Economy Watch

Reserve Bank Governor Adrian Orr says he's "extremely confident" the world is heading back to a period of low inflation, saying the central bank is prepared to do "whatever it takes" to achieve its mandate of low and stable inflation.

Speaking in in the latest episode of interest.co.nz's Of Interest podcast, Orr talks about the reaction from financial markets to last week's Reserve Bank monetary policy review, what its Monetary Policy Committee members will be watching between now and when they next review monetary policy on February 28, and what the Reserve Bank would need to see to be more relaxed about inflation.

"We just need to repeat we are willing to do whatever it takes to achieve our mandate, [of] low and stable inflation. If we get further inflation shocks there may be more work to do. So we're in a holding position, but we've made it clear where our nerves sit," Orr says.

"Basically we need to see more spare capacity in the economy to have the real confidence that the inflation pressures are coming off. All the indicators are moving in the right direction, but there's a lot of news still to arrive on the table."

He also talks about "historically significant" immigration, noting countries such as Australia, Canada and New Zealand, with strong net inward migration are "having the highest core inflation challenges."

With the new National-led government set to remove the Reserve Bank's requirement to "support maximum sustainable employment," from its monetary policy remit, Orr discusses how different monetary policy might have been over recent years if that hadn't been part of the Reserve Bank's mandate.

Orr also says profit-led inflation, businesses pushing through price increases under cover of news about a major shock to the economy because there'll be less pushback from customers at such times, has been happening in NZ as it has overseas.

"We just used to call that inflation expectations and generalised inflation," Orr says.

"Whenever you've got high inflation people can hide price rises even though it's not something specific to their good or service. They can get away with high or variable inflation, they can start shifting relative prices around, and then that leads to more generalised inflation as input costs rise and wage costs rise and so on."

"And it's that scramble and mess that causes long-term inflation problems. And so I would say all of those things have been happening in New Zealand as they have been everywhere else," Orr says.

"This is the challenge for monetary policy, we have to lean against that desire to tuck a little price increase in behind generalised inflation hoping no one notices. Consumers have to be laser-like focused and think 'is that right, should I be shopping somewhere else?'," Orr adds.

In the podcast Orr also discusses the degree to which Official Cash Rate (OCR) rises are responsible for reducing inflation, inequities involved with monetary policy, whether price controls could be used to help fight inflation, whether the Reserve Bank's monetary policy should be required to support sustainable house prices, what he expects to see from the Commerce Commission's market study into retail banking competition, the level where he'd consider the OCR to be neutral in that it's neither stimulating nor constraining economic activity, his ideal scenario for monetary policy a year from now, and how he's "fully convinced" the world is heading back to low and stable inflation but there may be higher interest rates on average to achieve that.

*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 news the social consequences of the Chinese economic slowdown are just not going away.

But first, there were a flurry of factory PMIs released over the weekend confirming a global manufacturing downturn remains, even it is minor.

But not minor is the widely-watched US ISM version as that reports a noticeable shrinkage across the board. The internationally benchmarked S&PGlobal (ex-Markit) version however records barely a drop. But it does confirm lower demand.

In a Friday speech, Fed boss Powell signaled that they are likely done raising rates, but his comments were laced with caution.

Canada's labour force grew at a faster pace than expected in November, faster than the good +24,900 increase in employment. Payrolls swelled much more, but the number of self-employed fell rather sharply. That meant that their jobless rate inched up to 5.8%. This wasn't unexpected.

In China the Caixin factory PMI diverged from the official NBS version again, and again was more positive. But to be fair it is just oscillating around a steady state with this an 'up' month. However this report does note "a sustained rise in new orders".

Meanwhile, Beijing has pledged to target ¥1 trillion in manufacturing and infrastructure development. Along with some supply knocks in Panama, this has helped jerk up the price of copper to US$8,615/tonne, it highest since August. (But still a long way below the US$9400/tonne it reached in January.)

Overall, China's economic performance remains problematic, and along with the implied criticism he received from Party elders during their summer retreat, it now looks like President Xi is delaying a major set-piece economic conference (the "third plenum"), one where Xi's new team (the one appointed at the "second plenum") releases its longer-term economic plans.

Meanwhile, Chinese borrowers are defaulting in record numbers as their economic troubles extend. More than 8.5 mln people are sharply downgraded in their 'social credit' which essentially means they are blacklisted, after missed payments on mortgages and business loans. That is about 1% of working-age Chinese adults, and is up from 5.7 mln defaulters in early 2020.

And another Chinese property developer is scrambling to save itself - Gemdale.

We should also note a sudden uptick in China's actions to take over the whole South China Sea, with a particular flashpoint in the Philippines.

In Australia, CoreLogic reported that in November the heat came out of their housing market as values across Melbourne dipped and Sydney slowed.

Australia faces its final RBA rate review for 2023 on Tuesday and markets don't expect their 4.35% rate to be changed. This is the last of their monthly reviews. In 2024 they change to a less frequent meeting schedule much like the RBNZ one.

The UST 10yr yield fell sharply on Saturday, now just under 4.21%. That is a massive -22 bps retreat for the week and is now at a 2½ year low. 

The price of gold will start today just on US$2071/oz and up +US$11/oz from this time on Saturday after briefly touching its all-time high of US$2,089.70 intraday. A week ago it was at US$2000/oz, so a +3.6% gain since then.

Oil prices fell a sharpish -US$2.50 over the weekend to just on US$74/bbl in the US. The international Brent price also got a sudden shift and it is now down to US$79/bbl.

The Kiwi dollar starts today at 62.1 USc and up +10 bps from Saturday. A week ago it was at 60.7 so a +1½c gain from then. Against the Aussie we are still at 93 AUc. Against the euro we firm at 57.1 euro cents. That all means our TWI-5 starts today just on 70.8 and up +10 bps from this time Saturday, up more than +100 bps in a week.

The bitcoin price starts today at US$39,703 and up +2.4% from this time Saturday, and confirming the break out of its recent range. A week ago it was at US$37,928 so up +4.7% rise from then. Volatility over the past 24 hours has remained modest at just on +/- 1.4%.

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

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

Kia ora. I'm David Chaston. And we will do this again 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 global inflation is coming down as energy cost pressures recede. And so far it hasn't been at the expense of global economic expansion.

But first today, US headline jobless claims rose but the increase was minor and less than expected. On an actual basis the fall was rather sharp but recall last week was a retail holiday week. There are now just 1.56 mln people on these benefits, almost the lowest in a year. So still no sign of rising labour market stress in this data. A week from tomorrow their November non-farm payrolls report is released and markets currently expect an expansion of +175,000 - modest but still expanding.

October pending home sale levels gave up more ground in the continuing trend. Pending home sales is a forward-looking indicator of home sales based on contract signings and the -1.5% drop in October is the lowest number since this index was originated in 2001. The prospect of low demand because buyers are put off by high mortgage rates is holding back sellers from listing into a falling market.

October income and spending data growth was modest, each rising just +0.2% from September. That is the lowest for both in seven months of much better gains. Perhaps of more interest was that PCE inflation eased again, now down to +3.0% (3.5% on a core basis) and closer to the US Fed's 2% target range. But even if it is moving in the right direct, there is still some way to go yet.

The slowing the Fed wants, to quash inflation, is well underway according to the November Beige Book surveys. Economic activity slowed since the previous report, with four Districts reporting modest growth, two indicating conditions were flat to slightly down, and six noting slight declines in activity. They are managing to slow things without falling into recession. It's actually an impressive performance.

It is tougher in Canada however. They reported a Q3 GDP decline of -1.1% from a year ago, a sharpish shift from the +1.4% expansion in Q2. Analysts expected a small +0.2% expansion in Q3, so this is a big miss.

India also released Q3 GDP results overnight and these came in better than expected. The Indian economy expanded +7.6% year-on-year in the period, following a strong +7.8% growth in the previous period and beating forecasts of a +6.8% rise. The reading is also higher than the Reserve Bank of India projection of +6.5%.

In Japan, the steam seems to have gone out of their rising retail trade. It fell in October from September by -1.6% to be +4.2% higher than a year ago. Meanwhile, Japanese industrial production has turned up in October, its biggest monthly rise in almost a year.

China's official November PMIs brought some more minor slippage and at a faster pace. The factory sectors contracted slightly faster (although it is still minor); it was expected to contract less. And their services sector's expansion, already minor, eased toward a steady state. It is hard to see how Beijing will be happy about these trends. Their top-level charm offensive of recent weeks isn't working yet in terms of getting business people to change their actions and reactions.

In Europe declining energy costs are still helping cool inflation there. The inflation rate in the Euro Area declined to 2.4% year-on-year in November 2023, reaching its lowest level since July 2021 and falling more that the market consensus of 2.7%. Meanwhile, the core rate, excluding food and energy, also cooled to 3.6%, marking its lowest point since April 2022 and coming in below forecasts of 3.9%.

In Australia there is some substantial positive action in residential building consents. They rose an impressive +7.5% in October from September to be -6.1% lower than a year ago. That is a huge improvement from the year-on-year fall of over -20% in September. It is a sharp shift up that wasn't anticipated by analysts. Still, despite the rise the overall levels remain low.

Container freight rates were unchanged last week. Bulk cargo rates leapt however in a surge we haven't seen since 2022 and to its highest level since May 2022.

The UST 10yr yield has risen +6 bps from yesterday, now just under 4.34%. 

The price of gold will start today just on US$2040/oz and down -US$2/oz from this time yesterday.

Oil prices have fallen -US$1.50 since yesterday at just under US$76/bbl in the US. The international Brent price is now just under US$81/bbl. Markets were unimpressed by the latest OPEC non-decisions.

The Kiwi dollar starts today at 61.7 USc and unchanged from yesterday. Against the Aussie we are marginally firmer at 93.2 AUc. Against the euro we are back up +20 bps at 56.5 euro cents. That all means our TWI-5 starts today just under 70.5 and up +10 bps from this time yesterday.

The bitcoin price starts today at US$37,795 and almost unchanged (-0.1%) from this time yesterday, and extending its meandering. Volatility over the past 24 hours has remained modest at just on +/- 1.1%.

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

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

Kia ora. I'm David Chaston. And we will do this again 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 OECD doesn't see New Zealand's OCR being cut until 2025.

But first, American mortgage application levels were little-changed last week from the prior week and are now running -19% lower than a year ago as the lower base settles in. Mortgage rates dipped again, but this time only slightly.

The second estimate of Q3-2023 US economic activity has brought something of a positive surprise. It expanded +5.2% in this revision, higher than 4.9% in the preliminary estimate, and forecasts of 5% and that marks the strongest growth since Q4-2021. Driving the improvement were both higher investment levels, and better-than-expected company profits (even if they were -1.7% lower than the same quarter a year ago). This is the best the US economy has performed since late 2021 when they had the post-pandemic rebound. Prior to that, you have to go back to the post-GFC rebound. For a non-rebound comparison it is the best since pre-GFC levels. Although it isn't getting any credit, Bidenomics is actually working rather well.

That expanded activity is actually shrinking inventories, both retail and wholesale inventories. That is not a sign recession is imminent.

Singapore's producer prices show an extended era of deflation in their manufacturing sector. They have been in this all 2023.

Germany said its consumer inflation is running at 3.2% in November. (On an EU harmonised basis, it is running at 2.3%.) It is falling fast; you may recall it was running at 6.1% in August. The ECB will be pleased to see this progress in the bloc's largest economy.

Meanwhile, economic sentiment in the the overall EU turned up in November, albeit it is still quite low.

Australia releases a monthly inflation indicator, and the release late yesterday was for October with a 4.9% rate. That is down from 5.6% in September and well below the expected 5.2% rate.

Australian construction work completed got a late burst higher in the September quarter, rising more than expected to be +8.5% higher that in the same quarter a year ago. But most observers now expect lower levels in future because the construction project pipeline is light.

More generally, the OECD said global growth is projected to be 2.9% in 2023, and weaken to 2.7% in 2024. As inflation abates further and real incomes strengthen, the world economy is projected to grow by 3% in 2025. Global growth remains highly dependent on fast-growing Asian economies, especially India. Europe is at the bottom of their list. 

They see New Zealand expanding just +1.3% in 2024 and by +1.9% in 2025, both at about the same for the average OECD nations. (And that is very similar to the modest forecasts for Australia.) In their view our OCR will need to remain at 5.5% until the end of 2024 and then can be cut gradually to 4.25% by the end of 2025 as inflation approaches the middle of the Reserve Bank’s 1-3% target range. They don't see any further rate hikes in Australia either.

The UST 10yr yield is down another -9 bps from yesterday, now just under 4.28%. 

The price of gold will start today just on US$2042/oz and up +US$2/oz from this time yesterday.

Oil prices have risen +50 USc since yesterday at just over US$77.50/bbl in the US. The international Brent price is now just over US$82.50/bbl.

The Kiwi dollar starts today at 60.7 USc and falling back -¾c from yesterday. Against the Aussie we are +20 bps firmer at 92.4 AUc. Against the euro we are back down -40 bps at 55.5 euro cents. That all means our TWI-5 starts today just under 69.6 and down -30 bps from this time yesterday. The RBNZ hawkish message brought a very brief spike yesterday afternoon, up to 70.3, but that evaporated quickly overnight.

The bitcoin price starts today at US$37,795 and almost unchanged (-0.1%) from this time yesterday, and extending its meandering. Volatility over the past 24 hours has remained modest at just on +/- 1.1%.

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

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

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

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 markets are reacting to US Fed views that 'everything is on track' and no more rate rises are likely.

Firstly though, the first indications of bricks & mortar store retail sales for last week are coming through with the US Redbook index up an impressive +6.3% from the same week a year ago. Although that isn't as big a jump as the online indexes have had, it is still a healthy real increase, well above inflation. And it is the strongest weekly gain of the year.

Also better than expected is the latest US consumer sentiment reading, this one from the Conference Board. The rise was mostly on the forward looking aspects.

There were two regional Fed survey out. The Richmond Fed's services survey also found more optimistic conditions, but that was not matched in their factory sector. And in the oil patch, both sectors turned more glum in Texas. But to be fair, none of them actually shifted much.

Fed speakers have been fueling the idea that they are done raising rates and that inflation in heading in the right downward direction now. And that is taking the top of the recent benchmark UST yields - despite the US government's need to issue much more debt paper. Lower benchmark rates is also pushing the US dollar lower.

In China, their central bank chief has opened up about local authority debt pressures, confirming authorities are worried about the situation in parts of the country.

And in a far corner of China's foreign policy analysis, they are talking up the possibilities of the change of government in New Zealand. They see our new Prime Minister as a friend who they can do business with.

In Australia, October retail sales came in weaker than expected, recording a -0.2% decline from September when markets expected a +0.2% gain. This follows monthly gains of +0.9%, +0.2% and +0.6% in the prior three months. Annual sales growth slowed to just +1.2%. With their population growth running at +2.4% per year and retail price inflation running at +3.6% in the September quarter, this October retail trade result implies a very large real, per capita decline in the -4.5% to -5% range.

The overnight GDT Pulse auction for WMP and SMP wasn't encouraging with lower prices from both the last full auction, and the prior event. We should say, lower USD prices, and because the greenback is in a weakening trajectory, prices in NZD look even weaker. Hopefully dairy company hedging mitigates the decline.

The UST 10yr yield is down another -3 bps from yesterday, now at 4.37%. 

The price of gold will start today just on US$2040/oz and up +US$30/oz from this time yesterday. The falling greenback is behind much of this rise, but it is getting near to its all-time high of US$2075 in August 2020 (not inflation-adjusted however).

Oil prices have risen +US$2 since yesterday at just over US$77/bbl in the US. The international Brent price is now just over US$81.50/bbl.

The Kiwi dollar starts today at 61.4 USc and up +½c from yesterday, but and a new high since July. Against the Aussie we are -10 bps lower at 92.2 AUc. Against the euro we are up +20 bps at 55.9 euro cents. That all means our TWI-5 starts today just under 69.9 and actually little-changed from yesterday.

The bitcoin price starts today at US$37,854 and up +2.3% from this time yesterday, although to be fair it has been meandering around this level for three weeks now. Volatility over the past 24 hours has remained modest at just on +/- 1.5%.

Join us at 2pm today for full coverage of the last RBNZ Monetary Policy Statement of 2023 before we go into a long pause until the next one in February.

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.

On the 22nd of November, while the National Party was putting the finishing touches on its coalition agreement, the European Union (EU) ratified a new trade deal with New Zealand.

It was the latest in a long line of agreements NZ has struck since 1983, but it could be the last. 

Speaking in in the latest episode of interest.co.nz's Of Interest podcast, John Ballingall, a partner at economic consultancy firm Sense Partners, says NZ may have reached “peak FTA” as there aren’t any likely or worthwhile deals on offer.

This jars with the newly-elected National-led government’s promise to “work relentlessly” to smooth NZ’s trade links and open up new markets for exporters. 

Todd McClay, a senior and long-serving National MP, was sworn in as the Trade Minister on Monday and will be tasked with doubling the value of exports in the next 10 years.

Achieving that goal would require an annual growth rate of 7.2%, compared to an historical average over the past decade of roughly 4%. 

The past two years have seen much higher rates of growth but only because various exports have bounced back from very low levels during the era of pandemic restrictions.

National says it'll chase the goal by working to win a trade deal with India and the Gulf Cooperation Council, while also reducing “non-tariff barriers” to make trade cheaper. 

Ballingall says the incoming government needs to put the most resources into that last element. 

A paper he published in October provocatively suggests NZ should “gently say no” to any country looking to start an FTA negotiation, unless it will be clean and fast. 

The exceptions to this rule would be India, the United States, and the Gulf Cooperation Council countries, but none of these are likely to be achieved in the next 10 years.

If any of these deals were to become possible in the future, they would likely be much less lucrative than the China agreement which transformed the NZ economy. This is partly because of the economic and political situation in those countries, but also because the FTA agreement with Europe did not include dairy and meat. 

Ballinghall says the EU deal was “genuinely world leading” in some areas, but it doesn’t offer as much market access for our farming sector as NZ would like. 

“Once you've told the rest of the world that you're prepared to take the deal that's on offer, not your ideal outcome, then that becomes the precedent, almost a starting point for your next set of negotiations,” he says. 

In a press release prior to the election, McClay said the rewards of securing a free trade agreement were large. Two-way trade with China has increased seven-fold since 2008.

Labour had “dropped the ball” on the India trade relationship, he said, but a National government would make it a “priority”.

Ballingall worries that chasing a trade deal with India would use up too many resources that could be put to better use elsewhere. For example, Australia has been negotiating since 2011.

His report recommends focusing on regional trade agreements that include multiple trading partners and attacking less tangible barriers that create costs for exporters. 

Sense Partners estimates the cost of non-tariff measures, such as bureaucratic border regulations, on NZ exporters at about $12 billion. That’s 10 times higher than the cost from the few remaining tariffs.

“The time is ripe for a new trade strategy,” Ballingall says. 

One that focuses more on reducing transaction costs and getting the most out of existing trade deals, rather than focusing on new market access with ever diminishing returns.

While that may be a less charismatic message to deliver to the voting public, it does appear McClay and the incoming government are aware of the need to shift focus. 

“Over the next decade, National will measure the success of our trade policy in the value of exports, not simply by how many new trade agreements we sign,” McClay says, in that same press release. 

The new government has promised a record number of trade missions and a trip to India in the first year, but some in the trade sector will be hoping it also focuses on the less cinematic work of smoothing existing trade links.

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

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 of falling wholesale rates in the US and rising equity risks in China.

First in the US, the one corner of there housing market that has been expanding - the sales of new homes - dipped in October. Sales of new single-family houses fell by 5.6% to an annualised rate of 679,000, well below expectations of a 723,000 rate. This is a sizable miss but in the context of the past eight months, it is just part of a developing yo-yo pattern. It will only be important if November doesn't bounce in that pattern.

There were two US Treasury bond auctions today. The two year was well supported with bids worth US$138 bln for the US$55 bln available. The median yield fell to 4.83% from the prior equivalent auction at 5.01% five weeks ago. The five year was also well supported with bids worth US$136 bln for the US$56 bln available. In this case the median yield fell to 4.37% from 4.82% at the prior equivalent event four weeks ago. The large and growing US budget deficits are not finding funding stress as demand is strong and yields are falling (prices bid up).

Perhaps driving these lower yields, 20 months after the US Fed began a campaign against inflation, investors now believe there is a greater chance that the central bank will cut rates.

And today is Cyber Monday in the US, the end of the retail sales push for the moment in the lead-up to the end of year holidays. There are no early indications to report.

Across the Pacific, Chinese industrial profits rose +2.6% in October from the same month a year ago. But that makes them -7.8% lower in the ten months of 2023 than the same period in 2022.The softer pace was evident in state-owned firms (-9.9% vs -11.5% in Jan-September) and the private sector (-1.9% vs -3.2%). Given the overall -10.6% slump from 2021, this is still a minor and fragile recovery.

In Beijing, stock market authorities have apparently moved to prevent major shareholders of listed companies from selling, apparently worried that this could kill off a market rally that they want to see occur. These shareholders are now trapped. Major shareholders in Shanghai, Shenzhen and Hong Kong will be nervous and the Beijing move could have unintended consequences.

Not only is the giant insolvency of Zhongzhi group causing immediate headaches for Beijing, now it appears that liquidity in Hong Kong is becoming a short-term issue. The one-month Hong Kong interbank offered rate, or Hibor, rose +15 basis points to 5.53% yesterday, the highest since October 2007. Demand for the local currency is on the rise as lenders stockpile cash for regulatory purposes, sucking capital from the interbank system. This year-end demand for cash is exacerbating an already-tight liquidity environment there.

Meanwhile, Hong Kong exports held up in October to both top the level of last year and the prior month.

The UST 10yr yield is down -7 bps from yesterday, now at 4.40%. 

The price of gold will start today just under US$2010/oz and up +US$7/oz from this time yesterday.

Oil prices have flatlined since yesterday at just over US$75/bbl in the US. The international Brent price is still just over US$80/bbl.

The Kiwi dollar starts today at 60.9 USc and a little-firmer from yesterday, but it is its highest since early August. Against the Aussie we are -20 bps lower at 92.3 AUc. Against the euro we are unchanged at 55.7 euro cents. That all means our TWI-5 starts today just on 69.8 and also unchanged from yesterday.

The bitcoin price starts today at US$37,006 and down -0.5% from this time yesterday. Volatility over the past 24 hours has also been modest at just on +/- 1.4%.

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

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

Kia ora. I'm David Chaston. And we will do this again 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 the early indications are that end of year retailing might be coming in with more upside than expected.

But first, this week, all eyes will be on the RBNZ Monetary Policy Review on Wednesday even though no change in the benchmark policy rate is anticipated. We will also get Australia's monthly consumer price indicator for October on the same day and that is expected to reveal a 5.2% inflation rate, down from the 5.6% in September. In the US, eyes will be on the ISM PMI, and their PCE inflation rate.

At the end of last week the November Markit PMI for the US came in unchanged with the modest expansion continuing. That covers a factory sector that is still contracting slightly, and a services sector expanding at a slightly faster rate. Of note was that US companies lowered their workforce numbers during November for the first time in almost three-and-a-half years, although the shift was very minor.

But it looks like retail sales have been strong over the Thanksgiving holiday weekend - online at least. Adobe is reporting Black Friday sales up +7.5% from last year in the sectors they monitor. Salesforce is reporting a +9% gain in the US sectors they monitor. And Shopify says they saw a +22% gain in their specialty sectors. But the real key will be bricks & mortar store sales, and it will be a few days before those details start to surface. Cyber Monday (tomorrow NZ time) is the final test in this important pre-Christmas retail weekend.

Canadian retail sales rose more than expected in October, up +2.7% from a year ago in value terms, so while that was better than expected it masks a -0.4% drop in volume terms.

And Canada has won a dispute with the US over its dairy quota system, with the final USMCA panel agreeing that the Canadian restrictions don't breach the North American  trade Treaty. It is a result that can't be appealed. The US isn't happy. New Zealand has a CPTPP dispute with Canada over roughly the same issue.

In Japan, their inflation rate rose to 3.3% in October from 3.0% in the prior month, and a three month high.

Singapore’s manufacturing production surprised in October with a big +7.4% year-on-year jump, the first growth after a year-long series of successive contractions, easily beating market expectations of a -2.1% drop, and recovering from a downwardly revised -1.1% fall in September.

Meanwhile, Malaysia reported its inflation rate at a very low 1.8% in October.

In China, and despite being controlled by the Shenzhen city authorities, Moody's has downgraded Vanke, China's fourth largest property developer. Meanwhile, Beijing is ramping up pressure on banks to support struggling real estate developers, something even the big state-owned banks are wary about doing due to the size of the impending risks. The pressure is on to provide unsecured working capital 'loans' - allowing them to pay past bills to just keep these firms solvent for a while, even though this would be very bad banking.

China has also opened an official investigation into the insolvent shadow bank, Zhongzhi. This is no small deal as it is likely to hurt a large number of wealthy and influential clients who face large losses.

Meanwhile Chinese health officials say everything is normal for their 'colds & flu' season. But doctors have been warning for weeks about a likely spike in “walking pneumonia” cases and local Chinese media have reported a steady rise in infections from mycoplasma among kindergarten and primary school children.

In Argentina, the new President's dollarisation plan has hit a stumbling block as his appointment to the central bank refused to take the role. So the new President reappointed officials from the previous government.

In the Netherlands, even though a far-right party surged to be the top vote-getter, it still needs other partners to form a government and there seems to be a great reluctance to join the 'winner'. It may take months to stitch together a functional government. The harsh lessons of Brexit may prevent a Nexit.

The UST 10yr yield is unchanged from Saturday, still at 4.47%. That's up +5 bps for the week.

The price of gold will start today just under US$2003/oz and up +US$3/oz from Saturday.

Oil prices have softened since Saturday, down -US$1 to be just over US$75/bbl in the US. The international Brent price is now at just over US$80/bbl. A week ago these prices were US$76/bbl and US$80.50/bbl, so very little changed since then.

The Kiwi dollar starts today at 60.8 USc and little-changed from Saturday. A week ago it was at 59.8 USc so a full +1c gain. Against the Aussie we are firmish at 92.5 AUc. Against the euro we are also firm at 55.7 euro cents. That all means our TWI-5 starts today still just on 69.8, up +10 bps since Saturday and up +60 bps in a week.

The bitcoin price starts today at US$37,189 and down -1.9% from this time Saturday. But it is up +2.2% from a week ago. Volatility over the past 24 hours has also been low at just on +/- 0.9%.

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 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 again need to keep an eye on an outbreak of respiratory illness in China that has rapidly filled hospitals there.

But first, with both the US and Japan on holiday, data from other countries are getting a chance to shine through today. But holiday season retail sales are underway and observers around the world will be looking at the American demand impulse. Any weakness will echo worldwide. Strength will have similar echoes.

Taiwanese retail sales came in +5.1% higher in October than a year ago, although the expansion was slightly less than in the prior month. And after a year of sharpish declines, Taiwan's industrial production is almost back to year-ago levels. It is up +20% from its low point in April. Taiwan's inflation is running at 3.0%.

Singapore reported October inflation and that rose to 4.7%, a sharpish and unexpected increase from the September 4.1%. It is being pushed up by transport and healthcare costs.

As expected, Indonesia kept its official interest rate benchmark at 6% overnight; inflation is low there running at only 2.6%.

The Swedes reviewed their official interest rate overnight and they were expected to raise it +25 bps to 4.25% because inflation is running at 6.5%. But they surprised markets and made no change. They also said inflation is falling and inflationary pressures have eased. But they threatened more increases if that easing doesn't continue.

South Africa reviewed their rate as well and as expected made no change at 8.25%. They have inflation running at 5.9%

And Turkey also reviewed rates overnight. In their case they surprised with a much larger rate hike than expected, taking their official policy rate up by +500 bps to 40%. They have inflation running at 61%.

We should perhaps note that the WHO is casting a wary eye on China over fast-spreading respiratory illnesses and reported clusters of pneumonia in children. China has 48 hours to respond to the WHO request for details. The main area of concern is in northern China. More here. Hospitals in Beijing, Shanghai, Wuhan and Guangzhou, have recorded a spike in mycoplasma pneumoniae infections, with some facilities in the capital already at full capacity.

In Hong Kong, CCP indoctrination has started in primary schools with the release of a new curriculum.

The OECD said G20 merchandise trade contracted again in Q3-2023 from the prior quarter with exports -5.5% lower than a year ago, while the services trade growth appeared to flatten.

So it will be no surprise to learn that container freight rates fell a sharpish -6% last week, taking them back to near their October lows. Rates out of China were particularly hard hit. Bulk cargo rates are unchanged from a week ago, but that hides a rise and then a reversal in between.

European bond yields have pushed higher overnight. And the UST 10yr yield is up +2 bps from yesterday, now at 4.45%. 

The price of gold will start today just on US$1991/oz and up a mere US$1/oz from this time yesterday.

Oil prices have firmed back up +US$2 to be just over US$76/bbl in the US. The international Brent price is now at just under US$81/bbl.

The Kiwi dollar starts today at 60.7 USc and unchanged from this time yesterday. Against the Aussie we are softish at 92.2 AUc. Against the euro we are also unchanged at 55.5 euro cents. That all means our TWI-5 starts today still just on 69.6.

The bitcoin price starts today at US$37,129 and up +2.0% from this time yesterday. Volatility over the past 24 hours has also 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 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 central bank bosses have been out warning of inflation and economic stress.

But first in the US, their Thanksgiving holiday has brought forward some key data releases. First up, the headline jobless claims numbers came in sharply lower than expected, indicating the American labour market isn't done yet showing its resilience. However we should note that the actual claim levels were higher than the seasonally adjusted levels even if not as high as was expected. There are now 1.65 mln people on these benefits, also quite a jump. But this is only back to September levels.

Second, mortgage applications rose marginally last week, but again only with the benefit of seasonal adjustment. Benchmark mortgage interest rates continued to move lower, now to 7.29% plus points, the lowest rate in two months. That is down -15 bps in just one week.

Also falling were new durable goods orders in October. After rising a good +4.0% in September, they fell a sharpish -5.4% on October so a net loss overall. Year-on-year they are only up +0.9%. Capital goods orders were up +1.6% however on that basis.

Going the other way, a current survey of year-ahead inflation expectations rose to a 7-month high of 4.5% in November, up from the preliminary estimate of 4.4% and above 4.2% in the prior month. That is according to a final reading of the University of Michigan survey. The last actual US CPI reading was at 3.2% in October and the November report is due on December 13 NZT.

In Canada, their central bank boss has signaled an end to rate hikes, saying "interest rates may now be restrictive enough to get us back to price stability".

But in Australia, their new central bank governor is singing a different tune. She is warning that the inflation challenge they face is increasingly homegrown and demand driven.

In China, one of their largest shadow banks warned it’s “severely insolvent,” with a debt pile more than two times higher than assets, according to a letter seen by Bloomberg. Liquidity has dried up and the recoverable amount from asset disposals is expected to be low, the company said. China's retail-dominated equity markets are vulnerable to fake news and rumour and authorities are on edge. It never helps when there are also major real stresses.

China isn't the only region of financial industry stress. In its Financial Stability Report, the ECB is warning that they too see "early signs of stress".

And from left-field, perhaps should note that the price of uranium is soaring again as global demand spikes for clean energy projects. We haven't seen these price levels since 2008. Thermal coal on the other hand is retreating.

The UST 10yr yield is little-changed from yesterday, now at 4.43%. 

The price of gold will start today just on US$1990/oz and down -US$10/oz from this time yesterday.

Oil prices have fallen a sharpish -US$2.50 to be just under US$7/bbl in the US. The international Brent price is now at US$79.50/bbl. And this is happening after pricing in the OPEC+ production cut extensions expected to come in the weekend, although it now seems to have been delayed a day or so.

The Kiwi dollar starts today at 60.7 USc and marginally firmer from this time yesterday. Against the Aussie we are unchanged at 92.4 AUc. Against the euro we are also unchanged at 55.5 euro cents. That all means our TWI-5 starts today still just under 69.6.

The bitcoin price starts today at US$36,389 and down -2.4% from this time yesterday. Volatility over the past 24 hours has also been moderate however at just on +/- 2.6%.

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

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

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