"When the Government has plans to invest in healthcare, transportation, climate change, housing, anything else that they're going to be spending on, when people say where are you going to get the money, that's the wrong question to ask. The question that we need to ask about national government spending is always where are the productive resources coming from? Where are the people? Where are the materials where's the technology? Where's the institutional capacity, which businesses have spare capacity to meet the Government's demand for what it wants to do? And that transforms your discussion about government economic policy," Hail says.

I first interviewed Hail in 2020 as Covid-19 swept the globe as one of a series of interviews trying to make sense of what was going on and what it all meant. A recurring theme in these interviews, as governments spent lots more money than they had in decades, was MMT. Hail was then a lecturer at the University of Adelaide School of Economics. He now runs Modern Money Lab, a not-for-profit, in partnership with Torrens University.

Looking back now, to what extent does he think the massive government spending contributed to the subsequent global inflation surge?

"Well, the first thing to say is that we've just been through about three of the four horses of the apocalypse. So if the worst problem we're going to have in terms of reacting to that is a temporary increase in the inflation rate in New Zealand to just over 7% per annum, we've done pretty well...The second thing to say is what was the alternative to supporting businesses and supporting people during the pandemic and during lockdowns?" Hail asks.

"Did the spending contribute to inflation? Well, to an extent. But every major central bank in the world that's researched the drivers of inflation following the pandemic said that most of it was to do with the supply side. That's not surprising, is it? A, we built a global economy with very fragile, incredibly complex supply chains, and they just collapsed during the pandemic. And subsequently, of course, once we got over the worst of that, we then had the Russia-Ukraine war driving energy prices up and food prices, too."

"You can argue that some of the government spending was not as effective or efficient as it might otherwise have been. But we're talking about what immediately before would have seemed almost an unimaginable catastrophe that governments were having to react to overnight," says Hail.

And what about the role of quantitative easing (QE), through which the Reserve Bank spent $53 billion buying government and local government bonds on the secondary market from banks during 2020-21? Used for the first time in NZ during the pandemic, QE had been used by central banks in other countries such as Japan, the United States, Europe and Britain for years before that.

"Now, in all those other countries where quantitative easing was used to a very large extent over many years prior to the pandemic, it caused a significant increase in inflation, or it caused an uncontroversial so that everybody accepts it significant increase in total spending in the economy, on precisely no occasions. And there's a good reason for this, which is that quantitative easing is not really the creation of new money," says Hail.

"It's certainly not giving money away. It's an asset swap, and it's actually an asset swap of two very similar assets these days. Because, after all, central banks pay interest on the reserves private banks hold at central banks, and most central banks are part of the broadly defined government sector. So those reserves are an interest bearing financial liability of the government, really. And when central banks buy treasury bonds from private banks, what are they buying? While, those treasury bonds. What are they? Interest bearing liabilities of the government sector."

"So when you practise quantitative easing, you're really swapping apples for very similar apples. You are not adding to the net financial assets of the private sector. What you are doing is putting a little bit of downward pressure on long-term interest rates."

Still Adelaide-based, Hail is visiting New Zealand during August to run an interactive seminar in Auckland, and show the documentary Finding the Money- featuring Hail's friend and high profile US MMT economist Stephanie Kelton - in both Auckland and Wellington. As well as an introduction to MMT, the seminar will look at the economy as a subsystem of the natural environment and probe human behaviour, inequality and global trade. It'll also cover planetary boundaries and climate change.

Listen to more on these topics and others, including economic growth, sustainability and reducing our impact on the environment, in the podcast audio. 

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

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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 rise of the US economy and the slowdown in China that Beijing can't seem to arrest is twisting a vast cast of supporting economies and their currencies. The NZD and AUD are devaluing faster now.

First up today, the giant American economy grew much more than expected as reported by their 'advance' Q2-2024 release. It was up +2.8% when +2.0% rise was expected after the Q1-2024 +1.4% expansion. This was driven by strong consumer spending which broadly confirms the weekly retail impetus that we track. Consumers are acting 'positively'. Growth of +2.8% is 'moderate' in the grand scheme of things - until you realise that it is a +US$360 bln (nominal) expansion from Q1, almost +US1.6 tln from the same period a year ago. Nowhere else has expanded like that (and more than double China's +US$784 bln equivalent expansion). The American economy had economic activity of US$28.6 tln in the past year.

Prices (PCE) were up +2.6% in Q2, a lesser rise than the +3.4% rise in Q1. Getting there, but not there yet.

Meanwhile, US initial jobless claims fell more than expected last week at 225,000 from the 281,000 of the prior week. These levels are nearly back to where they were a year ago. There are now 1.9 mln workers on these benefits, a tiny slice of their 364 mln workforce.

But new orders for durable goods slumped -6.6% in June from May, after four consecutive monthly increases and missing market expectations of a +0.3% rise. Transportation equipment drove the decrease. From a year ago, these durable goods orders were down a startling -11%. Orders for capital goods were worse, down -27% on the year-ago basis. (However, excluding aircraft, there was little change.)

The next July regional factory survey is from the Kansas City Fed, and they reported little-change from June. Basically it mirrors the national durable goods order data.

Earlier today there was a well-supported UST 7yr bond auction and that brought a 4.11% median yield. That is slightly lower than the 4.22% yield at the prior equivalent event a month ago.

China's central bank unexpectedly cut the rate at which it lends to financial institutions, the first such cut in nearly a year. It lowered the one-year medium-term lending facility (MLF) rate to 2.3%, from 2.5%. The bank issued ¥200 bln in loans to banks at this rate.

This rate cut is part of Beijing's attempts to spur a sluggish economic growth. This was just a part of actions taken yesterday. It is also expanding a subsidy program to get more people buying cars and consumer electronics. This will cost them ¥300 bln, paid for out of their issue of ultralong special treasury bonds. The subsidies for those trading in their passenger cars for new energy vehicles will double to ¥20,000, compared to the ¥10,000 subsidy announced in April. Trade-ins for petrol vehicles will rise to ¥15,000 from ¥7,000 per vehicle.

Global container shipping rates stayed very high last week, but they did slip a small -2% from the week before and are just off their peak. That makes them +268% higher than a year ago. There seems no relief in sight yet. Bulk cargo rates were little-changed last week to be +24% higher than year-ago levels.

The UST 10yr yield is now at just on 4.27% and down -2 bps from this time yesterday. 

The price of gold will start today down a very sharp -US$60 from yesterday at US$2352/oz. That is down -2.5% on the day.

Oil prices are +50 USc firmer at just over US$78/bbl in the US while the international Brent price is just on US$81.50/bbl.

The Kiwi dollar starts today weaker, down another -40 bps at just under 59 USc. That is a -3.4% devaluation since the start of the month. Against the Aussie we are down -10 bps at 90 AUc. Against the euro we are down a full -½ at 54.3 euro cents. That all means our TWI-5 starts today at 68 and down -40 bps from yesterday and that is near a two year low.

The bitcoin price starts today at US$64,827 and down -2.6% from this time yesterday. Volatility over the past 24 hours has been moderate, also at +/- 2.6%.

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.

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 that despite good economic data, Wall Street equity prices are tanking today as it downs in investors they have been far too bullish on AI prospects.

But first, there were July 'flash' PMIs released today. The American one is quite positive, especially for their service sector. There new order growth rose its fastest for the year, and that drove the overall PMI to its best result since April 2022, a 27 month high. The factory sector wasn't so positive, basically marking time. Encouragingly however, despite the rise, price pressures have waned. But there are suggestions employment has stopped growing.

Retail inventories might be becoming a bit of a problem however, up +5.3% from a year ago. But because wholesale inventories are well contained (+0.2%), there is no reason to panic at this point.

Meanwhile, things are so bright in their housing markets. Mortgage applications fell last week from the week before to be -15% lower than the weak week a year ago, even though mortgage interest rates retreated and are now near their lowest of the year.

And new home sales came in quite low in June, well below anticipated levels. But this isn't a new situation. Overbuilding over quite some time means that they have a stunning nine months of inventory of new unsold homes at the current rates rate. The main problem area is in the North-East states.

American exports rose +4.0% in June from a year ago. Imports were up +3.0% on the same basis, meaning their merchandise trade deficit shrank a little. The still-rising import levels also means the healthy demand in the US economy is still the main driver of world trade.

There was another very well supported US Treasury bond auction overnight, this time for their 5 year Note. That delivered a 4.05% yield, down from 4.27% at the equivalent event a month ago. General market support for these debt issues remains impressive.

In Canada their central bank cut its policy rate by -25 bps to 4.5% at its overnight meeting, a second cut in a row. Another cut in September seems a live possibility. They say the reduced rates could contribute to a slowdown in mortgage and shelter costs, which have been a large component of inflation there.

Japan's July factory PMI actually slipped slightly below expansion levels to a very small contraction, an unexpected result of their Markt/S&P survey. But their services PMI went the other way with a solid expansion recorded for July.

In India, new orders and business activity surged in July, driving both their services and factory PMIs to very fast expansions. And that brought their best expansion of employment in over 18 years. But because these pressures have been rising for some time, they are starting to get strong inflationary pressures from them now.

India's soaring share prices, and the earnings growth by Indian companies have pushed this country to just under a fifth of the MSCI emerging markets index while China has fallen to a quarter, down from more than 40% in 2020. India this threatening China as the main emerging market.

South Koreans are increasingly confident, according to a survey released by their central bank. Their composite index rose to its highest level since June 2023. Consumer sentiment regarding current living standards rose, as did their future outlook.

In Europe, their flash PMIs show July sagged to a five month low. In Germany, while their service sector is still expanding a a good clip even if it is less, their factory sector is really struggling now and contracting at a rather sharp pace which will worry Berlin policymakers.

In Australia, their July PMI also recorded a weaker rise in services activity and a sharper decline in manufacturing production. Persistent demand weakness led to a second consecutive monthly decrease in total new business and the fastest fall in new export orders in nearly four years.

The UST 10yr yield is now at just under 4.29% and up +4 bps from this time yesterday. 

The price of gold will start today up another +US$9 from yesterday at US$2412/oz.

Oil prices are +50 USc firmer at just on US$77.50/bbl in the US while the international Brent price is just on US$81/bbl.

The Kiwi dollar starts today softish, down another -10 bps at 59.4 USc. Against the Aussie we are up +10 bps at 90.1 AUc. Against the euro we are down -10 bps at 54.8 euro cents. That all means our TWI-5 starts today at 68.4 and down -10 bps from yesterday.

The bitcoin price starts today at US$66,573 and up +1.1% from this time yesterday. Volatility over the past 24 hours has been modest at just on +/- 1.2%.

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

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

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

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 lower commodity prices spread more widely overnight and a dark mood flowed over Chinese equity markets late yesterday.

But first, there was a GDT Pulse auction event overnight. Basically prices fell. The SMP price was down a bit more than expected, down -2.8% from last week's full GDT event and taking it back to levels last seen in April. The more important WMP price was down too, down -1.5% in a lesser retreat than expected. Given how commodity prices have been falling generally recently, perhaps this isn't as tough as it could have been.

Meanwhile in the US, their retail sales at physical stores were up +4.9% last week from the same week a year ago, a much better gain than inflation, so consumers continue to spend, although not with quite the same impressive enthusiasm as a month ago.

But they are not spending to buy a house. Existing home sales fell by -5.4% from the previous month to an annual rate of 3.89 million units in June, the sharpest monthly decline since 2022, to the fewest amount of sales since the start of the year. It was the fourth consecutive monthly decline in existing home sales as the median sales price climbed to a record high of US$426,900 (NZ$717,000). Higher-end houses are still selling but the middle of the market is now a buyer’s market. Unsold housing inventory rose by to 1.32 million units, or 4.1 months' supply at the current monthly sales pace.

Also retreating was the Richmond Fed's survey of factories in the mid-Atlantic states. In fact, it contracted the most in four years. New order levels retreated although future expectations for new orders are holding up. Perhaps election-change prospects are weighing on these firms outlook?

Meanwhile there was a UST 2yr bond tender earlier today, and it was again very well supported, delivering a median yield of 4.39% and that was -27 bps lower than the 4.66% at the prior equivalent event a month ago.

In India, their Budget delivered a raft of changes. These included increased spending, job creation, and tax relief for the middle class. They hiked their Securities Transaction Tax, reduced taxes on short-term and long-term capital gains, and abolished the angel tax on foreign investment. They also cut import duties on gold and silver, but raised them on plastic products. Income tax thresholds were raised. In the end this is deficit spending equivalent to 4.9% of Indian GDP and continuing its fiscal stimulus. Modi's allies will be satisfied with what they got.

Taiwanese retail sales improved again in June, up almost +4% from a year ago, well above inflation there. And their industrial production was up an impressive +13.5% on the same basis.

EU consumer confidence improved marginally in July, although it remains low and well below its ten year average. But at least it isn't going backwards.

The UST 10yr yield is now at 4.25% and little-changed from this time yesterday. 

Hong Kong equity prices fell -1.0% and Shanghai was down -1.7% in its Tuesday trade both in sharp late selloffs. Tech capital Shenzhen fell almost -3.0%. 

The price of gold will start today up +US$10 from yesterday at US$2403/oz.

Oil prices are -US$1 lower at just on US$77/bbl in the US while the international Brent price is just on US$80.50/bbl.

The Kiwi dollar starts today down another -¼c at 59.5 USc. Against the Aussie we are still at 90 AUc. Against the euro we are also still at 54.9 euro cents. That all means our TWI-5 starts today at 68.5 and down -30 bps from yesterday.

The bitcoin price starts today at US$65,848 and down -2.3% 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 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 it’s been a toughish night for commodity currencies as markets mark down these prospects. That has been true for both hard and soft commodities, although it is more of a sag than a significant fall.

In the US, the Chicago Fed's National Activity Index rose again, although this time it was minor. But the May index was revised higher. That makes it three rises in the past six months, and is a sharpish positive change from a year ago. This is actually an important indicator but one that is usually ignored by markets.

In Japan, the newt meeting of their central bank is Wednesday, July 31. It has been widely expected they would raise their policy rate and make other moves toward normalisation, largely because their long-held goal of getting moderate inflation embedded seems to have been achieved. But now they are giving unofficial signals that there may be [yet another] delay because household consumption is not improving as they want.

Taiwanese export order growth eased in June, rising 3.1% year-on-year, but that missed expectations of a +12% rise. The miss is largely due to lower orders from Japan. You may recall that May orders rose 7% on this year-on-year basis.

Today is Budget day in India. This one may reflect the pressures on Modi from his coalition support parties, the ones he needed to stay in power. This price may not be 'cheap' and if it does seem excessive, there could well be financial market reactions.

The People's Bank of China unexpectedly cut key lending rates by -10 bps to fresh record lows. The 1-year loan prime rate (LPR), the benchmark for most corporate and household loans was cut to 3.35%. Meanwhile, the 5-year rate, a reference for property mortgages, was trimmed to 3.85%. Yesterday's decision came days after the Third Plenum meetings at the end of last week, and follows a slew of data that indicated the Chinese economy continues to lose steam. At the same time, the central bank reduced its collateral requirement for its MTF facility. What we are seeing is a skew to short-term priorities.

And staying in China, they are grappling not only with a fast-aging population, but an out-of-balance retirement age. Chinese men 'retire' at age 60, women at 50 to 55. By 2035 more than 30% of the population is expected to be at that age. Even though retirement support programs are skinny, these ages will have a dramatic impact sooner than many realise. But Beijing realises. And it moved at the Third Plenum meeting to raise that age. However the messaging is subtle because it is widely expected to generate substantial pushback among those affected. Demographics is destiny, and China won't have gotten rich like Japan before these trends become very difficult to manage, so their options are closing fast.

In the EU, the ECB's survey of professional analysts suggests markets expect them to make only begrudging progress against inflation, but progress none-the-less. It won't be until 2025 that inflation hits 2% these analysts suggest. They haven't changed their view on economic growth in the region with tepid +1.3% real growth in 2025. But they do see 'better' progress battling unemployment even though the levels will remain relatively high by international standards (6.4% in 2025).

The CrowdStrike IT disaster is still lingering, especially in the travel industry. It has raised many questions. One is, who will pay? That now largely seems to be insurers, and that has implications for premiums and coverage in the future.

The UST 10yr yield is now at 4.26% and up +2 bps from this time yesterday. 

The price of gold will start today down -US$6 from yesterday at US$2393/oz.

Oil prices are -50 USc lower at just over US$78/bbl in the US while the international Brent price is just on US$81.50/bbl.

The Kiwi dollar starts today down more than -¼c at 59.8 USc as commodity currencies take a hit. Against the Aussie we are still at 90 AUc. Against the euro we are also down more than -¼c at 54.9 euro cents. That all means our TWI-5 starts today at 68.8 but down -20 bps from yesterday.

The bitcoin price starts today at US$67,370 and up +1.0% from this time yesterday. Volatility over the past 24 hours has been moderate at just on +/- 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.

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 economies of most major powers are in good shape and their companies are prospering.

But for those who follow such things, we should note that President Biden has decided not to run in the Presidential election in November, stepping aside. The race for the Democratic nomination is now open at their convention in Chicago starting on Tuesday August 20 (NZT) even though Biden endorsed Kamala Harris.

Well before then and ahead this week will be some early PMIs for July released for many key economies. Although there are no major June CPI due for release, the US's important PCE inflation data is due on Saturday NZT and that will be keenly awaited. The US will also release its first estimate of Q2 GDP on Friday and markets expect real growth there to be +2% from Q1. Good recent data might well see it above that.

Canada is reviewing its policy rate on Thursday, and market now expect a -25 bps cut to 4.5%

China is set to announce its policy interest rate decision this week, and it should be releasing its troubled FDI update soon, both possibly later today.

Over the weekend, the big overnight news was that a "faulty channel file" from CrowdStrike took down Windows computers everywhere, including in New Zealand. Outages were widespread, including for many bank services. It was a spectacular own-goal and not a malicious strike. We have more details here. And our review shows how you can recover if you were affected.. But be careful; within hours scammers had launched new domains hoping to trick users into 'response scams'. CrowdStrike made its name fixing tech problems. Now it has caused a doozy. The echoes are lingering and may do for some time yet.

And the situation isn't going to do anything for tech company valuations generally. US$13 bln CrowdStrike's share price was down -11% on Friday alone, down -18% for the week.

Interestingly, China seems to have escaped the issue, largely due to its self-sufficiency policies. But it has hit Hong Kong.

A new research note by the New York Fed is pointing out that since the GFC, American factory productivity improvements have stalled. Tech has been no saviour to this sector. Prior to that, large firms built innovative advances. But since even the leading firms haven't got productivity gains. They call the change a 'mystery'. Even shifting low-wage production offshore didn't have the effect of raising it. Nor competition, it seems. And all this come as their employed workforce hit record highs.

In Canada, their expected May retreat in retail sales after the strong April gain came in deeper than expected. If it wasn't for good car sales, it would have been much worse. June is expected to be -0.3% lower too. Now their year-on-year gain is only +1.0%, much less than their inflation of +2.7%.

Canadian producer prices rose +2.8% in the year to June, the same as for the year to May.

Japanese inflation stayed at 2.8% in June, well above their central bank's upper target range. It has been consistently above 2% since April 2022. Food prices rose 3.6% in June although that was lower than the May 4.1% rate. Energy prices were up 2.4% but that is somewhat artificially high because fuel subsidies ended in May. These levels are marginally lower than analyst expectations.

China has ended its internal policy meetings, the Third Plenum. As suspected, little real economic reform seems to have been on their agenda. Just more of a 'security is everything' attitude, more excessive adverbs, and a seeming turn inward. Those hoping for 'reform' and 'opening up' will have been disappointed.

The UST 10yr yield is now at 4.24% and unchanged from Saturday.

On Wall Street, earnings season will hit a crescendo this week with over thirty companies boasting market caps exceeding US$100 bln are set to unveil their Q2 financial reports. So far, only one in seven of S&P500 companies have reported Q2 results but they have been strong. Of those most are reporting earnings growth, and more than anticipated by analysts.

The price of gold will start today up just +US$3 from Saturday at US$2401/oz after Friday night's big drop.

Oil prices are holding lower at just on US$78.50/bbl in the US while the international Brent price is just under US$82/bbl.

The Kiwi dollar starts today little-changed at 60.1 USc but more than -1c over the past week. Against the Aussie we are still at 89.9 AUc. Against the euro we are also still at 55.2 euro cents. That all means our TWI-5 starts today at 69 but down -90 bps for the week.

The bitcoin price starts today at US$66,720 and up a minor +0.3% from this time Saturday. Volatility over the past 24 hours has been low at just on +/- 0.8%.

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

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

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

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 policymakers are still struggling with the last-mile gains in their war on inflation.

But first, the number of Americans making initial jobless claims rose last week and by slightly more than expected. That takes them back to early June levels and while not high, it does arrest the recent reduction trend. And there were less claims in the same week a year ago. It is too early to say if this is a labour market turning point, or an outlier. There are now just under 2 mln people on these benefits.

The Philly Fed factory survey rose sharply to its best level in four months driven by new orders. The outlook for the next year was especially positive.

Japanese exports rose to a three month high in June, a much better outcome than anticipated. While not a record, these exports are at an historically high level and only bested by two previous months in the past year. They are up more than +5% year-on-year and delivered a surprise trade surplus. That is mainly because energy costs no longer swell their import bill.

India's central bank is turning its attention away from supporting breakneck economic growth, to controlling inflation. They signaled this in a Bulletin released yesterday - and a return to the policies of Raghuram Rajan, the ones he got removed by Modi for.

The ECB monetary policy review overnight delivered no change to their official interest rate settings. They are holding their restrictive policies because inflation pressures remain and wage gains seem to be driving those. European companies are suffering decreased profitability because they are unable to pass on these elevated costs, they say. But they reckon the pressures will be temporary until inflation is beaten. Still they seem very unsure when rate cuts will happen again.

In Australia, their employed workforce expanded by +50,100 in June to 14.4 mln. +43,300 of those new jobs were full-time, +6,800 were part-time. Their jobless rate rose marginally to 4.1% and their participation rate is still hovering around 67%. Their employment rate of their working-age population is 64.2%. 

Container freight rates were little-changed last week but that is of no comfort because they are staying +286% higher than year-ago levels. The usual factors remain in play although the Panama Canal water levels are recovering and back to the 5-year average. July is when levels usually start to recover. Bulk cargo rates are little-changed from a week ago, although they did rise modestly in between before retreating yesterday.

And we should probably note - again - that the copper price is still retreating hard, down -7.5 in the past week alone. The reason relates to demand out of the stuttering Chinese economy. Nickel, cobalt and lithium are all suffering too, all components of the 'green transition'.

The UST 10yr yield is now at 4.19% and up +5 bps from yesterday. 

The price of gold will start today up +US$2 from yesterday at US$2455/oz and still hovering near its all-time highs.

Oil prices are up +50 USc at just on US$82/bbl in the US while the international Brent price is just over US$84.50/bbl.

The Kiwi dollar starts today little-changed at 60.6 USc. Against the Aussie we are also little-changed at 90.2 AUc. Against the euro we are still at 55.6 euro cents. That all means our TWI-5 starts today at 69.4 and essentially unchanged from this time yesterday.

The bitcoin price starts today at US$63.799 and down -0.9% from this time yesterday. Volatility over the past 24 hours has been modest at just on +/- 1.4%.

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 on Monday.

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