Economy Watch

Kia ora,

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

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

And today we lead with news the American economic juggernaut rolls on, dominating global markets.

American new home sales levels in February missed estimates, but ~7% mortgage interest rates basically explain that. They eased by a minor -0.3% from January to an annualised rate of 662,000, and below market expectations of a 675,000 rate.

Although the Dallas Fed factory survey eased back a bit in March, it is still at levels better than for most of the past two years. A contracting oil patch doesn't really qualify as 'news' any more.

Nationally, the US Chicago Fed's National Activity Index expanded in February and pushing past the January retreat. But to be fair it is in a bit of a yo-yo pattern and has been since the end of the pandemic.

Recent estimates of American economic activity generally agree its economy is expanding at about a +2% (real) clip in Q1-2024. For an economy as large as their, this represents the bulk of the global economic expansion, adding more than +US$1 tln in nominal economic activity at an annualised pace. Nowhere else comes close.

Interestingly, today's UST 2yr bond auction has brought slightly lower yields. It ended with a median 4.54% yield today, compared with the equivalent event a month ago at 4.64%. Investors are not demanding higher yields from these benchmark bonds despite the rise in issuance. The doomsters are still waiting for their moment – it’s been a very long time for them.

In China, the IMF has noted that China needs to take a different path to recovery. It's "fork in the road" comments challenge China's standard paybook to stimulus. Presently they are using their considerable reserves to support the yuan against market challenges.

In Taiwan, retail sales grew an eye-catching +9.3% in February from the same month a year ago, a sharp rise from January on the same basis. This was their sharpest growth in retail activity since June 2023. Clothing and food drove the expansion.

But things aren't so bullish for Taiwanese industrial production which fell -1% from year-ago levels in February darta released overnight.

We have noted the rise and rise in cocoa prices before, but they reached new extreme levels overnight, based on recent poor harvest results in West Africa. US$10,000/tonne (NZ$17/kg) beckons.

The UST 10yr yield will today at 4.26% and up +6 bps from this time yesterday. 

The price of gold will start today firmer by +US$10 from yesterday at US$2175/oz.

Oil prices have risen +US$1 to US$81.50/bbl in the US while the international Brent price is now up at US$86/bbl.

The Kiwi dollar starts today at just on 60 USc and marginally firmer that this time yesterday. Against the Aussie we are -¼c lower at just over at 91.8 AUc. Against the euro we are still just on 55.4 euro cents. That all means our TWI-5 starts today under 69.3 and little-changed.

The bitcoin price starts today up strongly at US$70,247 and a +7.4% rise since this time yesterday. Volatility over the past 24 hours has been very high at just on +/- 4.3%.

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

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

And today we lead with news all eyes are on China to see if they pull the trigger on their old stimulus playbook again.

But first this week, the focal point in the United States will revolve around the PCE price indexes, and data on personal income and spending. Other key data include durable goods orders, their final Q4 GDP growth reading, a key consumer confidence survey, and housing market indicators such as new and pending home sales.

It will be a busy week in Japan with BoJ minutes, and data on their unemployment rate, industrial production, retail sales, and housing starts. It will be a quieter week for Chinese economic releases but it will include data on industrial profits. And markets will pay close attention to potential stimulus announcements and how authorities will let the yuan’s price shift. In Australia, February’s inflation rate is expected on Wednesday and a rise is expected, inflation expectation survey data may come in before that, while markets also await the Westpac consumer confidence survey results.

And staying in Australia, there is plenty of evidence their housing market is back on a roll with an active auction market this past weekend and sales volumes high.Prices seem to be rising. Behind it all is a shortage of housing as their inward migration levels rise fast.

Meanwhile the Australian central bank released its half-yearly Financial Stability Report on Friday and it concluded that while conditions will remain challenging for many households and businesses there this year, "strong conditions in the labour market, the large savings buffers accumulated by many borrowers during the pandemic and rising housing prices are helping households to adapt." The Australian financial system has a high level of resilience and is well positioned to continue to support the economy, they say.

In China, incoming foreign direct investment fell more than -19% in February from a year ago, the largest fall since the GFC and far more than in the early stages of the pandemic. Recent 'legal' changes and the rise of the MSS in the Middle Kingdom is making it too tough to operate there. The trade disengagement underway isn't ending. Only US$14.3 bln arrived as investment in February about half the stunted levels on one and two years ago.

Meanwhile, China is making a concerted effort to qualify for the CPTPP trade group with new 'negative list for cross-border trade in services' management. "We have proactively aligned our policies and legislation with the CPTPP rules in relevant areas and are well-prepared for market access offers in goods trade, trade in services and investment," a spokesperson said over the weekend.

The recent visits by Chinese foreign minister Wang Yi to both New Zealand and Australia in an unusual 'charm offensive' by the usually prickly Wolf Warrior needs to be seen in the light of this CPTPP push.

In Japan, inflation is finally embedding there. It's been a long slog to get out of deflation. Their inflation rate climbed to 2.8% in February from 2.2% in the prior month, the highest figure since last November. It has been over 2% since March 2022.

Across the Pacific, although they eased in January Canadian retail sales rose in February according to an early estimate. But both shifts are minor. Hesitating car sales are behind the lackluster results.

Across the Atlantic, German companies are gaining confidence, and rather quicker now. Sentiment for Europe's largest economy reached its highest point since June 2023, fuelled by anticipations of potential interest rate cuts by the European Central Bank and a gradual easing of inflationary pressures. But German consumer sentiment remains stick at low levels, generally unchanged since May 2022.

The UST 10yr yield will today at 4.20% and down -2 bps from this time Saturday, and -11 bps from a week ago. 

The price of gold will start today firmer by +US$6 from Saturday at US$2165/oz. But that is little different to week-ago levels.

Oil prices have stayed at US$80.50/bbl in the US while the international Brent price is still at US$85/bbl. These levels are also unchanged in a week.

The Kiwi dollar starts today at just under 59.9 USc and marginally lower that this time Saturday. A week ago it was at 60.9 USc so a -1c fall since then. And it is the first time in four months since we have been below 60 USc. Against the Aussie we are marginally firmer at just over at 92.1 AUc. Against the euro we are still just on 55.5 euro cents. That all means our TWI-5 starts today at 69.3 and down -60 bps in a week.

The bitcoin price starts today at US$65,430 and up +2.9% from this time Saturday. A week ago this price was US$68,378 so a -4.3% fall since then, 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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In five years' time we would see things we can't imagine today if the Government adopts the Commerce Commission's recommendations to boost competition for personal banking services, Commission Chairman John Small says.

Speaking about the Commission's draft report from its banking market study in the latest episode of interest.co.nz's Of Interest podcast, Small says he'll be interested to see what sort of response the Commission gets from the big four banks, ANZ, ASB, BNZ and Westpac, who it says are an oligopoly who don't face strong competition.

"We haven't accused them of doing anything nefarious. They're responding to the incentives that are in front of them. And we think that they've settled into a particular pattern of conduct that we think should be disrupted. But we don't blame them for that," Small says.

"I'll be really interested to see what they do have to say about it."

The Commission makes 16 recommendations in its draft report, and says they should be considered as a whole. He's optimistic about what the market for personal banking services could look like five years from now if the Government was to adopt them all. 

"We would see things that we just can't imagine today. So if open banking is operational within a couple of years, if Kiwibank has already been disruptive, then I think we've set the industry up for a really healthy, competitive future that will be greatly beneficial to New Zealanders throughout their economy. And that [interest] rates will be sharper, and the range of services will be much wider and the choice between providers, trusted providers, will be much wider as well. So I would see it as being really positive five years from now," says Small.

In the podcast Small also discloses which three of the Commission's 16 recommendations he believes are most important. With the Commission recommending the Reserve Bank review its bank regulatory capital settings, he also discusses dialogue with the Reserve Bank about this, and wanting them to "think really carefully about the competitive aspects of their decisions."

He also talks about why the big four banks don't face strong competition, what could be done to make Kiwibank a disruptive competitor, how the banking industry hasn't disrupted itself via open banking, customers moving between banks, the competitive landscape for home loans versus deposits, his take on the idea of a windfall profits tax on banks, and what a parliamentary select committee bank inquiry could probe. 

*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.

And today we lead with that is full of unexpected data and outcomes.

US jobless claims fell last week to 190,000 and this was lower than expected. The number of people still on this unemployment insurance is lower too, at just over 2 mln. Neither signals growing labour market stress.

The Philly Fed's factory survey was expected to retreat in March following a good rise in February. But it surprised with another good expansion. And these heartland rust-belt manufacturers are looking ahead with surprisingly strong optimism.

Existing home sales jumped and by more than expected in February, up +9.5% from January on a seasonally-adjusted basis. But year-on-year, sales declined in all regions.

Meanwhile the US economic expansion kicks along. The latest internationally-benchmarked PMIs show their service sector activity growth eased to a three-month low amid reports that price pressures that had restricted customers' ability to commit to new projects, while manufacturing production expanded the most since May 2022. Overall, new orders increased but at a slower pace, while the rate of job creation ticked higher, marking the fastest in 2024 so far.

We should also note that a California referendum to raise property taxes to finance 11,000 treatment beds and housing units with health care and social services for homeless people suffering from mental illnesses and addiction, has passed. This is somewhat unexpected given the range of opponents and their well-funded opposition.

In Japan, March is delivering their strongest rise in private sector activity in seven months. Their factory PMI 'rose' to a smaller contraction in March while their services PMI expanded much faster. New orders featured as the driver.

In India, their March PMIs showed a surging manufacturing sector, but it was still overshadowed by even faster expansion in their services sector. India is on a fast-track.

The March 'flash' EU PMI is being held up to a stable level by its services sector which is still expanding and covering a continuing contraction in its manufacturing sector. Things are similar in the UK although their factory sector seems to be in better shape.

And there were a set of European central bank decisions out overnight. First Turkey sharply raised its rate unexpectedly, up +500 bps to 50%! (I kid you not.) And Switzerland unexpectedly cut its key policy rate by 25 bps to 1.5%, making it the first major central bank to cut. And in between, the English reviewed and did nothing, holding their rate at its historically high 5.25%.

In Australia, their labour market report for February has delivered a big surprise. Analysts were expecting a very good +40,000 rise in the employed workforce, but actually they got an extra +78,000 full time jobs in the month, plus an additional +38,000 part-time roles. Their jobless rate slipped to 3.7%. While this is 'good', we should remember that 31% of their 14.3 mln workers are still part-time, an unusually large proportion. (In New Zealand, that level is less than 20%.)

Still, the jobs surge probably means any rate cuts in Australia are now further away.

Australia's population is probably now touching 27 mln. It was at 26.8 mln people in September according to official data, and is growing at a record pace, fuelled by immigration and a longer life expectancy among boomers.

Global container freight rates eased another -5% last week but remain unusually high because the reasons for the January surge have not gone away - drought in Panama and pirate activity in the Red Sea. Interestingly, trans-Atlantic rates are now rising while the largest falls are Chine-to-Europe. Bulk cargo rates are staying elevated.

The UST 10yr yield started today at 4.28% and unchanged from this time yesterday. 

The price of gold will start today higher by +US$21 from yesterday at US$2157/oz but in between they surged to well over US$2200 and then fell back quickly too.

Oil prices are lower today by -50 USc at just on US$80.50/bbl in the US while the international Brent price is now just on at US$85/bbl.

The Kiwi dollar starts today at just under 60.5 USc and little-changed from yesterday at this time. Against the Aussie we are down nearly -½c at 92 AUc following their strong labour market news. Against the euro we are still just under 55.7 euro cents. That all means our TWI-5 starts today at just on 69.6 and essentially unchanged.

The bitcoin price starts today at US$66,649 and up +3.1% from this time yesterday. Volatility over the past 24 hours has been very high at just on +/- 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 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.

And today we lead with news the Fed has held its policy rate unchanged at 5.5% but given strong signals cuts are coming - but later than markets were expecting. However they still see three cuts in 2024.

The UST 10yr yield fell slightly on the news. The US dollar fell slightly too. Wall Street moved higher.

Meanwhile, American mortgage interest rates rose back to just on 7% last week for their benchmark 30 year fixed rate following the prior week's surprise drop. That came as mortgage applications ticked lower again last week and are now -14% lower than the same week a year ago.

China held its prime loan rates unchanged at record lows in its review yesterday. You will recall they cut its 5 year prime rate (the reference for mortgage lending) by an outsized -25% bps last month.

Taiwanese export orders slumped more than -10% in February, a surprise because markets had expected a +1.3% rise following a +1.9% gain in January. But it was not to be. Orders for heavy equipment fell, especially from the EU, Japan and China, and these falls overwhelmed their rising AI chip exports.

The EU sentiment rose to be less negative in its March survey. It is now at its least-weak level since February 2022, amid a gradual slowdown in inflation and optimism surrounding potential interest rate cuts by the ECB later in the year.

Britain's inflation rate dropped to 3.4% in February, down from 4% recorded in both January and December and slightly below market expectation of 3.5%. It was their lowest rate since September 2021.

In Australia, a recent swell in business failures in construction, hospitality and retail has pushed up the number of monthly insolvencies to the highest in almost a decade. The absolute levels aren't high, but the trend will worry officials.

New Zealand has slipped one place in the World Happiness Report rankings, and now sits just outside the top ten (at #11) in 2024. Australia moved up from 12th last year to 10th this year.

The UST 10yr yield started today at 4.28% and down -2 bps from yesterday. After the Fed's decision it fell to 4.25%. 

The price of gold will start today little-changed from yesterday at US$2157/oz.

Oil prices are lower today at just on US$81/bbl in the US while the international Brent price is now just on at US$85/bbl. Both are -US$1.50 lower than this time yesterday.

The Kiwi dollar starts today at just on 60.4 USc and a small -10 bps dip from yesterday. After the Fed news, it rose to 60.6 USc. Against the Aussie we are still at 92.4 AUc. Against the euro we are still at 55.6 euro cents. That all means our TWI-5 starts today at just on 69.6 and marginally firmer.

The bitcoin price starts today at US$64,620 and up +1.6% since this time yesterday. Volatility over the past 24 hours has been moderate at just on +/- 2.8%. There seems to be an outflow rush underway from some key ETFs.

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 tomorrow.

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With a United States presidential election looming in November, Patrick Watson, Senior Economic Analyst at Mauldin Economics, says it's difficult to say what the key economic battleground will be because many voters are "living in their own realities."

Speaking in a new episode of interest.co.nz's Of Interest podcast, Watson says there's not a great deal of agreement on whether the US economy is even in good or bad shape.

"If you ask Democrats, they mostly say the economy is fantastic. If you ask Republicans, they say the economy is terrible. I think it's somewhere in between. I think that's what the data actually shows," Watson says.

The election is expected to be a rematch between incumbent Democrat Joe Biden, and his Republican predecessor Donald Trump.

"On the Trump side, they have not really announced a great deal of specific policy. So that's kind of a mystery. We know what the Biden administration has done and says they will do. People can like it or not like it, but they at least know. So what we do know from the Republican Trump side is he wants to further restrict immigration. He will probably resume the various trade war and tariff measures that he was doing last time and possibly more aggressively," Watson says.

"But again, the difficulty is people aren't operating from reality. People are operating from their own predispositions, what they think is happening. So that makes it hard to predict."

Asked whether the average American is feeling as if they're doing well at the moment, Watson says this is a really interesting question.

"The survey data that's out there is really confusing, because when they ask people, how is your situation, how are you doing financially in your own family and household? Most people, pretty solid majorities, over 60% are saying, 'I'm great, I'm in a good spot.' But then if you ask them how do you think the economy is doing overall for everyone else, they become very bearish. They think it's terrible. So it's hard to see how both of those are true at the same time," says Watson.

In the podcast Watson also talks about this week's Federal Open Market Committee (FOMC) monetary policy review and the outlook for interest rate cuts, the US inflation picture including housing's role in its stickiness, what's going on in US share markets, regional economic performance in the US, challenges in the US labour market, and the influence of the Inflation Reduction Act.

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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.

And today we lead with news of a week of big policy announcements with some potentially very big implications.

First all eyes will be on Japan's rate review (tomorrow, Tuesday). Strong wage gains in Japan, and by much more than expected, are fueling speculation that that Bank of Japan won't wait any longer and will shift out of its negative policy rate when they meet.

And the US Fed meets Thursday NZT with a review that includes economic forecasts and the so-called 'dot plot' interest rate projections. Also, in the US indicators such as Manufacturing and Services PMIs, along with building permits, housing starts, and sales of existing homes will be under review. Australia, Brazil, Turkey, Switzerland, The UK and Norway will all also be be reviewing that monetary policy positions and official interest rates. And this week we get inflation data from Canada, the UK, and Japan. Services PMIs from Australia, Japan, India, the EU are coming too this week. In China, they are scheduled to release data on industrial production, retail sales, their labour market, fixed asset investment. And their loan prime rate (LPR) reviews are on the docket as well.

Chinese banks extended ¥1.45 tln in new loans in February, down from the record ¥4.9 tln in January. (January is usually a seasonal high.) The February level was basically as expected. But authorities would be disappointed it is not higher because they had taken action to encourage lending. The central bank had announced its largest-ever reduction in a key mortgage reference rate. And they signaled recently there was still room for cutting banks' reserve ratios, following a 50-basis point cut in January. Banks are finding to tougher to identify lending opportunities.

China's house prices are falling, and a bit faster now according to official data. New house prices were down -1.4% from a year ago. In January the decline was -0.7%. Only seven of the 70 largest cities recorded any rise, all tiny, from a month ago. From a year ago only 13 showed rises. For resales, only two of those same 70 cities recorded a rise in February from January, none on a year-ago basis. But prices are -6.3% lower than year-ago levels and the largest fall since these records started in 2011.

China's one-year medium-term lending facility (MLF) rate was unchanged at 2.5% in Friday's update.

China’s national emissions trading scheme is set to expand to cover their aluminium sector as the compulsory carbon market pushes ahead to expand beyond the power sector and include more heavy emitters.

Across the Pacific, American consumer sentiment is holding its recent highs in March, essentially the same as the past three months and back at levels prevailing in mid-2021. And at these current levels it is up a sharp +23% in a year.

American industrial production rose (slightly) in February from January following a previous month retreat. Most of the gains were in construction activity. But it is still marginally lower (in real terms) than year ago levels.

But March won't be helped by activity in the New York region. They reported a sharpish decline in their latest survey.

In Canada, housing starts jumped by +14% in February from January, to 253,500 units and well above market expectations of 230,000 units, according to official data. It was the highest reading in four months.

We perhaps should note that the current El Niño weather pattern is changing. The experts are saying La Niña is on its way with its cooler-than-average seawater in the central and eastern Pacific Ocean. In the past La Niña typically delivers northeasterly wind trends, bringing moist, rainy conditions to northeastern areas of the North Island and reduced rainfall to the lower and western South Island. Warmer than average air and sea temperatures can occur around New Zealand during La Niña. In Australia, rural areas typically benefit from more rainfall. But as global temperatures are elevated, maybe 'typical' reactions this time will be different. They were with the current El Niño.

The UST 10yr yield starts today at 4.31% and unchanged from Saturday but it is up a sharp +29 bps for the week. 

The price of gold will start today -US$1 lower than Saturday at US$2156/oz and -US$30 lower than a week ago.

Oil prices are little-changed at just on US$80.50/bbl in the US while the international Brent price is now just under at US$85/bbl. That is nearly +4% higher in a week however.

The Kiwi dollar starts today at just on 60.8 USc and unchanged from Saturday. But that is a full -1c lower than a week ago. Against the Aussie we are still at 92.8 AUc. Against the euro we are still at 55.9 euro cents. That all means our TWI-5 starts today at just on 69.9 and unchanged as well but -40 bps lower in a week.

The bitcoin price starts today at US$67,946 and a mere -0.6% slip from this time Saturday. And this level is virtually unchanged from a week ago. Volatility over the past 24 hours has been moderate at just on +/- 2.9%.

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 on 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.

And today we lead with news American data supports the Fed's cautious approach to its monetary policy management - pushing away imminent rate cuts. Benchmark rates have risen sharply.

US new jobless claims came in less than expected when a rise was anticipated. There were less than 200,000 new actual claims last week, and that takes the number of people on these benefits to under 2.1 mln. At the risk of sounding like a broken record, there is still no sign here of a wavering American labour market

But American retail sales were up +0.6% in February from January, following an upwardly revised -1.1% fall in January and below market forecasts of a +0.8% gain. The relatively modest increase, combined with a larger decline in January, suggests a potential slowdown in consumer spending. But the February level is in fact +5.5% higher than year ago levels, pointing out the longer-term above-inflation expansion of consumer activity.

Also rising are producer prices. They rose by +0.6% in February from January, marking the largest increase since last August and surpassing market expectations of a +0.3% rise. Goods prices rose by +1.2%, the most in six months, primarily driven by a surge in energy and food prices. These are not signals the Fed will like

Although they are definitely not at concerning levels and remain at long term average levels, American inventories are rising which will bring increased management attention at firms.

We should point out that the official release on China new yuan loans seems to be delayed. Markets had expected a modest rise, but maybe it isn't like that.

Meanwhile data is coming to light that the 2023 level of commercial property sales in China were unusually light, and marked by distressed sales. More than 20% of all sales were because of seller stress. And it may be more. Some non-distressed deals were made by stressed developers in need of liquidity. Nearly half of the distressed deals in 2023 were in the industrial sector. It seems the office sector's pain is yet to come.

Distressed deals also have make up a high proportion of commercial real estate sales this year. In the first two months of 2024 more than 30% were distressed, and these were dominated by smaller deals.

In India, Bloomberg is pointing out a rather sharp fall in their listed small-cap equities. So far in March, they have fallen -7.5% even if yesterday there was a small recovery. More than NZ$100 bln has been 'lost' in this retreat. It does point out that this market has gotten rather over-valued.

Container freight rates fell another -4% last week although they remain 77% higher than year ago levels. Trans-Atlantic rates rose, but all others fell. Bulk cargo rates basically held over the past week, with the recent sharp rises ending.

The UST 10yr yield starts today at 4.30% and up +11 bps from this time yesterday. 

We should note that the Tesla share price has fallen a very sharp +3.7% so far today. Over the past week that has compounded to a -10% drop. It is actually down more than a third so far this year.

The price of gold will start today -US$15 lower than yesterday at US$2158/oz.

Oil prices have risen another +US$1.50 to just over US$81.50/bbl in the US while the international Brent price is now just over US$85/bbl.

The Kiwi dollar starts today at just under 61.4 USc and -20 bps softer than this time yesterday. Against the Aussie we are firm at 93.2 AUc. Against the euro we are holding at 56.4 euro cents. That all means our TWI-5 starts today at just on 70.3 and unchanged from yesterday. In fact we have been within a tight range around this level for more than two weeks now.

The bitcoin price starts today at US$71,337 and down -2.5% 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 on Monday.

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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.

And today we lead with news China's inward turn is gathering pace as it fears foreign influence.

But first, US mortgage applications rose strongly last week from the week before, up more than +6%. and that was because mortgage interest rates fell rather sharply, down nearly -20 bps in a week to go under 7% for the benchmark 30 year home loan rate for the first time in a month. Still, mortgage applications are running -11% lower than year-ago levels - and they were very weak then too.

Today's US Treasury 30yr bond auction was well supported and delivered slightly lower yields than the equivalent auction a month ago, but only fractionally lower. Today's event delivered a median yield of 4.28% whereas the month-ago result was 4.31%.

In China, a Beijing-directed rescue of property giant China Vanke is apparently underway. We should all hope it works. But even if it does it will take a tough toll on the Chinese economy, Shenzhen in particular.

And more developers there are falling.

The downstream impacts are also pretty significant. Excavator sales are down -40% from year ago levels, as an example.

China's Ministry of State Security (MSS) is now increasingly focused on "food security". They are banning foreigners traveling the countryside. The MSS says “In recent years, national security agencies have cracked down various espionage activities related to food security, cutting off the "black hands" of foreign espionage targeting China's germplasm resources, preventing and addressing the risks of food security leaks, and ensuring the smooth implementation of the national food security strategy”. That will put paid to the normal global method of sending analysts into the field to assess upcoming grain and crop harvest (something necessary because satellite photos can't yet assess yield prospects - you need to be in the field.) Without that sort of crop intelligence from a major producer (China), global seasonal food planning is going to be far less accurate.

EU industrial production plunged -2.1% in January from December, marking a stark reversal from the downwardly revised -1.6% retreat recorded in December and faring much worse than market projections of a -1.5% decline. It was the sharpest contraction in activity since March 2023. Worse, it is now down -5.7% in a year. Anywhere that would be a lot. In an economic bloc as large as the EU, that is enormous. In fact, Ireland recorded an eye-popping -34% decline.

Media reports say that PwC Australia is cutting another 5% of its staff and partners, a culling of more than -300 jobs as a result of the tax scandal that engulfed the firm in early 2023. The job cuts come on top of 338 announced in November. And after they hived off its advisory business. About 1,400 PwC Australia staff moved over to the new firm which was renamed Scyne Advisory.

And staying in Australia, prudential regulator APRA has cleared NAB (BNZ's parent) of having to hold extra capital due to inadequate governance issues. But is is strangely silent on both Westpac and ANZ who are also facing this capital penalty. CBA (ASB's parent) was never on the APRA radar.

China has proposed easing the punitive tariffs on Australian wine, imposed as part of their displeasure at the Morrison government’s foreign policies. But that pullback does not apply to Australian beef - not yet anyway.

The UST 10yr yield starts today at 4.19% and up +3 bps from this time yesterday. 

The price of gold will start today +US$8 firmer than yesterday at US$2173/oz.

Oil prices have risen +US$1.50 to just under US$79.50/bbl in the US while the international Brent price is now just over US$83.50/bbl.

The Kiwi dollar starts today at just on 61.6 USc and marginally firmer than this time yesterday. Against the Aussie we are soft at 93 AUc. Against the euro we are holding at 56.3 euro cents. That all means our TWI-5 starts today at just on 70.3 and unchanged from yesterday.

The bitcoin price starts today at US$73,189 and up +3.7% from this time yesterday. Volatility over the past 24 hours has been high at just under +/- 3.5%.

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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The "cheer squad" make it hard to have a proper debate on housing, especially when looking to address the question of what we want from the housing market from a public policy perspective.

So says Cameron Murray, Chief Economist at Fresh Economic Thinking, a new Australian think-tank. In the latest episode of interest.co.nz's Of Interest podcastMurray talks about housing and his new book The Great Housing Hijack. He describes the housing markets and attitudes to housing in Australia and New Zealand as "culturally very similar in terms of the attitude to housing."

Murray, who has been a real estate agent, property investor and worked for FKP Property Group, says his book title essentially describes the state of the public debate in housing.

"There are so many vested interests, so many different groups and hobby horses that have lobbied, professionally or not for many decades, that it is very hard to have a straight conversation about housing in a public forum. So that is the housing hijack," he says.

"The housing hijack is all about what I call in the book the cheer squad, these noisy people on the sideline distracting us from the game of housing and, rather than understanding the plays and the strategy of the game, we're getting distracted by the noise of the cheer squad."

In the podcast Murray talks about why we should acknowledge the post-World War II to mid-1970s period was an unusual golden age in housing, what he sees as the five housing market equilibria, why he doesn't believe simply freeing up land and loosening zoning rules to enable housing supply is the silver bullet, KiwiBuild and the politics of housing.

Murray proposes HouseMate, a parallel public homeownership system alongside purchase and rental in the private property market. It would offer non-property owner citizens the option to buy a home from a public provider at a cheap price.

"The reason to propose this is simply that I couldn't find any examples anywhere in history or anywhere in the world where we'd sold housing for that group, that 10% or 15% of people who are renters, who are getting squeezed every time the market adjusts and people's incomes are rising. I couldn't find any examples where those people's housing had been improved without a public option of some sort. Whether that's regulated rental, like Vienna, where there's massive council housing and it's somewhat universal, anyone can access it. Or whether it's public housing home ownership, which is more of a Singapore type approach. Europeans have long term rental, but I think culturally, the Australians and the Kiwis would go for a home ownership type approach," he says.

"At the end of the day, we have to accept the economics that there is a subsidy exactly equal to the difference between the market price and what you get people into that home at. There is no sneaking around this economically."

"If I could find a way to just change zoning regulations and taxes and make housing cheap for those people, I would do it. Like, who wouldn't? It would be so easy. But I've spent decades looking around trying to understand housing, and in the last four years looking for examples around the world, and I just can't find them. I'm sorry. So we have to do it the hard way," says Murray.

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

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