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 have a quick news wrap-up so you can get back to your 'time-off'.

Firstly, for those who missed yesterday's update, we now expect the Barfoot December results tomorrow (Wednesday).

We start today in the US, with lower inflation expectations for both food and rent that are depowering price increases there. Consumer inflation expectations for the year ahead fell for a third consecutive month to 3% in December from 3.4% in November and the lowest level since January 2021.

American consumer debt levels are due later this morning and only a modest +US$9 bln rise is anticipated.

Meanwhile, the US Fed balance sheet was reduced by a net -10% to US$7.7 tln in 2023, and this was despite the emergency addition of almost US$400 bln in March to cover their SVB/regional banking crisis. That lost them three months of progress.

And we should perhaps note that in the wake of the latest Boeing 737MAX troubles and fleet grounding, Air New Zealand does not have any of these aircraft. Boeing's stock suffered a sharp -10% fall yesterday but no more today.

In the EU, overall sentiment recorded a moderate gain in December, perhaps a surprise given their lackluster recent economic performances. The rises were driven by higher confidence among consumers, and managers in retail trade, services, and construction, while confidence in industry remained broadly unchanged.

Maybe part of that improvement can be attributed to a good rise in November exports from Germany, and a modest rise in November factory orders there.

We should also note that from the start of 2024, all Chinese tariffs on New Zealand dairy products expired and these exports are duty-free into China now. China is our largest export market, taking more than 34% of dairy exports. Likewise, New Zealand is China’s largest source of dairy imports, accounting for 46% of China's total dairy imports. Chinese firms have bought up Westland Milk, Oceania Dairy, as well as being involved in exporting both fresh milk and infant milk powder products, and these direct ownership links have powered these exports.

The UST 10yr yield starts today at 3.98% and down -7 bps from this time yesterday. 

The price of gold will start today down -US$12/oz at just on US$2033/oz.

Oil prices are sharply lower, down -US$4 at just over US$70/bbl in the US. The international Brent price is now just under US$75.50/bbl. A surprise price cut by Saudi Arabia has jolted this market - mainly because the Saudi's feel they have been gamed by Iran, Russia, and a number of other intermediate producers like Angola and Nigeria.

The Kiwi dollar starts today at 62.5 USc and marginally firmer from yesterday. Against the Aussie we are holding at 93 AUc. Against the euro we are softer at 56.9 euro cents. That all means our TWI-5 starts today just under 70.8 and little-changed from this time yesterday.

The bitcoin price starts today higher again, rising to US$44,972 and a further gain of +2.4% from this time yesterday. Volatility over the past 24 hours has been moderate at just over +/- 2.4%.

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

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

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

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 have a quick news wrap-up so you can get back to your 'time-off'.

In the week ahead, we will be on the lookout for the Barfoot December sales result. It in fact may come later this morning if last year's schedule is any indication.

In the United States this week, the main focus will be on December inflation rates, followed by exports, producer prices, and speeches by Fed officials. Also, Switzerland, Mexico, Brazil, Australia and India will unveil their CPI figures.

It will be a busy week in China who will release consumer and producer inflation updates, export data, and new yuan lending data. Germany will release factory orders, industrial production, and exports data too. And a range of countries will update their jobless rates for December, including the Euro Area, Italy, Turkey, South Korea, and the Philippines.

In China, they released their December foreign exchange reserve data over the weekend and it showed a big jump, rising +US$66 bln to US$3.24 tln. This was more than expected, and is now at its highest level since December 2021 and the second highest since December 2015. Much of this change however was because of exchange rate changes rather than inflows. The yuan rose +0.5% against the US dollar, while the dollar fell by -2% against a basket of other major currencies. At the same time, China's gold reserves increased by +US$2.5 bln to just over $148 bln.

On Friday, a Beijing court placed Zhongzhi Enterprise Group (ZEG) into bankruptcy. It has been a major player in their US$3 tln shadow banking sector and has lent billions to real estate firms. Zhongzhi has US$64 bln in debt and now far more than its fast-depreciating property loan base. It will not end well for its managers (some of whom have skipped town).

And they may be joined by some carmakers in 2024. Bloomberg is reporting that only four of the 13 brands that have disclosed annual sales figures accomplished their 2023 targets, with many missing by wide margins. A consolidation is due, but for those that aren't picked up, it could be a messy end. Overall, momentum loss is affecting one of China's big three economic regions.

In Japan, consumer sentiment rose in December and to its best level in two years.

Singapore retail sales made some sort of recovery in November after falling in October. They are now +2.5% higher than in November 2022.

In the US their giant labour market has impressed with more job gains than expected. The headline expansion was +216,000 when a gain of about +170,000 was anticipated. This is the employer payroll data. They also survey households and that reported a fall, something unusual in the November to December period. For the full year, payrolls rose +2.7 mln, whereas the household survey reported a gain in employment of +1.9 mln for the year. It seems workers are shifting out of self-employment on to employer payrolls.

Average weekly earnings rose +3.8% for the year in this survey, enough to best inflation but not by much. But the pace slowed in December from November, so this is one to watch.

Meanwhile, the ISM services PMI delivered only a minor expansion in December, although new order growth was good. Prices rose slower, a +0.9-percentage point decrease from the November. But that wasn't as fast a decline as the ISM factory survey showed, a -4.7 percentage point decrease.

But overall American factory order growth recorded its best rise in three years, a +2.6% expansion pace in November from October, and +3.3% year-on-year.

This weekend data probably pushes back when the US Fed will feel a need to start trimming rates. The current sanguine situation may well have them keep current levels for some time. But this is not the scenario that bond markets have assumed.

Canada disappointed in its labour market change in December, with virtually no change from November when a +13,500 rise was expected and after a +24,500 rise in November. Worse, full-time employment fell -24,000 jobs and part-time employment rose +24,000 jobs. They will be quite disappointed in that.

European inflation seems sticky above levels they want to see, according to the December data. While lower energy costs are certainly helping, food costs are not. Their +6.9% pa rise in food costs and -11.9% fall in energy costs balanced out to a +2.9% rise in overall inflation in December, up from +2.4% in November. In Germany, inflation is running at 3.7%.

A sharper than expected pullback in November German retail sales won't hep either as those price pressure mount.

The UST 10yr yield starts today at 4.05% and up another +2 bps from this time Saturday. 

The price of gold will start today up +US$4/oz at just on US$2045/oz.

Oil prices are +50 USc higher at just under US$74/bbl in the US. The international Brent price is still just over US$78.50/bbl.

The Kiwi dollar starts today at 62.4 USc and unchanged from Saturday. Against the Aussie we are holding higher at 93.1 AUc. Against the euro we are firmer at 57.1 euro cents. That all means our TWI-5 starts today just on 70.8 and little-changed from where we left it Saturday.

The bitcoin price starts today higher, rising to US$43,939 and a gain of +1.2% from this time Saturday. Volatility over the past 24 hours has been low at just over +/- 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.

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 a quick news wrap-up so you can get back to your 'time-off'.

We are still seeing geopolitics and great power rivalry upending some parts of the global economy, and oil prices as a consequence, but generally conditions are quite stable-to-positive which is perhaps a bit of a surprise in the circumstances. The latest set of US Fed meeting minutes set the scene for more 'normal' market conduct.

First up, markets are turning their attention to the US labour market again, a market the bears have thought would be tanking by now (they have expected a rise in joblessness there monthly for more than two years now). But they may be disappointed yet again and have to reach deeper into their excuse box. The December non-farm payrolls report is out tomorrow and analysts now expect a +150,000 gain.

Today, US jobless claims came in lower than expected and a decrease from the prior week. Seasonal factors had anticipated a rise in claims, but it was not to be. There are now 1.89 mln people on these benefits, and insured jobless rate of 1.3%.

American employers announced the fewest job cuts since July, just 34,817 in December, down -24% from 45,510 in November. Announced layoffs fell -20% from December 2022.

The pre-cursor ADP employment report anticipated a payroll gain of +115,000 in December, but delivered a +164,000 rise in filled jobs, driven by big gains in California which accounted for about half the rise. This same December report shows that pay rose +5.4% for people who stayed in their jobs, and by +8.0% for people who changed jobs. This is more evidence that workers are making real pay gains in this labour market.

The first of the two reports on the services sector in the US in December is out and it underpins the stronger labour market data. It reports the fastest upturn in new business since June which is spurring the rise in activity, and employment growth rose its quickest in six months. The ISM services report will be out tomorrow. From an historic perspective the pace of this expansion isn't notable, but it certainly isn't a contraction.

But sadly, Canada cannot claim the same. Its services sector was shrinking in December and at a faster pace.

In China, the Caixin services PMI reported an activity expansion at its quickest pace for five months in December (52.9). This is in marked contrast to the official services PMI which found barely any expansion (50.4) in the firms they surveyed. The Caixin survey found better underlying market conditions and greater intakes in new business.

Germany reported its December inflation rate at 3.7% which was up from 3.2% in November. But this was basically because of base effects on energy costs, and their core inflation rate continues to track lower, now at 3.5% and its lowest rate since mid-2022.

In Australia, insurer IAG said they have more than 17,000 severe weather claims from recent Queensland and Northern NSW storms. This will hit the insurer and others like Suncorp who say they have 19,000 claims from the same events. The blowback could well accelerate premium rises and coverage restrictions in future that include New Zealand. The effect of climate change at work.

And staying in Australia, evidence is mounting that CBA's stand against home loan rate cutting can't be sustained as rivals eat away at their market share. You will recall this reticence drove ASB to avoid low margin deals, and that too saw its share shrink. Now there appears to be a change of heart within CBA that has them actively defending their portfolio. ASB will no doubt fall into line as well and now be more active.

The Suez Canal / Red Sea shipping risks are roiling global container freight rates. These jumped an outsized +61% last week. Even trans-Pacific rates rose a sharplish +30%. But the really big increases were for China to Europe routes where prices rose more than +110% in a week. However, it is equally notable that bulk cargo rates have moved little over this same period.

The UST 10yr yield starts today at 4.01% and up +11 bps from this time yesterday. 

The price of gold will start today up +US$10/oz at just on US$2043/oz.

Oil prices are -50 USc softer at just under US$72.50/bbl in the US. The international Brent price is now just over US$77.50/bbl.

The Kiwi dollar starts today at 62.2 USc and +20 bps lower than this time yesterday. Against the Aussie we are holding higher at 92.9 AUc. Against the euro we are more than -¼c lower at 56.9 euro cents. That all means our TWI-5 starts today just on 70.6 and down -10 bps.

The bitcoin price starts today higher, bouncing back up to US$44,085 and a gain of +2.7% from this time yesterday. Volatility over the past 24 hours has been extreme at just under +/- 5.7%.

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 on Monday.

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 a quick news wrap-up so you can get back to your 'time-off'.

First, the closely-watched US ISM factory PMI contracted again in December, but by less than expected and less than in November. But the number of months in contraction is now mounting; now its 14th straight month, the longest string since 2000-2001. New order levels remained weak.

But despite a key strike, and chip shortages earlier in the year, America's General Motors came out on top in their 15.5 mln vehicle sales market in 2023, edging out Toyota for the top spot - again.

US job openings eased slightly in November from October to 8.8 mln. This caught the attention of financial markets because this is now a 13 month low, but to be fair it is very little changed from October and has been hovering at this level since July.

Also falling, and quite sharply, were mortgage application levels in the US. And that was even after adjusting for the holiday period. Mortgage interest rates were stable at 6.76% plus points.

But expanding, and at a faster pace now were retail sales at traditional outlets. They were up +5.6% from the same week a year ago in a rising pace, solid real increases and much more than can be accounted for by inflation.

India's factories ended 2023 with a good but easing expansion. However that expansion remains above its long-run trend levels. They had substantial rises in new orders and production, and managed to keep its input cost inflation down, now its weakest rise in more than three years.

In China, it is now very tough being a new graduate and looking for work. Average starting pay offered to new hires in 38 key Chinese cities fell -1.3% to ¥10,420 per month (NZ$2,350/month) in Q4-2023 from a year ago. That was their worst drop since at least 2016 when this data started to be collected, according to data from a national online recruitment platform. And it is worse in some very big centers. In Beijing, starting salaries decreased -2.7% from a year ago and they have been falling all year. In Guangzhou they fell -4.5%.

In Australia, the house price juggernaut seemed to run out of steam in December. Sydney prices were little-changed and Melbourne prices actually fell. But for all of 2023 they did manage an +8.1% rise overall, with Sydney up +11.1%, Melbourne up a much more modest +3.5%, Brisbane was up +13.1% and Perth roaring ahead, up more than +15% for the year. Although Brisbane, Adelaide and Perth maintained the pace in Q4, that was not the case in either Sydney or Melbourne and questions are rising about a 2024 reversal.

Rising, and at a faster pace is the price of iron ore, now up at US$145/tonne, a gain of +18% in a little over a month, and up +30% in six months. Australia's budgets (state and federal) are all being fattened by this rise.

The UST 10yr yield starts today at 3.90% and down -5 bps from this time yesterday. 

Wall Street has started today down -0.3% in Wednesday trade on the S&P500. The Nasdaq is down another -0.6% so far. Overnight European markets all fell sharply, with London down -0.5%, Frankfurt down -1.4% and Paris down -1.6%. Yesterday Tokyo did not trade as it is a standard holiday there. They should be back today. Hong Kong fell another -0.9%. Shanghai however rose +0.2% as the home team came out to stabilise things. On the other hand, the ASX200 fell -1.4% yesterday. In its first day of trading this year, the NZX50 closed down a more modest -0.3%.

The price of gold will start today down -US$29/oz at just on US$2033/oz.

Oil prices are +US$2.50 higher at just under US$73/bbl in the US. The international Brent price is now just over US$78/bbl.

The Kiwi dollar starts today at 62.4 USc and only marginally different from this time yesterday. Against the Aussie we are nearly +½c higher at 92.8 AUc. Against the euro we are marginally firmer at 57.2 euro cents. That all means our TWI-5 starts today just on 70.7 and up +10 bps.

The bitcoin price starts today much lower at US$42,945 and retreating -4.8% from this time yesterday, suggesting yesterday's surge was overdone. Volatility over the past 24 hours has been extreme at just under +/- 5.7%.

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.

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 a quick news wrap-up so you can get back to your 'time-off'.

First, we kick off the New Year with another dairy auction, this one again modestly positive. The key WMP price was up +2.5% from the prior event. Butter was up +2.1%. But both cheddar cheese and SMP eased. Overall the result was +1.2% higher than the prior event in USD terms, up +1.5% in NZD terms as the Kiwi dollar slipped in its first trading of the New Year. Volumes sold were modest. Demand from China for WMP and butter was ok, but these buyers were quiet for SMP indicating their foodservice demand remains subdued.

There were final December factory PMI's released everywhere over the past few days and these paint an overall picture of weaker demand and both output and employment levels slipping lower. Of more of a worry perhaps is that neither input nor output prices are receding, suggesting price inflation will be hard to contain.

In the key US economy, their factory PMI was weak with a renewed contraction in output as orders fall at sharper pace. They also reported a rise in producer inflation.

As has become standard recently, there are mixed signals coming out of China. The private Caixin factory PMI is expanding but barely and didn't show the retreat expected. But it is displaying a yo-yo tendency around a steady state. However the official PMI does show an extended contraction by their factory sector. The Caixin survey tends to focus on mid-sized private companies. The official survey is more attuned to larger State-owned factories. And that is now contracting at the same rate as June 2023, and has contracted consistently since April 2023.

Unfortunately for them, their services sector isn't picking up the slack. Yes, it is expanding - just - but not be enough that anyone would notice. December is the third month in a row that the official services PMI has failed to fire.

The Chinese central bank has used its controversial Pledged Supplemental Lending program to inject NZ$80 bln extra into property lending support.

South Korean exports rose +5.1% from a year earlier to a 17-month high of US$58 bln in December. Shipments to the US rose +21% but they fell -3% to China, Korea's top export market. But the overall result was lower than expected and lower than the +7.7% gain in the previous month. But it was the third consecutive month of increase in exports, and has been driven by a rise in semiconductor exports. Meanwhile, South Korean imports fell rather sharply, down -11% mainly on lower oil prices. Compared to the recent nine straight months, imports are tracking a stable path.

It has been a very tough few days in Japan, first with having to deal with a deadly earthquake mid-winter. Now an Airbus aircraft from a domestic flight caught fire on a Tokyo airport after crashing with a Coast Guard plane on quake-aid duties. Fortunately everyone escaped from the passenger plane, but there were deaths on the Coast Guard plane.

Singapore released its 'flash' Q4 GDP result overnight. That is fast - we have to wait until mid-March for ours. The Singaporeans have current data for their policy makers to absorb and respond to already. They report the city-state's GDP grew by +2.8% in Q4, accelerating from a marginally revised +1.0% in Q3. This was their 12th straight quarter of economic expansion and the strongest pace since Q3 2022. The service sector contributed most to this recovery, modest by their usual standards. In the 20 years to 2018 it averaged +5%.

A new analysis for 2023 shows that compared to 2022, investments by sovereign wealth funds fell -20% to US$125 bln in 324 transactions; while investments by Public Pension Funds fell -26% to US$ 80 blnin 268 deals. Of the sovereign wealth fund investing, about a quarter can be accounted for by activity by Saudi Arabia's Public Investment Fund. Sovereign wealth funds had a tough year - in fact in the six months through October our own NZ Super Fund has posted negative returns in four of the last six months, and in six of the past twelve months.

One reason for poor performance generally might be exposures to commercial real estate. In the US, of the 605 buildings with mortgages expiring soon, there are 224 that Moody’s Analytics estimates owners will have trouble refinancing this year, either because the properties carry too much debt or because their rental performance is poor.  There are now roughly US $800 bln in American commercial mortgage-backed securities and delinquencies on office loans financed by them topped 6% at the end of November, up from 1.7% a year earlier. The expectation is that a lot of pain and write-downs will happen in 2024 and the pattern will be repeated worldwide, made worse because most of the "long term funding" that expires this year was on interest-only terms.

Shipping giant Maersk has backtracked from its reuse of the Suez Canal and Red Sea routes, putting that normalisation of hold after an escalation of attacks.

The UST 10yr yield starts the year higher than where we left it on New Year's Eve, now at 3.95% and up +7 bps. 

Wall Street has started its 2024 session down -0.8% in Tuesday trade on the S&P500. The Nasdaq is down -1.8%. Overnight European markets opened their 2024 account with very small changes. Yesterday Tokyo did not trade as it is a standard holiday there yesterday and today. Hong Kong did however and fell a sharp -1.5%. Shanghai had their own -0.4% retreat. On the other hand, the ASX200 rose +0.5% in its first 2024 trading session. The NZX50 was closed of course.

Investors appear convinced that major Western central banks are close to a general policy shift from raising interest rates to cutting them. But as day one trading suggests, there is nervousness because economies have not really adjusted yet to a world where money is not cheap. After big rallies in 2023 it is hard to see similar gains in 2024.

The price of gold will start today unchanged from New Year's Eve at just over US$2062/oz.

Oil prices are -US$1 lower at just over US$70.50/bbl in the US. The international Brent price is now just over US$76/bbl.

The Kiwi dollar starts today at 62.5 USc and down almost -1c from where we left it on New Year's Eve. Against the Aussie we are nearly -½c softer at 92.4 AUc to start the year. Against the euro we are marginally softer at 57.1 euro cents. That all means our TWI-5 starts today just on 70.6 and down -50 bps.

The bitcoin price starts today much higher at US$45,095 and up a sharp +7.9% from where we left it prior to the New Year. This 2024 level is higher than at any time in 2023. Volatility over the past 24 hours has been high at just under +/- 3.3%. ETF buying activity is said to be behind the rise today.

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.

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 generally positive news in the US, but extended worries about China's property sector.

After quite a jump in the prior week, American mortgage application levels slipped last week and for the first time in six weeks, despite a hefty retreat in benchmark 30 year mortgage interest rates. Those came in at 6.83% plus points, down from 7.07% the prior week, the first time they have been below 7% since early August.

All that was despite an impressive rise in American consumer sentiment and optimism in December, as tracked by the respected Conference Board survey. It hasn't been this high since mid-year. This rise mirrors the recent parallel University of Michigan survey. To be fair, both are back in the range from 2021, but there is a rising optimism about future expectations.

Perhaps reflecting that, US existing home sales rose in November, and for the first time in five months.

Also positive, the American current account deficit shrank to -US$200 bln in Q3-2023, 'only' -2.9% of GDP. That's its lowest level since Q2-2021 in dollar terms and its lowest since pre-GFC. For comparison, the New Zealand current account deficit is -7.6% of our GDP.

Australia and New Zealand are not the only countries facing record high immigration; Canada is as well. The post-pandemic surge seems to have caught many countries by surprise.

Japan's exports shrank in November when a small gain was expected. Data released today shows they fell -0.2% from the same month a year earlier mainly because China-bound chip shipments dived, underscoring worries that slowing overseas economies may deal another blow to the trade-reliant economy just as their domestic demand slows. At the same time imports dived significantly and that meant their trade deficit shrank rather quickly.

Taiwan's export orders didn't bounce back in November as expected, rising just +1% from a year ago and well short of the +4.3% rise expected. But that was their first rise in more than a year.

Another large Chinese property developer has filed for bankruptcy in the US, using its protections while it "restructures". (Evergrande was the last major Chinese property developer to try that manoeuver.) Interestingly, it didn't notify investors in stock exchange filings, of the move. This may be behind the chunky drop on the Shanghai stock exchange yesterday. But they aren't the only listed company facing existential pressures.

In the EU they are 'reforming' their fiscal rules which have become a straightjacket for some countries. EU finance ministers have bowed to German pressure for tough debt-reduction rules, as part of a deal to phase in a sweeping overhaul of their budget framework. After months of haggling, the new rules gives member states greater independence on debt and deficit plans, but only within tight spending limits demanded by fiscal hawks.

German inflation is likely to return to target ranges if their producer prices are any indication. Those remain in deflationary mode, falling -7.9% from a year ago driven primarily by much cheaper energy costs. The sizable retreat is essentially a base effect.

British consumer inflation is falling from the same energy cost retreat, now down to +3.9% in the year to November. But without those energy effects, their core inflation is still running at +5.1% - a small retreat but far above its neighbours and far above their central bank's target still. (Locally, they fudge the international standards of reporting inflation, but it is still high on their local basis.)

In Australia, the Melbourne Institute leading index has stopped falling which is a good way for them to end their year.

The UST 10yr yield has slipped -3 bps today, now at 3.89%.

The price of gold will start today down -US$9 at just on US$2034/oz.

Oil prices are +50 USc higher at just on US$74.50/bbl in the US although they have been higher in between. The international Brent price is now at US$80/bbl.

The Kiwi dollar starts today at 62.8 USc and marginally firmer than yesterday. Against the Aussie we are also firmer at 92.9 AUc. Against the euro we are unchanged at 57.1 euro cents. That all means our TWI-5 starts today just on 71, up +20 bps from yesterday and the highest since May 23, 2023 - just before the RBNZ's MPS signaled that its rate-hiking cycle was over.

The bitcoin price starts today at US$43,770 and up another +3.4% from this time yesterday. Volatility over the past 24 hours has been moderate-to-high at just under +/- 3.0%.

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.

We will be taking a short break from these podcasts. Enjoy your summer holiday break.

Kia ora. I'm David Chaston. And we will do this again starting on Wednesday after the New Year.

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 should note some more suggestions that the global hard landing may be even further away. The 'soft landing' has actually happened and that's despite wars, China's stumbles and trade tussles.

But we start today with the results of the final dairy auction of the year and the results are somewhat mixed. The headline change is a good +2.25% rise overall in USD terms. The key WMP price rose +2.9% and the foodservice commodities rose much more with cheddar cheese up +6.9% and butter up a strong +9.9%. But volumes offered and sold were on the lowish side. And the whole event was somewhat undermined by a sharp rise in the NZD at the same time so that in NZD terms there was essentially no change from the last auction. Overall, the story is somewhat similar - from a year ago prices are now little-changed which isn't that great when you realise that prices this time last year were -20% lower than the prior year (even if they were unusually high in 2021). At least today's result is better than another retreat.

In the US, housing data has surprised with new housing starts soaring. Bolstered by low inventories and now lower mortgage rates, they jumped unexpectedly by almost +15% in November from October to an annualised rate of +1.56 mln starts, the highest rate in six months, and well above market forecasts of 1.36 mln. Starts for single-family homes jumped +18%, the highest level since April 2022, and those for buildings with five units or more went up +8.9%. It is certainly an eye-catching move. But we should note that residential building consent levels did not jump, so the housing start data may just be a one-off catch-up.

American retail sales last week rose +3.6% at bricks & mortar stores on same-store basis, so those gains above inflation are holding and a good sign for holiday retailing. Early indications however are that online shopping is performing better than in-store this year.

Meanwhile, consumer inflation in Canada eased in November to be +3.1% higher than a year ago. A year ago it was running at well over double that. Still, that is stubbornly above their central bank's inflation target. Canadian producer prices are still falling however, down -2.3%, so perhaps the Canadian CPI has more falls to go.

The Bank of Japan maintained its key short-term interest rate at -0.1% and that for 10-year bond yields at around 0% in a final meeting of the year and by unanimous vote. There are no surprises here and that was widely expected. The central bank also left unchanged a loose upper bound of 1.0% set for the long-term government bond yield. The yen fell -½% after the announcement, vs both the USD and the NZD.

Yesterday the release of the RBA minutes brought a fresh perspective to their 'warning' that rate rises may be needed if inflation doesn't cool further there. However those warnings are being ignored in wholesale markets, who are pricing in rate cuts in late 2024, not rises. And that is because the RBA also has an employment mandate, so markets don't believe its hawkish inflation-fighting talk.

We should also note that the Icelandic volcano near Grindavik has suddenly exploded. But this time there are no major ash emissions. Still, natural events like this (and the 2022 Tongan explosion) can have lingering global atmospheric implications.

Of more immediate concerns are the security issues for shipping in the Red Sea. An international military effort to keep the routes open is underway. Now giant Chinese shipping company COSCO is avoiding the area. Freight rates and the cost of many essential raw materials will likely rise because of all this.

The UST 10yr yield has slipped -4 bps today, now at 3.92%. 

The price of gold will start today up +US$21 at just on US$2043/oz.

Oil prices are holding higher at just on US$74/bbl in the US although they had been lower in between. The international Brent price is now at US$79.50/bbl.

The Kiwi dollar starts today at 62.7 USc and up more than +½c from yesterday. Against the Aussie we are holding at 92.7 AUc. Against the euro we are up at 57.1 euro cents. That all means our TWI-5 starts today just on 70.8, up +40 bps from yesterday and back to more than a six month high.

The bitcoin price starts today at US$42,329 and up +2.1% from this time yesterday. Volatility over the past 24 hours has been moderate 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.

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 2023 is winding down with mixed outlooks in what may look like second tier data and events, but some of which could blow up over the holiday period.

In the US, house builder sentiment has turned higher. The closely-watched Housing Market Index has risen from its lowest in nearly a year, beating forecasts. It was the first improvement in sentiment in five months, driven by declining mortgage rates that sparked increased interest among potential buyers and raised expectations for sales.

But the iconic US Steel business is to be sold, ending a 122 year run, and it will be acquired by Japan's Nippon Steel. They beat out other local and offshore bids and have acquired the business for less than US$15 bln.

Meanwhile, more Fed officials are coming out says they are surprised by the outsize market reaction to the Fed’s updated quarterly economic projections last week. They think the market is getting ahead of itself in expecting significant 2024 rate cuts.

In China, their property crisis is getting worse, A developer in the southern city of Shenzhen (and partly owned by the City authorities) has warned it can’t pay interest due tomorrow, raising the risk of its first default. China South City Holdings said that it doesn’t have the resources to pay the interest of its 9% notes due July 2024, citing "liquidity and cash flow constraints from a deteriorating operating environment". That developer stress is now infecting local government-owned companies is an increased worry, especially as Shenzhen is an icon city featuring China tech prowess.

In Singapore, (non-oil) exports rose +1.0% in November from a year ago but that was off a low base in 2022. Their export of electronic goods decreased rather sharply (down -12.7%) while the much larger group of non-electronics exports grew +5.7% from a year ago

In Germany, the widely watched Ifo Business Climate indicator slipped to a three-month low in December from a downwardly revised November adjustment, but to be fair the shifts were minor and this sentiment index is bouncing along in a trough after a good start to the year. The Bundesbank released its Monthly Report today and that noted much lower inflation, but they are not "all clear" yet on the inflation front, they said.

In the Red Sea, now BP says it will cease using the Suez Canal for tanker transit while the security situation deteriorates.

The UST 10yr yield has risen +4 bps today, now at 3.96%. 

The price of gold will start today down -US$11 at just on US$2022/oz.

Oil prices are +US$2 higher from yesterday at just on US$74/bbl in the US. The international Brent price is now at US$78.50/bbl.

The Kiwi dollar starts today at 62.1 USc and unchanged from yesterday. Against the Aussie we are still at 92.7 AUc. Against the euro we are still at 56.9 euro cents. That all means our TWI-5 starts today just on 70.4, essentially unchanged from yesterday.

The bitcoin price starts today at US$41,443 and down -1.1% from this time yesterday. Volatility over the past 24 hours has been moderate at +/- 2.3%.

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

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

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

Following COP28's call for a transition away from fossil fuels, a key test will be how quickly a rethink of the market capitalisation of oil and gas companies starts emerging, says Rod Oram.

Fresh from attending COP28 in Dubai, Newsroom journalist Oram spoke to interest.co.nz for the latest episode of our Of Interest podcast.

COP28, or the 28th meeting of the Conference of the Parties to the United Nations Framework Convention on Climate Change, was overseen by its president Sultan Ahmed al-Jabar, managing director of Abu Dhabi National Oil Company, or ADNOC, the United Arab Emirates' state owned oil company.

Fossil fuels did, however, make it into the final agreement in a substantial way for the first time at a COP, Oram says. Whilst it's "weaker and slower and less specific [language] than is actually required," it's still significant progress.

The "UAE Consensus" text agreed by 198 countries also includes a global renewables and energy efficiency pledge.

"That does start to send a signal. Not only to governments as they prepare their next commitments under the Paris Agreement, by 2025 countries have to come back with an improved commitment, but it sends a powerful signal to them that they must be working more on fossil fuel reductions in consumption and production, and it also starts to send a stronger message to financial markets," says Oram.

The Paris Agreement is a legally binding international treaty on climate change.

"I think the key test in financial markets, both of that language on fossil fuels but then [also] on this language of a big increase in renewables, is how quickly we start to see a reappraisal of the market cap of oil and gas companies. And how quickly we'll see an appraisal that says 'oh, maybe they aren't going to be producing as much as we thought, say over the next 10 years, because people won't be burning as much because governments have started to shift, consumers have started to shift, renewables are escalating at a rapid pace.' And that to me is going to be the acid test as how soon we start to see that revaluation in the stock market of oil and gas companies," Oram says.

In terms of the annual COP meetings, Oram points out they require consensus across all 198 countries so it's not the place for really big breakthroughs. Instead COP, once a year, provides "a really good scorecard about what the state of play is on all of these issues."

"This isn't anymore just about negotiations between government officials and politicians. This is very much an all-of-society meeting, and that's why the numbers [of delegates attending] were so big this year."

In the podcast Oram also talks about the New Zealand presence at COP28, NZ winning fossil of the day, the first official recognition of and finance mechanism for helping developing countries cope with economic losses and physical damage from storms, droughts, and other climate impacts, the first time there has been a COP declaration on agriculture, and the "deeply, deeply, deeply fascinating" experience of attending a COP in person. Oram also addresses criticism of people flying across the world to discuss climate change, and his hopes for COP29 next year in Azerbaijan.

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

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 the 'final' week of shopping is here for the holiday season and most analysts are focussed on what that reveals about economies worldwide.

Also in the coming week the American data releases are mostly second-tier but there will be special interest in their PCE inflation, durable goods order levels, and a set of housing data. Japan has a big set of releases including from the Bank of Japan, and their inflation rate. Canada and the UK will also release inflation data. But of course everywhere hints about retail sales activity levels will be sought out

But first, China released a wide set of national data over the weekend. In the official data none of their 70 largest cities reported any house price growth based on housing resales. Overall their housing index was said to fall -0.2%, but sales of new units are low and now quite problematic. Sales of used units are showing much larger declines than the index they released, both month-on-month and year-on-year. In fact they are now heading for a multi-year retreat, the first they have had.

Going the other way, China reported that electricity production was up +8.4% in November from the same month in 2022. That supports the better than expected industrial production data they also reported, up +6.6%.

And also gaining were retail sales. Although very little changed from October, the jump from a year ago is an eye-catching +10.1% - at least until you realise the base was very stunted and they were just contemplating easing Covid restrictions. Correcting for that, the year-on-year gain seems to be about +4%.

China is getting ultra-sensitive about talk of economic problems - and their Ministry of State Security is on the case warning officials and commentators about not holding the Party line about the country's "bright future". And in Hong Kong the Party is putting on a show trial for an imprisoned publisher.

Meanwhile, foreign patent holders are finding that Chinese courts side with local companies and will chop royalties agreed in existing deals that they subsequently don't like.

In the US, retail shopping this year is even more focussed on the online sector. Turnover in traditional bricks & mortar stores is expected to just be level in volume terms.

Meanwhile an early look at their PMIs shows services rising while factory activity is contracting. The sharpest increase in new orders since July is pushing their dominant service sector to a quicker expansion, but the reverse is the case for manufacturing where new order levels are retreating.

The NY Fed Empire factory survey sank sharply in December from its unusual rise in November. But the longer term trend is still in place for a gradual move up from its deep negatives at the start of the year.

Meanwhile, overall American industrial production made a minor gain on November from October but is still slightly lower than year ago levels. Manufacturing output (led by business equipment), which accounts for 78% of total production, rose by +0.3% from October, marginally missing market expectations of +0.4%.

Canadian housing starts took an unseemly dive in October as they dropped to just an 213,000 annual pace and far below the expected 257,000 pace, or the 272,000 pace in October. For them, this is a huge and unusual miss probably reflecting the impact higher interest rates have on multi-family housing units.

And in Australia, the extent of bribery and corruption in China's environmental regulatory system is laid bare in the collapse of a public company there.

In India, export levels are neither growing nor retreating significantly. They were up in November marginally from October but down -2.9% from year-ago levels

In the eurozone, the early PMI surveys show activity is falling at an increasing rate in December and that is true for both their factory and services sectors.

Two of the world's largest container shipping groups stopped using the Red Sea and the Suez Canal. Germany's Hapag-Lloyd and Denmark's Maersk both said the dangers are too great at the moment and have instituted temporary halts. They have now been followed by two more European shipping lines, MSC, and CMA-CGM. This will put a giant spoke in global trade as more than 10% of world trade depends on the Suez canal.

The UST 10yr yield has fallen slightly today as things settle down in the new levels, now at 3.92% and little-changed from Saturday. 

The price of gold will start today also unchanged at just on US$2033/oz and that is up +US$36/oz from a week ago.

Oil prices are marginally firmer from Saturday at just on US$72/bbl in the US. The international Brent price is now at US$77/bbl.

The Kiwi dollar starts today at 62.1 USc and little-changed from Saturday. but it is up more than +1c from a week ago. Against the Aussie we are still at 92.6 AUc. Against the euro we are still at 57 euro cents. That all means our TWI-5 starts today just on 70.4, unchanged too and +20 bps higher than a week ago.

The bitcoin price starts today at US$41,922 and up a mere +US$31% (<0.01%) from this time Saturday. A week ago it was at US$43,699 so a -4.1% drop since then. Volatility over the past 24 hours has been modest at +/- 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.