Economy Watch

After the 2014 election, Peter Dunne got a phone call from Prime Minister John Key to say National wouldn’t need the support of United Future to form a Government. 

The same call was made to the Act and Māori parties, which had also signed confidence and supply agreements after the 2011 election. 

Key invited all three parties to stay in the tent, if they wanted, but said there wouldn’t be any policy concessions or negotiations. They took the deal. 

“A bird in the hand is worth two in the bush,” Dunne said, in an interview for interest.co.nz's Of Interest podcast.

“About 10 days later, the specials came in and National had lost a couple of seats, and its outright majority, and suddenly realised they had a problem”. 

Key and his team came back to the three parties and asked to renegotiate the newly-signed confidence and supply agreements into a more substantial and specific arrangement.

Dunne, and the others, refused: “I said, no, we've got a signed piece of paper here”. 

“National, ended up in the worst of all worlds. It had supply partners they hadn't conceded anything to. All it was getting from us was confidence and supply. Everything else had to be negotiated case by case”.

“If they'd been a little less impatient, and waited till the specials they could have got better deals”.

This memory might be a factor in why National and New Zealand First have been holding out for the final vote count. The numbers might shift around in unpredictable ways. 

Once the special votes are reported, Dunne thinks a Government could form quite quickly. 

He said it was partly Christopher Luxon’s leadership style. But also because Parliament has to sit by mid-December, and the National won’t want that to happen under a caretaker government. 

The National leader’s message, that he would not provide blow-by-blow commentary on the negotiations, was more directed at Winston Peters than at the media. 

“I thought he was also sending a pretty clear warning to Act and New Zealand First: don't you either.” 

“Because, if you look at New Zealand First's track record, they like to control negotiations, they like to be the ones that sort of indicate where things are at”.

It was an “unedifying spectacle” in 1996 and 2017 when Jim Bolger and Jacinda Ardern found out they would be Prime Minister, only when Peters announced it on live television. 

“The bronze medal winner shouldn't tell the gold and silver medals who they are. I think Luxon is trying to guard against all that sort of thing happening again”. 

Listen to the rest of the interview for more insight into negotiating a coalition.

*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 that is impressive out of North America.

First up today, the Americans have delivered a stellar Q3-2023 GDP expansion, far higher than the optimistic forecasts, and far higher than the very good Q2-2023 expansion of +2.1%. In Q3, the giant American economy grew +4.9% according to their advance estimate. Better, this was built on stronger than expected consumer spending.

Their PCE price index, an inflation measure the US Fed takes note of, rose +2.9% from a year ago, with the 'core' measure up +2.4% and less than expected.

That was just the start of their 'good economic news'. US durable goods orders rose a startling +6.0% in September from a year ago, up at a +4.7% rate from the prior month. No one saw this surge coming either. Capital goods orders were hit out of the park, up +16% from the same month a year ago.

New initial jobless claims for last week came in at 192,000, and while still very low, it was marginally higher than a week ago. But there are now only 1.58 mln people on these benefits, also unusually low.

US exports rose +2.9% in September from August, but that still leaves them -2.2% lower than the same month a year ago. Their merchandise trade deficit rose marginally.

Also somewhat unexpected - and positive - was that American pending home sales rose in September from August when analysts were bracing for another fall. But even after that bump, they remain historically weak.

Canada said weekly earnings there were up +4.2% from a year ago in August, an unchanged rate from July. Given inflation there is running at 3.8% pa, workers there are keeping up, even making real gains.

In China, international banks are reporting sharply higher provisions and losses for their business there. Standard Chartered led these reports, Japanese banks exposed there too are reporting a similar profit hit. American banks are noting similar stress in their Chinese operations.

There has been quite a turnaround in Singapore as well. Industrial production jumped more than +10% in September from August, although that was largely just making back the dire August result. But it has shrunk the year-on-year shortfall to just -2.1%, much better than the expected -4.8%.

In Europe, the ECB hit the 'pause' button after a series of ten consecutive rate increases since July 2022. It claims it sees a gradual easing of price pressures. It is also looking at an impending recession. Still, this leaves their policy rate at 4.5%, its highest in 22 years. Its quantitative tightening program - selling off its bond holdings - continues unchanged.

In Turkey they raised their policy interest rate by +500 bps to 35% earlier today. That's up from 8% in June. An eye-watering policy about-face. They have inflation running at over 60% pa now.

Global containerised freight rates fell another -2% last week, taking them down -57% from a year ago. Rates to and from China are the weak links; rates across the Atlantic actually showed rate increases. Bulk cargo rates topped out over the past week and are now falling.

The UST 10yr yield has fallen -10 bps from this time yesterday, now at 4.85%. 

The price of gold will start today at US$1984/oz and up +US$7/oz from yesterday at this time.

Oil prices have ticked back down -50 USc today to be now at just over US$83.50/bbl in the US. The international Brent price is now just over US$87.50/bbl.

The Kiwi dollar starts today at 58.1 USc and down -10 bps from this time yesterday after dipping sharply in between. Against the Aussie we are up marginally to 92.1 AUc. Against the euro we have risen slightly to 55.2 euro cents. That all means our TWI-5 starts today slightly firmer at 68.4.

The bitcoin price starts today at US$33,812 and down -2.2% from this time yesterday and off its eighteen month high. Volatility over the past 24 hours has been modest at just on +/- 1.5%.

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

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

Kia ora. I'm David Chaston. And we will do this again 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 commodity prices are trending down across the board now - but not money commodity prices.

But first in the US, although mortgage applications 'only' fell -1% last week from the prior week (and to be down -22% from a year earlier), the big news was the +20 bps jump in their benchmark 30 year mortgage interest rate from a week ago, now up to 7.9% plus points, the highest since 2000. Rates have now risen seven consecutive weeks at a cumulative amount of +69 bps.

While this may is keeping the existing home resale market quiet, oddly it is doesn't seem to be hurting new home sales. They rose sharply in September to an annualised rate of 759,000 and their highest since February 2022. In this corner of their housing market, FOMO seems to be active. And as we recently noted, there may be more to come because building consents and housing start data is holding up too.

This housing data was noticed by financial markets, triggering a turnaround, and a new jump in bond yields.

In Canada their central bank held its policy rate at 5.0% in an overnight decision. Their quantitative tightening program continues (selling down bonds they earlier bought to support markets). They noted that overall market conditions are now doing their rate job for them and the risk is that markets may overdo things while inflation falls away.

In China, outflows of investment capital are growing, marking their biggest net decline in in September in nearly eight years. Driving it are a combination of foreign companies scaling back their operations in China, and wealthy Chinese shifting funds abroad. The net outflow reached almost US$54 bln in September, the most since January 2016.

In Germany, a widely-watched business sentiment survey continued to turn positive and is back to year-ago levels.

In Australia, inflation is rising again. Their monthly inflation indicator came in at 4.9% in July, 5.2% in August, and that rose again to 5.6% in September (5.4% was expected). This locked in the Q3-2023 CPI at 5.4% and although down from 6.0% in Q2, it is clearly on the rise again recently. Fuel, electricity, housing and insurance all are keeping the pressure on. The AUD rose on the news, in the expectation of a higher chance the RBA will raise rates there on November 7. That comes just a few hours after Westpac Australia economists set their forecast as a no change, followed by reductions from September 2024 (see page 19).

Generally however, commodity prices are falling, mostly because demand out of China is weak and not expected to revive any time soon. This includes weak prices for copper and coal, nickel and zinc. Tin and lead prices are holding, but lithium carbonate prices are now back down to pre-surge levels.

The UST 10yr yield has risen +11 bps from this time yesterday, now at 4.95%. 

The price of gold will start today at US$1977/oz and up +US$3/oz from yesterday at this time.

Oil prices have ticked back up +50 USc today to be now at just over US$84/bbl in the US. The international Brent price is now just over US$88/bbl.

The Kiwi dollar starts today at 58.2 USc and down -10 bps from this time yesterday. Against the Aussie we are up to 92 AUc. Against the euro we have slipped slightly to 55 euro cents. That all means our TWI-5 starts today unchanged at 68.3.

The bitcoin price starts today at US$34,586 and up another +1.7% from this time yesterday to an eighteen month high. Over the past week, this crypto price has risen more than +NZ$10,000 and is now just a tad under NZ$60,000. Volatility over the past 24 hours has been moderate at just under +/- 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.

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 economic news is taking a bit of a back seat today but there are still key trends to note.

First in the US, the latest PMI reading for the American manufacturing sector has it out of contraction to its best level in six months. This same 'flash' report for October for their services sector recorded a three month high. Both were better than anticipated.

The next regional Fed factory survey, this one from the Richmond Fed, broadly confirmed the factory levels in their mid-Atlantic region. But they recorded a much weaker services result there.

Nationally however, the latest Redbook retail survey of bricks & mortar stores (on a same store basis) records a good expansion last week from a year ago (+5%), better than inflation by some margin now.

A feature of all these indicators is that job growth is holding and that inflation is easing.

In China, Bloomberg is reporting that Xi Jinping made his first known visit to China’s central bank since he became president a decade ago, underscoring an increased focus on shoring up the Chinese economy and financial markets. He went with other senior officials, and he also visited their sovereign wealth fund. It is doubly interesting that the central bank is not mentioning the visit. It is rare for Chinese government departments not to make a big deal about visits by Xi. China's senior leadership are meeting next week to address the growing risks in their economy.

China said it will issue ¥1 tln new sovereign debt in Q4-2023 as it raised its fiscal deficit ratio from 3.0% to 3.8%. Couching the move as 'disaster relief' is interesting and somewhat ironic.

Staying in China, it seems that while demand for infant milk powder is declining with their demographic shift, milk powders aimed at the middle-aged and elderly are seeing fast rising demand.

Meanwhile in Hong Kong, just how far they are going down the CCP rabbit-hole is clear with a new "patriotic education" program to be announced, one that is not only for students in formal education but the population as a whole. One Country, Two Systems is long gone.

In Europe, the latest flash PMIs for October are not good. Their economic downturn deepened with private sector output declining at the steepest rate for over a decade (excluding the pandemic affected months). New orders fell at an accelerating rate, pointing to a worsening demand environment for both goods and services.

Globally, a new report is noting that billionaires pay as little as 0% to 5% in income taxes, and that a global agreement for a minimum 15% income tax could raise as much as US$250 bln annually. Involved would be just 2700 global billionaires.

The UST 10yr yield has changed little from this time yesterday, now still at 4.84%.

The price of gold will start today at US$1974/oz and up +US$2/oz from yesterday at this time.

Oil prices have fallen another -US$2 today to be now at just on US$83.50/bbl in the US. The international Brent price is now just over US$87/bbl.

The Kiwi dollar starts today at 58.3 USc and down -20 bps from this time yesterday. Against the Aussie we are down to 91.8 AUc and a five week low. Against the euro we have risen slightly to 55.1 euro cents. That all means our TWI-5 starts today at just on 68.3, marginally up from yesterday.

The bitcoin price starts today at US$33,998 and up another sharp +8.7% from this time yesterday to an eighteen month high. Over the past week, this crypto price has risen more than +NZ$10,000. Volatility over the past 24 hours has been extreme again at just on +/- 5.4%.

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 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 are seeing falls in some key commodity prices (like oil and copper), and a sharpish retreat in benchmark interest rates today. That is probably all due to rising risks in the Middle East.

But looking ahead, this short week we will be looking at the second estimate of the US Q3 GDP growth rate which will come on Friday and is widely expected to be very much better than the initial estimate. Their economy was expected to be slowing down by now; instead it is revving up. They will also release data for their PCE Price index, and personal income and spending, followed by durable goods orders and PMI survey data for October. We will also get American housing market sales data.

It will be a peak week for Q3 earnings reports, with releases by majors like Alphabet, Microsoft, Meta, Amazon, 3M, Coca-Cola, GM, and Spotify.

There will be central bank interest rate decisions this week from the ECB, Bank of Canada, and Turkey. And we will get Australia's Q3 inflation rate, some European data, and the GDP growth rate in South Korea.

Overnight, the US Chicago Fed's tracking of their national activity index moved up from a negative to a positive, but only just, suggesting the US is expanding at its long-run average now.

In Canada, retail sales stagnated in September, according to preliminary estimates. That follows a small decrease in August.

In Ottawa, their main banking regulator has told lenders to hold more capital against mortgages that have had their repayment terms extend beyond the original terms due to the stress of interest rate hikes. They are moving to contain risks building in the Canadian home loan system.

In Japan, their CPI inflation rate fell to 3.0% in September from 3.2% in August, the lowest level in a year.

In China, foreign direct investment fell -8.4% in the first nine months of 2023, a faster pace of retreat than the -5.1% fall in August and the -4.0% fall in the seven months to July. This is a retreat and disengagement that must be worrying the Beijing economic mandarins.

Foreign money managers are bailing on some of the biggest names in China’s technology sector as a global exodus from the nation’s equities deepens.

And staying in China, they held lending rates steady at the October fixing, as widely expected. The one-year loan prime rate, which is the medium-term lending facility used for corporate and household loans, was left unchanged at a record low of 3.45%; and the five-year rate, a reference for mortgages, was maintained at 4.2% for the fourth straight month. This decision came amid growing signs that the Chinese economy is stabilising.

China says it is on track to produce an all-time record high grain harvest, significantly easing food security fears.

Taiwanese export orders rose sharply in September from August, up almost +12% to US$51.4 bln. But they were down -15.6% from a year ago, the same year-on-year decrease in the prior month.

Staying in Taiwan, industrial production was little-changed in September from August, and now its least year-on-year shrinkage since August 2022. Retail sales came in +6.0% higher than a year ago, benefiting from a low base. But they also rose from August.

Indonesia’s central bank unexpectedly raised its benchmark rate by +25 bps to 6% late on Thursday after months of standing pat, as it looks to support the stability of the rupiah and guard against inflation.

Singapore's September consumer inflation is proving sticky at 4.1%, the same level for the past four months, although it is down from well over a 6% rate a year ago.

In Russia, their Federal State Statistics Service published a new demographic forecast for the Russian Federation on Friday night that predicts that Russia's current 146.5 mln population will decrease to 138.8 mln people by 2046 as war, low birth rates and emigration combine to shrink the country. Nationalists there also decry that the situation is much worse for ethnic Russians because it is very poor migrants and minorities who are keeping it from a much faster retreat.

In Australia, they are successfully going after tax-shifting, especially by the fossil-fuel industry. In a 'normal' year their tax office wins about AU$3 bln in recoveries from companies who haven't paid their correct taxes - usually with the advice of tax accountants. In the past year they recovered AU$6 bln+ from the likes of Rio Tinto and Ampol (the company that used to be known as Chevron AU/Caltex, and who now own Z Energy in NZ)

Globally, a UN agency for trade is noting that 'friend-shoring' is picking up speed more quickly now as big power rivalry unstitches years of trade integration.

The UST 10yr yield has fallen back sharply today after very briefly hitting over 5%. It is now at 4.84% and down a net -9 bps from this time Saturday. 

The price of gold will start today at US$1972/oz and down -US$10/oz from this time Saturday.

Oil prices have fallen -US$3 today to be now at just on US$85.50/bbl in the US. The international Brent price is now just over US$89/bbl. These are very similar level to where we were at the start of last week.

The Kiwi dollar starts today at 58.5 USc and up +20 bps from Saturday. Against the Aussie we are still at 92.2 AUc. Against the euro we have slipped slightly to 54.9 euro cents. That all means our TWI-5 starts today at just on 68.4, unchanged from Saturday but down -85 bps from this time last week. We are starting to get into territory where the lower exchange rate can itself be inflationary.

The bitcoin price starts today at US$31,277 and up a sharp +6.1% from this time Saturday with most of that coming within the past 24 hours. Volatility over the past 24 hours has been moderate at just over +/- 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.

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 the US may not be over more rate hikes yet.

First up today, Fed boss Powell has been speaking and trying to pitch a middle path, one that he suggests they have got policy settings about right. But he did concede that the American economy's strength including very tight labour markets could warrant more rate hikes, and they may not yet be done with the rate increases.

"We are attentive to recent data showing the resilience of economic growth and demand for labour. Additional evidence of persistently above-trend growth, or that tightness in the labour market is no longer easing, could put further progress on inflation at risk and could warrant further tightening of monetary policy," he said overnight.

Meanwhile, American jobless claims fell by -13,000 from the prior week to 198,000 last week, the least since January and well below market estimates of 212,000. These are the seasonally-adjusted headline levels. On an actual basis there were 181,000 claims nationally last week, and there are now 1,549,000 people on these benefits, which is the lowest level in 2023 so far.

Also low are American house sales. Existing home sales fell by -2% in September from the previous month to an annualised rate under 4 million units, the lowest since October 2010. They are down more than -15% from year-ago levels.

The Philadelphia Fed factory survey reported a rise in new orders shipments that weren't expected, but overall activity is lower than a year ago. Firms in this survey are positive about the future over the upcoming year,.

Across the border, and for a second month in a row, Canada's producer prices rose although this time the rise was about what was expected, and up a manageable +2.4% from a year ago.

Japan's pivot away from China seems to be paying off. Exports are rising again, up +4.3% in September from the same month a year ago. This was underpinned by a +13.0% jump in exports to the US.

In China, new home prices fell their most in almost a year in September. This undermines the idea that Beijing is on top of their property crisis. For new homes they fell in 45 of the top 70 cities. For resales they fell in 67 of the 70 on a year-on-year basis. It was similar for both sectors of their housing market on a month-on-month basis. Both are worse than for August and a blow to sentiment in this sector.

Overnight, updated American data for China's holdings of US Treasuries shows them continuing to sell down these holdings. As at the end of August they held US$805 bln which is down -US$16.7 bln in a month and down -US$133 bln in a year. Analysts are saying China is building reserves to defend the yuan. Interestingly Beijing has held the yuan exchange rate virtually unchanged for each of the last seven days, something that seem unnatural and can only be achieved with aggressive intervention in currency markets. That can be very costly, but so far they are achieving that fixed rate stability. It's isn't hurting the Americans; foreign holdings of their debt has risen +US$213 bln (+3%) over the same one year period, just not from China.

Yields on the Chinese yuan bonds are now at their steepest discount to the US since 2002. At some point, something will give. Apparently Chinese holders are sweating it because a rise in yuan yields will come with bond price losses.

And staying in China, a Japanese manager based in China at a Japanese drug company there was arrested on 'spying' charges, for apparently 'sharing company information' with his bosses that was deemed 'sensitive' by China. The charges are unclear. The arrest comes after China revised legislation broadening the scope of what activities beijing considers espionage. Foreign firms are on edge. Foreign investment will retreat further.

Australia reported its monthly September labour market data yesterday. Things were little-changed with their jobless rate at 3.6% but the twist was to much more part-time work. There were +58,200 part time jobs added in September, and -23,300 full time jobs lost in the month.

Globally, container freight rates were unchanged last week, the first time they haven't fallen week-on-week since August. They have settled 60% lower than year-ago levels and -4% lower than pre-pandemic levels. Rates to and from China are still falling, but low rates elsewhere are now rising. And bulk cargo rates continue their rise.

The UST 10yr yield has risen further today. It is now at 4.98% and up a net +10 bps from this time yesterday. Again, this is a new modern post-GFC high. 

The price of gold will start today at US$1961/oz and up +US$9/oz from this time yesterday - and a three month high.

Oil prices have risen +50 USc to be now at just over US$88/bbl in the US. The international Brent price is now just over US$91/bbl.

The Kiwi dollar starts today at 58.5 USc and just marginally softer from yesterday. But this is its lowest level in almost a year. Against the Aussie we are still at 92.4 AUc which is down -1¼c since the start of the week. Against the euro we have eased lower again to 55.3 euro cents and a five week low. That all means our TWI-5 starts today at just on 68.6, down -100 bps from this time last week. We are starting to get into territory where the lower exchange rate can itself be inflationary

The bitcoin price starts today at US$28,676 and up +1.1% from this time yesterday. Volatility over the past 24 hours has been modest at just under +/- 1.3%.

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.

Remember, it is a public holiday in New Zealand on Monday – Labour Day.

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

New Zealand's supply chains are in "a serious, if not critical condition," requiring holistic systems thinking and a long-term focus, investment and government support to become stronger and more resilient, says self proclaimed supply chain tragic Dave Christie.

Christie, who has worked in supply chain roles for the army, PwC, the Warehouse, Fonterra, Coda Group, Tainui Group Holdings developing the Ruakura Superhub, and Synergic Technologies, spoke to interest.co.nz in the latest episode of our Of Interest podcastabout NZ's supply chain issues and the Ministry of Transport's recently released Aotearoa New Zealand Freight and Supply Chain Strategy. Christie was part ofan industry reference group in the development of this strategy.

He says supply chain problems caused by the Covid-19 pandemic brought "an invisible part of business and society" out into the light, and highlighted to the Government how vulnerable NZ is to global disruptions.

"The concern I have is we feel we've come out of Covid and people are kind of going' the supply chain's resolved.' ... What happened with Covid is the tide went out and we saw these rocks, they were exposed and we started to deal with those, but we dealt with them in what I would say were very unsophisticated ways. Now the tide's rising and everyone's forgotten about the rocks below the water," Christie says.

"if I was a doctor who was diagnosing the New Zealand supply chain as my patient I would have to say the diagnosis is that we are in serious, if not critical condition."

"And perhaps staying with that human analogy and referring it to the supply chain, the heart is the beating production sector of New Zealand. And while that's performing well, I think it's actually unproductive and we've seen this multiple times through the Productivity Commission's reports. So our heart isn't beating as efficiently as it can. The arteries and veins are the networks that flow products and goods around, not just [around] New Zealand but the globe, [and] they are constrained, we've got cholesterol in there and high blood pressure," says Christie.

"We've got parts of our network where the blood doesn't flow correctly, so that's not getting to the extremities well, our nervous system, we're actually deaf, dumb and blind, we don't know where the problems are and where they're coming from so we just get smacked in the face and we're probably suffering from early onset dementia. We don't actually have the cognitive ability to learn from our mistakes and improve, so we continually make the same mistakes."

However, he says all is not lost.

"We know lots of patients who are serious and in a critical condition. [But] if they get the right care they can come out the other end better, stronger and more resilient. And I honestly believe that's potentially the future for us in New Zealand and our supply chain."

Given the investment needed, 30-year timeframes, regulatory settings and 360 degree thinking needed, there's a role for government to play, Christie adds. 

In the podcast he also talks about the need to change NZ's port structure, why NZ should have reserve stocks of critical imports, whether NZ should have a national shipping line, the role for coastal shipping and rail, why supply chain improvements really matter to small businesses, the push to decarbonise, and more.

"If we want to make a change we're going to have some tough conversations. We're going to have to change some of the settings," Christie says, adding this should always be for the greater good.

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

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 financial markets are struggling to respond to the enhanced geopolitical threats and are doing so by "not over-reacting". In the background, volatility was lower and earnings reports were positive. A speech by Fed boss Powell is due soon.

But first up today, the release of the important US Federal Reserve's Beige Book was an irrelevant affair, reporting little change in October from September. All the usual strengths are on display (labour market, for instance) along with all the usual threats (the housing market, and inflation, although that is broadly easing in these reports).

The American mortgage market hit a new low last week. Mortgage applications fell by -6.9% in the week ending October 13, the sharpest decline since April. Volumes are now their lowest since 1995. Refinancing applications plunged -9.9% in the period, while applications to purchase a home dropped by -5.6%. Meanwhile mortgage interest rates touched 7.7% plus points for their standard 30 year loan, a 23 year high.

Meanwhile housing starts picked themselves off the canvas in September from August's unusual low, but are still quite groggy. They are -7.2% lower than year ago levels which themselves weren't a high standard. Building consents don't give any indication their residential new-build market is about to recover.

Canada however is posting a good recovery in their housing start and residential construction data for September.

Data out of China yesterday was quite positive. The Chinese economy expanded by +4.9% in Q3-2023 from a year ago, slowing from +5.3% in Q2 but beating market forecasts of +4.4%. For a country as large as China, that is a big up surprise. Retail sales climbed by +5.5% in September from a year ago (remembering they essentially have zero inflation), accelerating from a +4.6% rise in the prior month and exceeding market estimates of +4.9%. It was the largest increase in the pace of trade since May. Electricity production rose +7.7% from a year ago, suggesting the headline growth may in fact have some substance behind it. It is the first time in quite some time Chinese growth data has been led by electricity production.

Housing market data in China however, wasn't a positive with their property investment slump deepening in September. However, it is actually quite positive that the growth they did record was consumer-led, and without property. This de-emphasising is a heathy sign.

In Europe, they confirmed its September CPI inflation rate at 4.3% for the Euro area, unchanged from its 'flash' report. A reminder, that is down from 5.2% in August, so good progress there even if core countries like Germany and France aren't quite back at those levels yet

In Australia, there are more reports of farmers desperate to quit stock ahead of the expected El Nino droughts looming. Some are even prepared to give them away as prices collapse to less that the freight to move them off farms. Even then, there were few takers. To be fair, these are only tiny pockets of desperation at this stage, but the trend is clear and market prices are diving, especially for sheep. No farmer wants to be stuck with livestock they can't feed or sell. In addition to the obvious animal welfare concerns, the legal liability is severe.

The UST 10yr yield in volatile today. At one point it was as high as 4.93% but has eased back to now be at 4.88% and up only a net +2 bps from where we started yesterday. Still, this is a new modern post-GFC high. 

The price of gold will start today at US$1952/oz and up +US$27/oz from this time yesterday.

Oil prices have risen +US$2.50 to be now at just over US$87.50/bbl in the US. The international Brent price is now just over US$91/bbl.

The Kiwi dollar starts today at 58.6 USc and down -½c from yesterday. This is its lowest level in almost a year. Against the Aussie we are softer firmer at 92.4 AUc which is down more than -1c since the start of the week. Against the euro we have eased lower again to 55.6 euro cents. That all means our TWI-5 starts today at just over 68.7 which is down another -40 bps from yesterday.

The bitcoin price starts today at US$28,361 and down -0.8% 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 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 bond yields are rising fast today as hot American data fuels bets the US Fed will need to raise rates again.

But first, the overnight dairy auction was a reprise of the previous two, up another +4.3% this time. But to be fair it hasn't yet made back all of its steep falls of July and August yet even if it is on the way. Both SMP and WMP rose like the overall result, butter was up +2.9%. Prices at this level are basically what we had in the 2016-2020 period. It was a solid, average auction, and a relief that the steep reductions from the 2021 peak seem to have ended.

In the US, retail sales came in stronger than expected. They were up +0.7% in September from August, following an upwardly revised +0.8% rise in the prior month and beating forecasts of a +0.3% rise. Gains were across the board, and car sales topped other sectors. Year-on-year that is a +3.8% rise and now topping inflation (3.7%). The data continues to point to healthy consumer spending despite high prices and borrowing costs.

This is all confirmed with much better bricks & mortar retail sales, up +4.6% year-on-year in the Redbook weekly survey of same-store sales last week.

US industrial production is again expanding too, up +0.3% in September and enough to drag their year-on-year activity positive, even if only modestly at this stage.

US business inventories were up, but not as fast as sales, so they do not have a problem in this regard.

The only sector in the US struggling is their residential real estate sales sector. That includes homebuilders who remain glum. Buyers aren't buying because of the high interest rates.

In Canada, they revealed their September CPI inflation overnight and like New Zealand, it came in lower than expected. There it fell to 3.8% in September from 4% in the previous month. The result further strengthened expectations that the Bank of Canada will refrain from further rate hikes in the current cycle.

In China, they are finding that only Beijing is confident enough to invest in industries designated as 'strategic' and their central government is responding with a +30% rise in support for those industries.

And all eyes are on giant developer Country Garden, who are widely expected to default on bond payments later today. There is a chance that the impact could cascade through the wide network of dependent contractors.

In Germany, the ZEW Indicator of Economic Sentiment surged by 10 points from the previous month to almost eliminate their negativity in October, significantly exceeding market expectations. 

In Australia, they released the minutes of the last RBA meeting yesterday and they were somewhat more hawkish than expected. They might raise fears that the RBA may be inclined to raise rates again which would be a 13th rise since they last fell. "[M]embers noted that some further tightening of policy may be required should inflation prove more persistent than expected." They have a target of "between 2 and 3 percent". The last monthly inflation indicator was 5.2% in August and the next one is released for September on Wednesday, October 25, 2023.The RBA next meets on Tuesday, November 7, 2023 and they have signaled they will have a low tolerance if inflation progress isn't forthcoming.

The UST 10yr yield starts today up +14 bps from where we started yesterday at 4.86% and a new modern post-GFC high. 

Locally, market pricing expectations for another RBNZ rate rise have all but vanished.

The price of gold will start today at US$1925/oz and up +US$3/oz from this time yesterday.

Oil prices have dipped -US$1 to be now at just over US$85/bbl in the US. The international Brent price is now just over US$88.50/bbl.

The Kiwi dollar starts today at 59.1 USc and little-changed from yesterday. Against the Aussie we are slightly firmer at 93.6 AUc. Against the euro we have eased lower by almost -½c to 55.8 euro cents. That all means our TWI-5 starts today at just over 69.1 which is down -40 bps from yesterday.

The bitcoin price starts today at US$28,590 which is up another +1.7% from this time yesterday. Volatility over the past 24 hours has been modest at +/- 1.3%. In Australia, they have released their long-awaited crypto regulations and they are expected to wipe out the bulk of Australian-registered exchanges as they struggle to comply with the requirements designed to limit the scams and fraud rife in the industry.

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 global financial markets are still assuming the Gaza-Israel flare-up won't affect them.

On Wall Street analysts are betting the American economy is actually operating better than they had been assuming. And tech stocks are rising ahead of earnings reports that are assumed to be strong. Consumer stocks are rising as well. The S&P500 is higher as are bond yields as eyes turn to how the US Fed will assess this continuing strength. The wisdom of ignoring global pressures is not front-of-mind there at present. A higher risk appetite seems an odd reaction in the circumstances.

In New York State however, business activity edged lower in their factories. This was the seventh monthly fall in the past year, one that has essentially oscillated around a steady state. This time new orders were a little soft, but employment held up. That was probably because looking ahead, firms remained relatively optimistic about the six-month outlook

In Canada, wholesale sales rose +2.3% in August, led by machinery and equipment. This was a good bounce-back from the no-change in July, although not as much as was anticipated. But the waterfront strike in Vancouver in that month probably affected this result.

And staying in Canada, higher interest rates are souring the mood of both consumers and businesses. A quarterly survey for their central bank shows a steepening mood retreat.

In India, wholesale prices unexpectedly dropped in September, extending the period of wholesale price deflation to a full six months now. Given the have CPI increases of about 5%, you might expect that to ease soon from the wholesale price weakness.

A weak monsoon has affected large parts of the rural economy, and badly. One indication is that sales of entry-level cars slumped -75% to just 35,000 units in the three months through September from a year earlier. Sales of motorcycles and scooters, the favoured modes of transport in villages also fell -39% and -25% respectively. These are huge reactions as farmers face the future with building fears.

In China, their central bank injected ¥783 bln (NZ$183 bln) into their banking system yesterday via their medium-term lending facility, but at an unchanged 2.50% rate. This remains the lowest rate on record for a 1-yr MLF. It has fallen steadily from 3.30% in 2019. This latest injection is a third more than the September ¥591 bln and this the most they have ever injected.

The tough conditions give opportunities for short sellers. Now regulators are moving to try and quash short selling in China.

In Europe, yesterday we noted the Polish election. The results are not official yet, but exit polling suggests that the EU-centric opposition parties may have won over the ruling Catholic-conservative nationalist party. If confirmed, it could return Donald Tusk to power. Poland may not be going the Hungary/Slovakia way and this is likely to be an important shift in the EU.

Staying in Europe, end of year retail prospects look tough in the UK. There, almost one in three adults expect to spend less on Christmas this year, with most blaming the rising cost of living.

The UST 10yr yield starts today up +9 bps from where we started yesterday at 4.72%.

The price of gold will start today at US$1922/oz and down -US$11/oz from this time yesterday.

Oil prices have slipped a bit more than -50 USc to be now at just under US$86/bbl in the US. The international Brent price is now just over US$89/bbl.

The Kiwi dollar starts today at 59.2 USc and recovering +40 bps from yesterday's open. Against the Aussie we are slightly softer again at 93.4 AUc. Against the euro we have risen slightly to 56.2 euro cents. That all means our TWI-5 starts today at just under 69.5 which is up +25 bps from yesterday.

The bitcoin price starts today at US$28,120 which is up +4.4% from this time yesterday. However, volatility over the past 24 hours has again been extreme at +/-5.7% as this crypto briefly flirted with US$30,000 earlier. 

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.