Economy Watch

By Gareth Vaughan

The first-half of 2024 is likely to be tough with rising unemployment and more businesses failing as the economy "bounces along the bottom," says BNZ Head of Research Stephen Toplis. 

In a new episode of interest.co.nz's Of Interest podcast, Toplis delves into the swathe of domestic economic data from the past week including Gross Domestic Product, migration, Statistics New Zealand's Selected Price Indexes, the Real Estate Institute's latest monthly housing data, the current account deficit, the dovish US Federal Reserve monetary policy review, China and more.

It's tough times for businesses and households are under the cosh, Toplis says.

"Our view has long been that the second-half of 2023 and first-half of 2024 would be the trough in the economic cycle. And I think this [recent data] is confirming evidence of it," says Toplis.

"We're just bouncing along the bottom. And we'll continue to bounce along the bottom, probably until the central bank starts lowering interest rates. So there's more of this really, probably until the second-half of next year."

He notes the economy would look even worse without surging migration, but this is becoming problematic.

"We knew prior to Covid that we were having difficulty as an economy absorbing more than about 50,000 or 60,000 people in a given year. Now we're trying to absorb double that, and that's resulting in things like pressure on your rents, pressure on your housing market, and a pick up in demand in some places that will be difficult to meet," Toplis says.

Thus it's time to "look very closely at tweaking the [migration] settings to moderate those inflows."

Meanwhile, with the new coalition government planning to reduce government consumption aggressively, the reduction in the size of government "is going to be a headwind to New Zealand for some time to come."

"There are quite strong multiplier effects of that because government consumption is largely people employed. So if you reduce the size of the state sector, particularly its employment, it will have multiplier impacts on spending throughout the economy."

"If you think about the last time we had a massive correction in the size of government, that was actually in the early 1990s when Ruth Richardson ran her mother of all budgets as she called it. The sort of decline in government consumption that we're talking about now is of a similar magnitude. Back then it had a very, very big impact on both the unemployment rate and economic activity generally. The broader environment was quite different so it would be remiss to suggest it would be exactly the same impact, but it will be meaningful," Toplis says.

In the podcast he also talks about the inflation outlook, including why we "need to be a little bit careful in being overly concerned about non-tradeables" inflation, the housing market, the labour market, the outlook for interest rates, and more. (See more on tradeable versus non-tradeable inflation here).

"Volatility remains the order of the day unfortunately, and we still have the worst of this economic recovery to get through."

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

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 global interest rates are on the move.

The big news is the sharp dive in wholesale benchmark interest rates. And American benchmark mortgage interest rates have fallen below 7% for the first time since August.

But first, American jobless claims fell last week and by more than expected, and back to the low end of the range over the past year. There are now less than 1.8 mln people on this support, also a drop from last week but less than expected, but not enough to change the shallow rising trend.

As earlier indicators had suggested, the US holiday season retail impulse was good. Now the official retail sales data for November is out and that confirms the earlier data. Value levels were up +4.1% from a year ago, so there has likely been an expanding retail volume too.

And you can see the impact of that demand on business inventories, which fell - a small slip from October, true, but one that wasn't expected. From a year ago they were up +0.5% in value terms, so clearly falling in volume terms.

In Canada, their housing market sales are retreating, even if the shrinkage is still small.

Taiwan's central bank kept its policy rate at 1.875%.

In Hong Kong, 38% of people polled said they want to quit the City, mainly because of oppressive 'freedom' restrictions. That was up from a 29% in the same poll a year ago.

Overnight the ECB was clear that it will keep its rates at multi-year highs for a long time yet in its battle to get on top of inflation. In contrast to the US Fed signals that softenings are coming in 2024, the ECB was staunch. However Norway's central bank raised its policy rate by +25 bps to 4.5%. But the Swiss National Bank held its rates unchanged, as did the Bank of England which also conveyed a tough line against price pressures. The ECB and English pushbacks had the effect of bolstering their currencies.

And staying in Europe, the EU has "unanimously" agreed to open talks with Ukraine to join the bloc.

Australian inflation expectations fell from 4.9% in November to 4.5% in December, according to the latest update of the Melbourne Institute survey. At these levels, the RBA will also likely remain staunch in its monetary policy positions, even it it is at its lowest level since early 2022.

Although the Aussie jobless rate rose to 3.9% in November, the number of new jobs rose more than expected and most of them were full-time positions. The number of unemployed increased by +18,800 to 572,000. But the labour force rose +61.500 to 14.3 mln of which +57,000 were full-time. Their participation rate edged up.

Global container shipping freight rates rose another +4% last week as the world adjusts to the two big canal pressures, mainly on routes out of China. Meanwhile bulk cargo rates remain high but are coming off their early December peak.

The UST 10yr yield has fallen sharply in the wake of the Fed meeting, now at 3.93% and down -23 bps from yesterday. And the last time we were at this level was in July. 

The price of gold will start today just on US$2037/oz and up a very sharp +US$55/oz from this time yesterday.

Oil prices are up +US$3/bbl from yesterday at just over US$72.50/bbl in the US. The international Brent price is now up at just on US$77/bbl.

The Kiwi dollar starts today at 62.2 USc and up a full +1c from yesterday. Against the Aussie we are -¼c lower at 92.7 AUc. Against the euro we are down -10 bps at 56.6 euro cents. With falls against the Yen and Pound, that all means our TWI-5 starts today just on 70.3, just +10 bps firmer than yesterday at this time.

The bitcoin price starts today at US$42,617 and up +1.8% from this time yesterday. Volatility over the past 24 hours has been moderate at +/- 2.0%.

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

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

Kia ora. I'm David Chaston. And we will do this again 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 news we are waiting on the US Fed.

Financial markets are in limbo, cautious ahead of the US central bank's monetary policy meeting results that will be released at 8am NZT today. We will update our webside when these details are released. They are widely expected to keep the fed funds rate steady at 5.5% for a third consecutive meeting and push back against expectations of rate cuts early next year. Back in September, the Fed's dot plot indicated two cuts in 2024, but Chairman Powell recently deemed it premature to discuss rate decreases. They will release new economic and rate forecasts which will be closely watched and parsed.

Meanwhile American producer prices were unchanged in November from October to be just +0.9% ahead of year-ago levels - and that was a lower increase than expected. Consumer inflation might be stubborn but producer prices are now rising at very modest levels. Recall, US PPI peaked at more than +11% pa in early 2022.

American mortgage applications rose an unexpected +7.4% last week from the week before, a sixth consecutive weekly and driving applications to their highest level in over four months, thanks to the continuous decline in interest rates. The benchmark 30 year fixed home loan rate is now down to 7.07% in this survey, it lowest since July.

In China, the expected bounce-back from October's weak new lending levels came but it wasn't as robust as expected. China's banks extended almost ¥1.1 trillion in new yuan loans in November, a good rise from October's weak level but falling short of market expectations of ¥1.3 tln. Household loans, including mortgages, rose by almost +¥300 bln after shrinking in October, while corporate loans also rose by +¥300 bln from October.

In their Capital Flows Report, the IIF says China will suffer net outflows from Chinese stocks and bonds of -US$65 bln in 2024 from foreign investors, extending the 2023 trend of de-risking. In November alone, foreign investors pulled a net -US$3.7 bln from Chinese equities and bonds. Other emerging markets are not getting this cold shoulder.

China's delayed but important 2 day Central Economic Work Conference has wrapped up, but you would hardly know. The readouts of decisions and goals are in special Beijing-speak and opaque to most. Most of the released goals are platitudes.

The newly-elected Argentine government devalued the peso’s official exchange rate by -54% to 800 to the greenback on their second day in office, firmly above market expectations that ranged from a 27%-44% devaluation, marking a new record-low for the battered currency. The decision also narrowed the gap between the official rate and dollar prices for individuals available in parallel markets, which have approached 1,100 pesos per USD. It followed a group of aggressive economic measures passed by the new administration, the so-called “shock treatment” pledged by newly-elected President Milei that aims to battle inflation that approaches 150%, a plunging peso, and elevated levels of money creation to service spiraling debt. The new government stated it will cut an equivalent of -2.9% of GDP in spending, including reductions in social subsidies and pensions, while implementing a +2.2% increase in taxes over the next year. As a consequence, official forecasts for monthly inflation rose to over 20%.

Australia's Mid Year Economic & Fiscal Outlook (MYFEO) was released yesterday and it was surprisingly positive, signaling that they may in fact get another surplus this year - making it two years in a row Canberra has achieved that. It is built on the "usual suspects" - very high mining profits and delaying infrastructure spending. The tax receipt uplift is due predominantly to personal income taxes being +$30 bln higher than forecast, including +$9 bln for this financial year, and company tax. Tax relief for bracket-creep may be coming soon.

The UST 10yr yield is softer on secondary markets at 4.16% and down -5 bps from yesterday at this time ahead of the Fed. 

The price of gold will start today just on US$1982/oz and up +US$2/oz from this time yesterday.

Oil prices are up +US$1/bbl from yesterday at just over US$69.50/bbl in the US. The international Brent price is now down at just under US$74.50/bbl.

The Kiwi dollar starts today at 61.2 USc and little-changed from yesterday. Against the Aussie we are -¼c lower at 93.1 AUc. Against the euro we are down -10 bps at 56.7 euro cents. That all means our TWI-5 starts today just on 70.2, -20 bps softer than yesterday at this time.

The bitcoin price starts today at US$41,856 and up +1.4% from this time yesterday. Volatility over the past 24 hours has been modest at +/- 1.9%.

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

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

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

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 financial markets are now turning their eyes to the US Fed meeting results tomorrow after it became clear today that while still easing, wringing the last bit of inflation's impulse from their economy could be tougher than first thought.

The US Fed targets 2%.

The American November inflation rate came in exactly as expected, at 3.1% and down marginally from 3.2% in October. Their core rate (without food or energy) was unchanged at 4%. This unchanged result has markets reassessing those 2024 rate-cut bets. Inflation in the world's largest economy is sticky at the end of its cycle and getting it back to 2% isn't going to be as straight forward as anticipated by financial markets. The Fed's caution is being justified.

Food prices rose +2.9% and fuel prices fell -5.4% so they are not weighing on the overall level. But rent is, up +6.5%. And airfares are up more than +10% in the year.

The Redbook index of bricks & mortar retail store sales on a same-store basis rose +3.4% last week, so the engine of American retail sales is still expanding on a volume basis.

American small business owners are still feeling the pressure however, but more from a tight labour market than from demand. 40% of all owners reported job openings they could not fill in the current period, keeping them glum even if business is expanding faster.

In Canada, they have a housing crisis - and perhaps a back-to-the-future solution. Home prices and rents have soared in part because housing starts have not kept pace with record immigration, and the official estimate is that 3.5 million more dwellings will be needed by 2030 to restore affordability. A 'new' policy has been announced, one with echoes of the housing-building boom after WWII. Standardised units will get blanket building consent approval with the idea that this will speed construction. This time however, the focus will be on density.

In India, the monsoon has been weak this year and that is affecting food prices. Overall, consumer prices rose 5.6% in November, the first increase in four months, up from 4.9% in October. Food inflation however went up to 8.7%, the highest in three months, up from 6.6% in October so the pressure is on, on that front.

India also reported October industrial production which was up +11.7% from a year ago, a much stronger rise than in the prior month and more than expected.

In China, a couple of random points to note: it seems banks are reluctant to ease loan conditions for home buyers in distress. Only a handful of Beijing controlled banks have shown any sympathy.

Also, the child walking pneumonia crisis apparently became a national issue due to very widespread antibiotic resistance, making a mild condition very much worse.

In Germany, sentiment as measured by the widely-watched ZEW survey rose in December. It is now at a new high since March. Despite their current budget crisis, the assessment of the situation and economic expectations have improved again, as more respondents expect interest rate cuts by the ECB in the medium term, and inflation to stay down.

In Australia there were two sentiment surveys out yesterday. The Westpac MI consumer survey found low but improving sentiment in December as the holiday season approaches. The icon NAB business survey recorded a sharp dip in sentiment in November to its lowest level since the pandemic in early 2020.

The UST 10yr yield is softer on secondary markets at 4.21% and down -6 bps from yesterday at this time. 

The price of gold will start today just on US$1980/oz and down -US$2/oz from this time yesterday.

Oil prices are down -US$2.50/bbl from yesterday at just over US$68.50/bbl in the US. The international Brent price is now down at just over US$73/bbl.

The Kiwi dollar starts today at 61.3 USc and little-changed from yesterday. Against the Aussie we are up +10 bps at 93.4 AUc. Against the euro we are down -10 bps at 56.8 euro cents. That all means our TWI-5 starts today just under 70.4, +10 bps higher than yesterday at this time.

The bitcoin price starts today at US$41,298 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.

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 we have some major set piece central bank meetings this week and there is a growing feeling they will each try to challenge investors' expectations of 2024 interest rate cuts.

But first, American consumer inflation expectations for the year ahead fell to 3.4% in November, the lowest since April 2021. That is down from 3.6% in the previous month, and aligns with a number of separate private consumer surveys that have picked up a disinflation trend in the US economy. (Disinflation is falling positive inflation, deflation is where prices are falling.)

It is not only inflation that is reducing, US Treasury bond yields are too. Today there were two major auctions. The three year Note was well supported with $121 bln offered for the $50 bln available. Investors won that with a median yield of 4.43% pa which was down from 4.65% at the previous equivalent auction a bit more than a month ago.

It was a similar story for their ten year bond. Today $94 bln was bid for $37 bln available, so again well supported. Today's median yield was 4.22% pa and that compares to the 4.44% at the prior equivalent auction 5 weeks ago when US$40 bln was available.

In Japan, the latest official sentiment survey for large businesses there has revealed fast rising optimism, their best in two years.

Locally, inflation pressures are easing too. The Infometrics/Foodstuffs grocery cost index monitoring reports prices rose +4.8% in November from a year ago, the first sub-5% annual increase since March 2022. There are some categories (bulk foods and meat) that are now well under +3%, although some others still around +6%. Recall for the three year period 2019 to 2022, grocery prices rose overall less than +2%, so the current levels remain unusually high even if they are moderating fast.

And we should note that the aluminium price has fallen to its lowest level since April 2021.

The UST 10yr yield is firmer on secondary markets at 4.27% and up +4 bps from yesterday at this time. You will note that is a premium to today's US Treasury auction (above). 

The price of gold will start today just on US$1982/oz and down -US$23/oz from this time yesterday.

Oil prices are down -50 USc from yesterday at just over US$71/bbl in the US. The international Brent price is now just over US$75.50/bbl.

The Kiwi dollar starts today at 61.2 USc and unchanged from yesterday. Against the Aussie we are up +10 bps at 93.3 AUc. Against the euro we are still at 56.9 euro cents. That all means our TWI-5 starts today just on 70.3, +10 bps higher than yesterday at this time.

The bitcoin price starts today at US$41,753 and down a sharpish -4.7% from this time yesterday. Volatility over the past 24 hours has been very high at +/- 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.

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 that a lot happened so let's get into it.

In the week ahead we will get the US Fed's interest rate decision, and American inflation and retail sales data. We will also get central bank updates from the ECB, the Bank of England, the Swiss National Bank, Norges Bank, and Brazil’s central bank.

But first up we need to report that China is now in deflation again. Consumer prices fell -0.5% in November from a year ago, steeper than a -0.2% drop in the prior month and compared with market forecasts of a moderated -0.1% fall. It was the fastest decline in Chinese inflation since November 2020, driven my faster falling food costs, at the strongest pace in over two years and the biggest impact here was from a sharper fall in pork prices. Beef, lamb and milk prices are also falling although nothing like the pork prices. Meantime, non-food inflation slowed notably from +0.4% from +0.7%.

Chinese producer prices also fell faster and by more than anticipated.

But even in the face of current and obvious economic restraints, Beijing looks set to launch an ambitious growth target for 2024. Maybe as high as +5%. But there is no indication that huge stimulus programs are about to be launched. New debt support however will be a part of it. One thing is becoming clearer however, Hong Kong's days as a financial center are drawing to an end with mainland policies undermining its judicial independence and court transparency. Contracts entered into there have to meet Beijing's control measures. This sort of window dressing doesn't apply when it puts the CCP in a bad light.

Across China, presale properties are taking a hit as homebuyers fear that financially distressed developers will not be able to deliver despite upfront payments. The share of presale properties between January and October this year slumped to the lowest point since 2017.

Meanwhile, Taiwan's export growth was expected to have turned positive in November and that is how it turned out - although the year-on-year gain wasn't quite what was expected even if the miss was minor. It has been a year and a half since they have had a gain like this, however.

Across the Pacific, the US economy added +199,000 jobs in November, more than the +150,000 added in October and better than the expected +180,000 gain. The strength was across the board, including for manufacturing.

Away from the headline seasonally-adjusted data, the actual employer payrolls came in at a record 158.5 mln, up a strong +488,000 from October. For the broader household survey of employment which includes the unincorporated self-employed, it rose to 162.1 mln and also an all-time record, swelling +473,000 in the month (revealing a small shift to company payrolls). Either way you look at it there were many more workers getting paid in November than October, +3.4 mln more in a year (+2.8 mln more on company payrolls). It is a significant shift (and achievement).

The golden jobs run is lifting confidence. The University of Michigan's consumer sentiment survey surged to 69.4 in December, rising from 61.3 in the previous month and surpassing market expectations set at 62.0. It was the highest level recorded since August, largely driven by positive shifts in the expected path of inflation. They dropped to 3.1% from November's 4.5%, marking the lowest level recorded since March 2021.

And there doesn't seem to be any stress showing up in American consumer debt levels. They rose a much tamer (and minor) +US$5.1 bln in October from September to US$4.968 tln or just 18.1% of US GDP. A modest +US$9 bln rise was expected and that too would have been low. Rising employment and solid pay increases (+4.0%, so higher than inflation) are helping consumers keep a lid on their consumer (non-housing) debt. If the global economy does wobble, it won't be because of US household finances in the current state.

All this run of positive data has markets pulling back on their enthusiastic expectation that the Fed will be cutting rates in 2024. Again, it is the Fed that is getting the future view right, not the commentariat. They are meeting this week and will announce the results of its policy deliberations on Thursday (NZT) along with their closely watched and highly anticipated quarterly Summary of Economic Projections. Markets expect no change in their policy rate at 5.5%, and holding at its 20+ year high. (Remember, markets have priced in American rate cuts starting in Q2-2024.)

The release of the December version of the USDA WASDE report caused barely a ripple, mainly because they report a sanguine crop and livestock situation worldwide with adequate stocks and balanced demand and supply. US beef import estimates are raised for 2024 on expectations of demand for processing-grade beef. US milk production is retreating somewhat.

The UN FAO also reported on December global food prices and they said the same. Food price stress has long eased and the global costs of meat and dairy have eased more than most other categories. Overall prices are falling and back to early 2021 levels and far below the intervening bubble.

The Reserve Bank of India held its benchmark policy rate at 6.5% for the fifth consecutive meeting on Friday. They seem confident they are keeping inflation within their generous 2-6% target range. The rate hold was in line with market expectations. India's annual inflation slowed to a four-month low of 4.9% in October.

In Australia, the incoming Labor Government ordered a competition review of how banks treat retail savers. They were particularly keen to get banks to automatically switch savers to the 'best rates' on rollover. Borrowers got the RBA's rate changes in a full pass-through, but savers did not. That review has now ended and the results will be tabled this coming week. It will be interesting to see whether the industry responds with generally higher savings rate offers, or higher lending rates.

Prior to that, over the weekend their Government announced it will raise fees for foreigners who buy existing houses and will penalise them if they leave the properties vacant. They also decided they will incentivise foreign investors for build Build-to-Rent properties to boost their housing supply.

We should also note that Queensland Premier Annastacia Palaszczuk has announced she will step down as premier this coming week after nine years in power.

The UST 10yr yield is holding firmer at 4.23% but little-changed in a week. 

The price of gold will start today just on US$2005/oz and up +US$8 from Saturday.

Oil prices are up +US$1 from Saturday at just under US$71.50/bbl in the US. The international Brent price is now just under US$76/bbl. A week ago these prices were US$74.50 and US$79/bbl so a net -US$3 shift lower since then.

The Kiwi dollar starts today at 61.2 USc and up a minor +10 bps from Saturday. A week ago we were at 62 USc. Against the Aussie we are also up +10 bps at 93.2 AUc. Against the euro we are still at 56.9 euro cents. That all means our TWI-5 starts today just on 70.2, -50 bps lower than a week ago.

The bitcoin price starts today at US$43,820 very little changed from this time Saturday (+0.3). However, a week ago it was US$38,773, so a +13% rise from then. Volatility over the past 24 hours has been low at +/- 0.5%.

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 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 we are in the shadow of tomorrow's US non-farm payrolls report which will give an important steer on where the world's largest economy is heading.

But there were some labour market indicators out today ahead of that report. First, jobless claims rose last week. However, this was the usual seasonal increase, but little more, and were basically at the same level as the same week a year ago.

Secondly, the Challenger job cut report noted a tiny rise in November from the tiny level a month ago. But these levels very much less than the same month a year ago. There is nothing here to suggest labour market stress is building.

In Japan, there are a series of subtle signals coming out that the Bank of Japan is about to end its negative interest rate policy. These moves are expected over the New Year period. That saw the yen rise.

Exports from China unexpectedly rose by +0.5% in November from the same month a year ago, after a -6.4% fall in the previous month and beating market forecasts of a -1.1% drop. It was their first increase in exports since April. But it isn't the gains that were expected and essentially dashes any hopes for an economic rebound in China. Among key trading partners, exports increased to the US (+7.3%) and Taiwan (+6.4%), while shrinking to Japan (-8.3%), South Korea (-3.6%), Australia (-9.1%), New Zealand (-15.2%), and the EU (-14.5%).

The spread of the dangerous respiratory infection illness in China seems to be bringing back their mobile "health code" apps - in at least two provinces so far, as officials struggle to contain it spreading nationwide.

Australian exports were -11.9% lower in October than the same month a year ago, down -0.4% from September.

But global freight rates for containerised cargoes rose +6% last week, no doubt due to the difficulties in traversing both the Suez and Panama canals. China to Europe rates rose +15% in a week, whereas China to the US West Coast actually fell. Meanwhile, bulk cargo rates peaked on Monday, but have eased marginally since.

The UST 10yr yield is unchanged from yesterday at 4.11% in a basic holding pattern.

The price of gold will start today just on US$2,020/oz and down -US$10 from yesterday.

Oil prices are staying down, unchanged from yesterday at just on US$69.50/bbl in the US. The international Brent price is now at US$74/bbl. These are 5 month lows, and on an inflation-adjusted basis, decade-lows. It is fair to wonder if the OPEC cartel has lost its influence.

The Kiwi dollar starts today at 61.7 USc and +10 bps firmer from yesterday. Against the Aussie we are down -20 bps at 93.5 AUc. Against the euro we are up fractionally to 57.2 euro cents. That all means our TWI-5 starts today just on 70.6 and -10 bps lower from this time yesterday.

The bitcoin price starts today at US$43,637 and down -0.4% from this time yesterday. Volatility over the past 24 hours has been modest at +/- 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.

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 world's economy seems to be ending the year in a flat funk. Momentum has leaked away and financial markets are sensing a fairly bleak 2024.

However American mortgage applications rose by +2.8% last week from the prior week, marking the fifth consecutive weekly increase and pushing applications to their highest level in ten weeks. Helping was the continuing fall in home loan interest rates with the benchmark 30 year fixed rate now down to 7.35% plus points.

Private businesses in the US hired +103,000 workers in November, below a downwardly revised +106,000 in October and well below the expectation of +130,000. That is according to the ADP survey. The November result brought the expected rise in services hiring, but an unexpected fall in manufacturing job levels. However, expectations for Saturday's (NZT) non-farm payrolls have firmed and are now at a +180,000 gain.

US exports of goods and services came in little different in October than September (-1.0%), but were +1.3% higher than year-ago levels.

In Canada, they too delivered a hawkish hold in their overnight monetary policy decision. They held its target for the overnight rate at 5% for a third consecutive meeting, in line with market expectations, leaving borrowing costs at a 22-year high. The Canadian economy currently seems stalled.

Canadian exports were also little changed in October from September (+0.1%), and almost the same year-on-year.

In Japan, sentiment at big manufacturers there surged, improving for a second straight month as the vehicle sector continued to recover from last year's semiconductor shortage and supply chain woes.

China is really battling that flu outbreak we noted a week or so ago. Hospitals are crowded, healthcare employees very stressed. Authorities are worried, using language that is easily decoded by their population.

Moody's put Hong Kong, Macau and lots of China's state-owned firms and banks on downgrade warnings overnight as it wasted little time in following up on an identical move the previous day on the mainland government's rating. The Hong Kong government isn't happy.

EU retail sales volumes rose in October from September but not by as much as expected. In the end the rise was trivial, but at least it is a volume rise. However, from a year ago, these volumes are -1.2% lower, although that is much better than the -2.9% decrease in September.

But German factory orders were unusually weak in October. They fell -3.7% in October from September, following an upwardly revised 0.7% rise in September. Analysts had expected a gain, but their industrial sector remains fragile. The biggest drag came from orders for machinery and equipment. These October order levels were -7.3% lower than year-ago levels. For an economy as large as Germany, that is a lot.

In Norway, their parliament has backed deep-sea mining in the Arctic Ocean. This is a bit of a surprise given they have a center-left government.

Yesterday’s independent Aussie PMI from the Australian Industry Group was also something of a depressing read. Their Index sank deeper into contraction in November on the back of falling demand and activity. It is now back at levels last seen in the depths of the pandemic. The activity/sales, new orders and input volumes indicators all materially fell in the month. Employment increased marginally. November's was the lowest reading since June 2020. On a trend basis, all four activity indicators point to contractionary conditions.

Australia released at Q3 GDP data yesterday, showing their economy grew +2.1% in the September quarter from the same period in 2022. That is better than the expected +1.8% year-on-year expansion, and the same as their Q2 expansion. Having noted all these year-on-year changes, we should also note that the change from the June quarter came in softer than anticipated - and it is this softness that is grabbing headlines across the ditch, especially the lower household incomes. It is a sharp contraction in per capita terms.

The UST 10yr yield is down -7 bps from yesterday at 4.11% with the slide extending.

The price of gold will start today just on US$2,030/oz and up +US$13 from yesterday.

Oil prices are -US$3.50 USc lower in a notable drop at just on US$69.50/bbl in the US. The international Brent price is now at US$74.50/bbl. These are new 5 month lows.

The Kiwi dollar starts today at 61.6 USc and up +¼c from yesterday. Against the Aussie we are up +10 bps at 93.7 AUc. Against the euro we are up +¼c to 57.1 euro cents. That all means our TWI-5 starts today just on 70.7 and up +2 bps from this time yesterday.

The bitcoin price starts today at US$43,815 and up another +2.6% 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.

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 Moody's has downgraded the Chinese economy's outlook.

First up today however there was a dairy auction overnight and that came in with a minor +1.6% gain in USD terms, although only a +0.5% rise in NZD terms. Rather oddly, most of the major components managed better rises. Cheddar cheese recovered +9.7%, SMP was up +1.2% and WMP rose +2.1% from the prior event two weeks ago. This auction won't be changing minds about farm gate payouts, but at least it wasn't negative.

In the US the news is quite mixed. Starting with the positives, the ISM services PMI expanded faster and ny more than expected. A feature is that it led by faster expanding new order levels. The internationally-benchmarked S&PGlobal (ex Markit) one also reported a pick up in expansion and better new order levels, but at a lower level that the ISM one.

However the LMI logistics survey revealed a contracting sector in November quite a sharp turn down from October. But at least inventory levels and freight costa are reducing, which is probably a good thing for them.

Also falling however are job openings. This data is for October and the retreat reported is quite sharp, down -617,000 from the previous month to 8.733 mln and the lowest since 2021. Perhaps this is the early indication of a slowing American jobs market, something analysts have been expecting for almost two years now. But the current forecasts for non-farm payrolls are a +185,000 expansion in November when the data is released Saturday NZT (and the ADP report at +130,000) and analysts have been increasing their bets recently.

US retail sales as reported by their Redbook index for bricks & mortar stores on a same-store basis has slipped back to +3.0% year-on-year. Just enough to account for inflation perhaps, but nothing more and certainly not the real gains we have had in the past eight of twelve months.

In China, Moody's affirmed their credit rating at A1 but revised the outlook from "stable" to "negative", citing growing risks stemming from lower medium-term economic growth, rising debt, and the ongoing restructuring of their property sector.

The OECD released their PISA review results of education and they make grim reading for New Zealanders. Schools are failing our kids, according to these reviews. The education community is brushing these results off as "pandemic-related" and that may be a part answer. But the OECD itself says there is more at play here. Australia also scored worse although got gains in science. The US held its own, but Japan for instance improved.

Yesterday, the Reserve Bank of Australia held its policy rate unchanged at 4.35% and delivered the expected hawkish commentary.

Internationally, the Bank for International Settlements has warned that rapid global growth in buy now, pay later services could create risks in the financial system. The warnings are focused on both Australia and Sweden who have the heaviest adoption.

Air cargo volumes continue to rise and in October were +3.8% higher than the same month a year ago. For the Asia/Pacific region they are up +7.6%. But to be fair they still trail pre-pandemic (2019) levels although the shortfall is now a minor -2.4% on that basis.

On the same basis, international passenger travel is still -20% lower in the Asia/Pacific region than pre-pandemic equivalents, down -5.8% globally. But the gains from last year are very sharp as the return to globe-trotting returns to normal. But the biggest gains aren't international, they are domestic air travel which is now greater than pre-pandemic.

The UST 10yr yield is down -11 bps from yesterday at 4.18% with the slide resuming.

The price of gold will start today just on US$2,017/oz and down another -US$9 after yesterday and now way off its all-time high.

Oil prices are -50 USc lower at just under US$73/bbl in the US. The international Brent price is now at US$77.50/bbl and -US$1 lower. These are new 5 month lows.

The Kiwi dollar starts today at 61.3 USc and down another -40 bps from yesterday. Against the Aussie we are up +40 bps at 93.6 AUc. Against the euro we are down -20 bps to 56.8 euro cents. That all means our TWI-5 starts today just on 70.5 and down a mere -10 bps from this time yesterday.

The bitcoin price starts today at US$42,725 and up another +2.7% from this time yesterday. Volatility over the past 24 hours has been modest at just on +/- 1.6%.

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.

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 major global trade choke-points are under threat and this may bring very costly work-arounds.

But first in the US, October factory orders fell sharply and by more than expected. They fell -3.6% from September to be down -1.4% from the same month a year ago. But to be fair, this is essentially a story of a drought of new aircraft orders (down -50% from the prior month). True, other order levels were soft, but only by a smaller amount, down -1.2% from September after being up +0.8% the prior month.

It may still be early days, but the new central bank policy approach in Turkey hasn't yet had any effect on bringing down inflation there. It is still running at 62% pa in November.

In Australia, there are building signs their economy is softening, and quite quickly.

In fact, a NSW survey of a wide range of businesses found that Christmas trading is expected to fall on average -11% this year compared to last year. Businesses in two pf the state's regions are anticipating a decline in excess of -20% - and in those two regions almost half plan to cut staff after Christmas. Things are decidedly ropey.

And extending the ropey feel, a broader Australian survey found that activity is being propped up by making more inventory. Meanwhile sales are retreating and profits are under real pressure - although to be fair the overall picture is twisted by a big drop in mining profits. That wages rose while sales fell doesn't give you a good feeling about future employment, or wages for that matter.

Canberra is preparing a new round of cost-of-living relief measures to roll out if things get dire. They are most likely to be released in their May 2024 Budget. However those latest Business Indicators show that wages were up +9.7% in the year to September so it certainly isn't "dire" yet.

Later today, the RBA review will release its final review for 2023 of its cash rate target and it is universally expected to be on hold at 4.35%. Tough talk about inflationary risks are falling on deaf ears in financial markets; they now price in no change all the way through 2024.

But we should all hold our breath. Conflict in the Middle East, and drought in Panama, means that the two vital canals for world trade are under threat and operating sharply below capacity. In Russia, the only two rail links from China have been put out of action by sabotage. (Not to mention South China Sea stresses.) In each case, the alternatives are very costly and will sharply discourage trade. It is very unusual that these threats are all happening at the same time. One measure, the Baltic Dry Index is zooming higher suddenly.

The UST 10yr yield are up +8 bps from yesterday at 4.29% with yesterday's slide arrested. 

The price of gold will start today just on US$2,026/oz and down -US$45 after yesterday reaching an all-time high.

Oil prices have stayed down at just under US$74/bbl in the US. The international Brent price is now at US$78.50/bbl. These are 4½ month lows and levels first reached 16 years ago.

The Kiwi dollar starts today at 61.7 USc and down -40 bps from yesterday. Against the Aussie we are up +20 bps at 93.2 AUc. Against the euro we are still at 57 euro cents. That all means our TWI-5 starts today just on 70.6 and down -20 bps from this time yesterday.

The bitcoin price starts today at US$41,583 and up +4.7% from this time yesterday, and confirming the break out of its recent range. Volatility over the past 24 hours has been high at just on +/- 3.4%.

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.