Economy Watch

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 threat of the Chinese economic slowdown hangs over the global economy and now they are staring at imminent deflation.

But first we should note, there was a right-shift in the political mood evident in weekend voting in both Australia and New Zealand. There is also a key election going on in Poland that is worthy of our attention. Locally, early celebrations by the winning parties may be followed by nervousness, as the late and overseas votes get counted. It may herald complex coalition negotiations.

Coming up this week, the big economic issue will be the release of our inflation rate for Q3-2023 on Tuesday. Markets currently expect the headline CPI rate to be 5.9%, down only marginally from 6.0% in Q2-2023. But if it does come in at that level, that will represent no material progress from the RBNZ's perspective.

In the United States, a key focus will be on the onset of the earnings season featuring major players like Tesla, Bank of America, Johnson & Johnson, Procter & Gamble, and Netflix. Also, investors will be paying attention to Fed speeches, and data including retail sales, building permits, housing starts, existing home sales, and industrial production.

Across the Pacific, China will grab attention this week with its Q3 GDP growth rate, retail sales, industrial production, fixed asset investment, unemployment rate, and house price index.

Over the weekend, Chinese consumer prices were unexpectedly unchanged in September from a year ago, missing market forecasts of a +0.2% gain. Meanwhile their PPI fell -2.5% in September from a year ago.

Exports from China declined by -6.2% from a year ago to US$300 bln in September, which was an improvement from the -8.8% drop in August and compares with the market's expected -7.6% decrease. This marked the fifth consecutive month of declining exports but was the least severe in the series. However, the result was underpinned by a very sharp +21% rise to Russia. Exports to normal countries were all very weak; to the US down -9.3%, the EU down -11.6%, to Japan down -6.4% and to Australia down more than -17%. This is a sign of the international trading blocs sharply cleaving.

And staying in China, the IMF is warning there are heightened spill-over risks from the country's property woes. The failures are famous; but there are actually less of them, especially domestic bonds in stress.

In Singapore, their central bank announced it would shift from half-yearly monetary policy reviews to quarterly.

Indian exports were marginally lower in September and slipped -2.5% from a year ago. India however is not a powerhouse exporting force yet, exporting only an eighth of the goods that China does. And there is little indication Indian exports are firing up.

In Asia generally, more key central banks are worried about the US 'higher-for-longer' rate threat from the US, one that could sharply weaken their currencies because their local interest rates are lower than the US. That are addressing that with aggressive bond selling moves to soak up cash to defend their currencies. India, China and Indonesia have already ramped up these activities. Watch out for similar moves by Korea, Malaysia, the Philippines, and possibly Thailand in the next few months. But a bond rush like this does come with other risks for them.

In the US, consumer sentiment as monitored by the widely-watched University of Michigan survey fell rather sharply in October. It fell to an index level of 63 this month from 68.1 in September, the lowest in five months, and missing market estimates of 67.2. But to be fair it is still well ahead of year-ago levels and it has been in this general range since late 2021. However, it's lower-than-expected reading has moved financial markets in the US.

The UST 10yr yield starts today little-changed from Saturday at 4.62% which is -16 bps lower than a week ago. 

The price of gold will start today at US$1933/oz and up another +US$5/oz from this time Saturday. That has cumulated to a heady +5.7% rise for the week.

Oil prices have risen a further +50 USc/bbl from Saturday to be now at just on US$86.50/bbl in the US. The international Brent price is now just on US$90/bbl. A week ago these prices were US$82 and US$84 respectively.

The Kiwi dollar starts the week weak at 58.8 USc and down marginally after Saturday's drop, as commodity currencies stay out of favour. Recall a week ago this rate was 60 USc so more than a -1c fall for the week. Against the Aussie we are slightly softer at 93.5 AUc. Against the euro we are down to 56 euro cents. That all means our TWI-5 starts today at under 69.2 which is down -10 bps from Saturday and down -70 bps for the week.

The bitcoin price starts today at US$26,925 which is up +0.8% from this time Saturday. Volatility over the past 24 hours has again been virtually non-existent at +/-0.2%.

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

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

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

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 inflation's force is on full display again, and long bond yields are back rising.

But first in the US, consumer inflation was steady at 3.7% in September, the same as August, against market expectations of a slight decrease to 3.6%. A smaller decline in energy prices offset slowing inflationary pressures in other categories. Energy costs fell by -0.5%, following a -3.6% decrease in August, primarily because petrol prices rose offsetting other energy like natural gas and electricity price retreats.

Core inflation, that is without food or energy, fell to a still-high 4.1%, but that is its lowest in two years.

Meanwhile, the actual number of Americans filing for jobless benefits last week was unchanged from the prior week at 197,000 which was below estimates of 210,000 and remaining close to the seven-month low. There are now 1.55 mln people on these benefits, also lower. No labour market stress signs here.

Between the two metrics - brisk inflation holding and extending labour market strength - the Fed seems still a long way off being able to declare victory. The higher for longer theme we saw in yesterday's Fed minutes for its September meeting is justified by this latest data.

In the background, US Social Security payments will rise by +3.2% from January 1, 2024, it was announced overnight. That will affect more than 70 mln recipients. But that is a lot less than the +8.7% rise for 2023. The 2024 increase will amount to about +US$59/month per person taking it to US$1907/month (NZ$3210/month or NZ$740/week.)

In India, retail price inflation dropped to 5.0% in September 2023, down from 6.8% in August and well below the expected 5.5%. A year ago it was running at 7.4%. This new level fell within their central bank's 2-6% target range for the first time in three months, primarily due to a significant slowdown in food inflation.

India also released August industrial production data and it was unusually strong. It climbed +10.3% from a year ago, the highest since June last year. That is up from a +5.7% rise in the previous month and above market expectations of a 9% gain.

In China, banks are pushing out more debt. They extended +¥1.36 tln in new yuan loans in August (+315 bln), marking a sharp increase from July's +¥0.35 tln (MZ$80 bln) and even above the market bounceback expectations of +¥1.20 tln (NZ$275 bln). This expansion fits their central bank goal of bolstering economic growth in the face of subdued demand both domestically and internationally.

In Australia, prudential regulator APRA said no bank breached capital and liquidity buffers in stress tests that assumed house prices fell by a third and unemployment spiked to 10%.

The global container freight rates fell yet again last week, to be -60% lower than a year ago and -4% lower than the ten year average, one that includes the huge pandemic surge. In contrast, freight rates for bulk cargoes are still rising, and rising fast. They are now back to year-ago levels which is 3.5 times higher than they were when they bottomed out in February.

The UST 10yr yield starts today up +10bps from yesterday at 4.71%. 

There was a UST 30yr bond tender overnight for US$20 bln, and it only drew US$47 bln in bids which was considered low. The median yield rose to 4.74%, which was more than expected.

The price of gold will start today at just on US$1869/oz and down -US$4 from this time yesterday.

Oil prices have slipped another -US$1.50 to just over US$81.50/bbl in the US. The international Brent price is now just on US$85/bbl.

The Kiwi dollar starts today at 59.4 USc and down -¾ bps from yesterday as commodity currencies fall out of favour. Against the Aussie we are slightly softer at 93.8 AUc. Against the euro we are down -½ to 56.3 euro cents. That all means our TWI-5 starts today at under 69.7 which is down -50 bps from yesterday.

The bitcoin price starts today at US$26,676 which is virtually unchanged (-US$3) from this time yesterday. Volatility over the past 24 hours has been low however at +/-0.7%.

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

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

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

Kia ora,

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

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

And today we lead with news that in the shadow of the sudden geopolitical risks in Gaza, economic markers are generally positive. But the chances of more rate rises seem to be receding.

US mortgage applications were steady last week, little-changed from the prior week so still -19% lower than year-ago levels, which was when the down-trend started biting hard. Meanwhile their benchmark 30 year mortgage interest rate rose to 7.67% and a new high since 2000.

American producer prices came in just +2.2% higher than year ago levels in September. This was up marginally from August and analysts had expected a small slip. They rose +0.5% from the prior month however, the least in three months, following a +0.7% rise in August. Goods prices were up +0.9%, mainly because petrol jumped +5.4%.

The US Fed released the minutes of its September 21 meeting today. That showed a new but small disagreement on the rate hold decision, although all voting members were agreed. Several want to shift the focus of decisions to how long to keep rates high, rather than how high to raise them. But all indications are that there will be no change again in November. There was little initial market reaction to this release.

Across the Pacific, Japanese machine tool orders rose sharply in September from August even though they remain lower on a year-on-year basis. But that annual deficit was cut significantly in this latest update. The rise was especially sharp for orders from local manufacturers, although export orders jumped as well.

Taiwanese exportsrose +3.4% in September from August when a slip of -3.0% was expected, a much better outcome than anticipated.

In China, car sales rose in September to well over 2.5 mln vehicles in the month, a good sign their manufacturing sector is stabilising. But capacity is high and there are many carmakers, especially of EVs who are struggling for profitability at the recent low prices that have driven the sales rise. Innovation is high, prices are low, and there are mountains of cars that get scrapped quickly.

And staying in China, their sovereign wealth fund snapped up shares in the nation’s Big Four banks and said it plans to buy more. Although all those banks are state-owned, with only a portion of their shares on equity markets, a show of support to keep their share values from falling in difficult times is deemed important for confidence.

European inflation expectations are staying low - at 3.5% - even if inflation itself is finding it hard to fall to that level.

The UST 10yr yield starts today down -5 bps from yesterday at 4.61%. 

The price of gold will start today at just on US$1873/oz and up another +US$11 from this time yesterday.

Oil prices have slipped -US$1.50 to just over US$83/bbl in the US. The international Brent price is now just on US$86/bbl.

The Kiwi dollar starts today at 60.2 USc and down -20 bps from yesterday. Against the Aussie we are still at 94 AUc. Against the euro we are down -10 bps to 56.8 euro cents. That all means our TWI-5 starts today at just on 70.2 which is back -10 bps from yesterday.

The bitcoin price starts today at US$26,679 which is down a sharpish -2.8% from this time yesterday. Volatility over the past 24 hours has been modest however at +/-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 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 the new war in Gaza, and a stumbling Chinese economy are together posing new risks to an already fragile global economy. But there are some bright spots still.

Firstly in the US, one-year ahead inflation expectations held steady at 3.7% in September, up fractionally from August. Conversely, five-year-ahead inflation expectations declined by 0.2 percentage point to 2.8%. Perceptions about households’ current financial situations slipped slightly in September with more respondents reporting being worse off than a year ago and fewer respondents reporting being better off. In contrast, year-ahead expectations improved with more respondents expecting to be better off a year from now.

The weekly bricks & mortar retail store survey reported that sales were +4.0% higher than a year ago, indicating is sector of their retail industry is back experiencing real, above-inflation growth.

Not so happy are small business owners for whom optimism dipped in September as inflation remains the top problem in their mind. Oddly this survey has been the inverse of the retail survey with small business owners more optimistic when sales growth was lower and less so when it rises above inflation. Odd.

It is probably worth pointing out that a US$46 bln US bond tender today was wildly popular, garnering US$118 bln in bids - but investors are only slightly higher returns. The median yield for today's 3 year bond was 4.67% pa and that was up from 4.60% a month ago. While that is higher, it isn't as high as you might have expected given the background events, and six months ago the yield was 4.58% pa. - again, much less advancement that you might have expected.

The Fed is expected to pause any consideration of rate rises for now, given the international pressures. It next meets in three weeks on November 2, NZT.

In a Hong Kong stock exchange filing, giant developer Country Garden said it is facing a severe liquidity problem and can't pay its bond obligations. The end is near and when this giant falls, it could take a vast range of construction dependent companies with it. This will be one risk that is pushing Beijing to reconsider its recent aversion to traditional infrastructure stimulus - often building roads and rail "to nowhere" to keep their growth targets in focus.

In Australia, the NAB business confidence index was marginally positive in September, the same steady level for a third straight month. Meanwhile, business conditions remained resilient (although dipping slightly from August), suggesting their economy remained in reasonable shape through the middle of the year. Forward orders rose after contracting in August. The signs for inflation were positive.

Staying in Australia, the Westpac-Melbourne Institute Consumer Sentiment index rose in October from September, hitting the highest level in six months, but it is still in deeply pessimistic territory. And that is consistent with the contraction in per capita spending seen since late 2022 and a worry heading into the pre-Christmas sales season. Rate rise fears have also resurfaced.

The IMF released its latest global financial stability report today saying the risks to global growth remain skewed to the downside as inflation remains elevated and interest rates are set to stay higher for longer. They left its global growth forecast steady at 3% for 2023 but cut its forecast for 2024 to 2.9% compared to 3% made in July. Also, the expectations for global inflation were revised higher to 6.9% in 2023 from 6.8% and to 5.8% from 5.2% in 2024.

Meanwhile, the IMF raised its growth forecast for the US, Japan and the UK. On the other hand, the Chinese economy will probably grow at a slower 5% in 2023 (vs 5.2% seen early) and 4.2% next year (vs 4.5%). The Euro Area is also seen growing slower. The risks they are watching are the Chinese crisis, and commodity price volatility. They say fiscal buffers have eroded in many countries.

We should also note that wheat prices continue to fall sharply now on very good harvests across the globe. This price is down more than -4% in a month, down -38% in a year.

The UST 10yr yield starts today up +1 bp from yesterday at 4.66%. 

The price of gold will start today at just on US$1862/oz and up another +US$12 from this time yesterday.

Oil prices have slipped -50 USc to US$84.50/bbl in the US. The international Brent price is still just on US$87/bbl.

The Kiwi dollar starts today at 60.4 USc and up almost +½c from yesterday. Against the Aussie we are a tad softer at 94 AUc. Against the euro we are down -10 bps to 56.9 euro cents. That all means our TWI-5 starts today at just on 70.3 which is up +10 bps from yesterday and a new three month high.

The bitcoin price starts today at US$27,451 which is up a mere +0.3% from this time yesterday. Volatility over the past 24 hours has been low at +/-0.7%.

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

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

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

Kia ora,

Welcome to 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 investors are ignoring the geopolitical risks.

The main talking point today is how little financial and commodity markets have reacted to the sudden Gaza-Israel conflict threats. Yes, bond markets are having a 'flight to safety' with yields falling somewhat, but is it limited. Yes, oil prices have risen, but they are are hardly back to week-ago levels yet. Equity markets have hardly reacted. And yet geopolitical risks have clearly risen and the world is a much more dangerous place. Rogue nations are chancing their arm for positioning in a multipolar world. Things are getting messier as authoritarians see their chance.

But markets are yawning. Investors are sidelining those risks, 'happy' they don't involve the major economic blocks in North America, Japan, the EU or even China.

However, there are risks to worry about, especially in China.

It was a national holiday there last week. There is evidence that travel-related activity was quite strong, but that retail activity was not especially strong. Levels this year barely exceeded 2019, it seems.

And the return to work there isn't starting with great signals. China is a very big place so it is possible to find evidence of all trajectories. But there is one that accentuates the drag of a stuttering property market. Steel rebar futures fell to their lowest since August (which itself was a false dawn) and threatening 2017 levels. Confidence construction activity will recover isn't high. That doesn't augur well for New Zealand sales of logs to China.

And in China a copper billionaire has 'gone missing' as his company wobbles, essentially grinding to a halt.

The UST 10yr yield starts today down -13 bps from yesterday at 4.65% with a clear 'flight to safety' underway that raises the price of benchmark bonds and lowers their yield. 

The price of gold will start today at just on US$1850/oz and up +US$17 from this time yesterday. But that only takes it back to where we were a week ago, well before the Gaza explosion.

Oil prices have risen +US$3 to US$85/bbl in the US. The international Brent price is just under US$87/bbl. Yes, there is a lot of talk the oil price 'surges' but in fact both are lower than week-ago levels and both lower than you might have expected given the new Middle-East conflict. Maybe it will come, but it hasn't come yet.

The Kiwi dollar starts today at 60 USc and a very minor firming from yesterday. Against the Aussie we are up +20 bps at 94.1 AUc extending our steady gains. Against the euro we are up almost +½c at just under 57 euro cents. That all means our TWI-5 starts today at just on 70.2 which is up +20 bps from yesterday and a three month high.

The bitcoin price starts today at US$27,379 which is down -2.0%% from this time yesterday. Volatility over the past 24 hours has been modest at +/-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.

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

The Green Party’s finance (and transport) spokesperson Julie Anne Genter has an unlikely ally on a handful of policy issues: Mayor of Auckland Wayne Brown. 

Both politicians agree New Zealand needs to scale up its public transport, move more freight by rail, implement congestion charging, and build cheaper versions of big Labour projects. 

The Greens already have three former mayoral candidates (one successful) in winnable spots on their party list — could Wayne Brown make the 2026 list? Genter doesn’t think so. 

“I think that my colleague Chloe Swarbrick, MP for Auckland Central, has had to be involved in some campaigns to stop cuts to the Auckland City budget”. 

“But I do think it's great that Wayne Brown is onside with surface light rail,” she said, in an interview for the Of Interest podcast.

Genter supports light rail in Auckland but opposes Labour’s plan to build it in a tunnel under Dominion Road, which could cost roughly $15 billion. 

Surface light rail might be up to $6 billion cheaper, savings which could be used to build light rail projects in New Zealand’s other major cities. 

“We could deliver surface light rail in Auckland, Wellington, and Christchurch—as the spine of an improved public transport system that connects with bikes and buses and everything else. 

And, we can do that for less than the cost of the tunnel light rail line in Auckland, and we can do it faster with less disruption and make a bigger difference to people,” she said.

The parties which “claim to be fiscally responsible” are simultaneously promising projects that don’t stack up just because they think they will be popular with voters. 

One example of this could be Labour’s multi-tunnel Waitemata Harbour crossing, which was announced before even an indicative business case was completed.

Both Genter and her “unexpected ally” Wayne Brown think the Government should build a bridge instead. 

She said the alignment between the policy platforms was because Brown was “someone who looks at the numbers”. 

He was willing to make an evidence-based decision on what would be the best use of money and get the best outcomes, rather than just pursuing a particular transport ideology. 

The two larger parties were stuck in “a race to the bottom” making big promises for people involved in delivering these large highway projects or large tunnelling projects, or on the assumption that roads will be popular with voters. 

“I think they assume that because everyone drives, they just want more roads, whereas lots of people would like the option to not drive,” she said.

Evidence-based populism

The Green Party prides itself on being evidence-based policymakers, but it isn’t immune from the occasional tilt towards populism. 

One example (arguably) is rent control. The Greens’ manifesto pledged to limit annual rent increases to 3%, and sometimes less. 

A rental price index would be set at whichever rate was lowest: general inflation, net hourly wage growth minus one percentage point, or 3%.

The evidence in support of rent controls is mixed, at best. This literature review found they worked to lower cost increases, but also caused a “wide range of adverse effects”.

Adverse effects can include a reduction in the quantity and quality of available housing stock over time. Genter said the party’s suite of rental policies would offset the negative effects. 

“Yes, there may be examples of places where rent controls haven't worked well. But that's because they don't have the other policies that we're proposing, which is a big push on public supply”. 

The Green Party plans to build 35,000 publicly owned homes over the next five years, using long-term funding and materials contracts, as well as pre-fabrication. 

Kāinga Ora would be tasked with targeting housing affordability and maintaining a building programme that anticipates demand and adds enough homes to meet it. 

Of course, the rent controls won’t be needed if supply-side reform works in the long term. 

Genter said the 3% speed limit was necessary as a “stop-gap” measure, because governments hadn’t provided enough housing over the past few decades. 

Wealthy mandate

Labour has ruled out implementing a wealth tax if it were able to form a government after the election. This puts the Greens in a difficult position, since many of their policies are unpinned by an increase in tax revenue. 

Genter said the Green Party would push for a wealth tax in the coming Parliamentary term, even if only 15% of votes had been cast for political parties that supported the policy. 

“Well, the really puzzling thing to me is that 50% of National and Act Party voters support a wealth tax or capital gains tax. So, I don't know that people are voting on policy”.

Polling had demonstrated that there was a majority of New Zealanders who supported tax reform, but even without majority support Parliament had a responsibility to pass good laws.

“We are elected as representatives to use the power and the mandate, we have to get the best possible outcomes and I feel really confident the country would be better off as a result”.

You can listen to the full interview with Julie Anne Genter on our podcast, as well as interviews with Labour’s Grant Robertson and NZ First’s Shane Jones. 

Interest.co.nz has also asked National and Act’s finance spokespeople for an interview.

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 sudden Middle-East explosion is likely to put safe-haven assets back in the spotlight this week.

But first, China said its giant foreign exchange reserves were little-changed in August. They don't provide transparency of which currencies they hold them in, but we do get some of that from the US data which shows Chinese holdings of US debt is about US$800 bln (25% of the Chinese holdings) and falling. That means the Chinese hold about US$2.4 tln of other country debt. Many will be rogue nations. The Chinese fx reserves now have high risk attached to them, and will become an increasing problem for them (not to mention the debtors).

Hong Kong and southern China are bracing under Typhoon Koinu. Their stock market will be among many institutions not opening this morning, perhaps all day.

In India, their central bank kept its key policy rate unchanged at 6.5% as expected on Friday but said it would keep liquidity tight using bond sales to bring inflation closer to its 4% target and this focus on bond selling was not expected. Indian CPI inflation is currently running at 6.8%. It didn't release details of what it expected to sell, but is was suddenly active and that drove benchmark bond yields sharply higher, up 13 bps yesterday, the most since August last year, to close at 7.34%.

In Japan, household spending unexpected rose more than expected in August from July (+3.9%). It might still be lower than a year ago, but the month-on-month rise impressed financial markets.

In the US, there has been a positive 'surprise' from their labour market in September. We had suggested the expected +170,000 gain might have an upside, but no-one expected gains as strong as the +336,000 (sa) delivered. Nor the big upwards revision for August (up from +187,000 to +227,000).

These are the seasonally adjusted headline numbers, but as regular readers know we look at the actual unadjusted survey results. And they show actual payrolls rose +585,000 in September (+394,000 in August) to now be at 157.0 mln people on employer payrolls and a new record high. Looking deeper to include the unincorporated self-employed, there are now 161.7 mln in their employed labour force. Only +29,900 of this monthly increase was for part-time work.

If there are any downsides, they include that their jobless rate was unchanged from 3.8%, their participation rate made no progress at 62.8%, and their weekly earnings were up +3.75% from a year ago, little premium to inflation's 3.65%.

US vehicle sales rose to an annualised rate of 15.7 mln in September according to updated NADA data. And there seems to be "significant progress" in union negotiations with the carmakers. The carmakers seem to be caving quickly now.

US consumer credit data actually fell in August when a small rise was anticipated. Overall it fell by -US$15.6 bln, driven by a sharper -US$30.3 bln fall in car and student loans, to US$3.7 tln. That was offset to some extent by a +14.6 bln rise in credit card debt (to US$1.25 tln).

It now appears more likely that another US Fed rate hike will be coming soon. A hot labour market and good pay and conditions increases will be seen as fueling inflation by the regulators. They will feel they need to get ahead of these pressures. Bond yields are rising again. The global geopolitical situation will have a say too.

And it wasn't only the US's labour market that turned in a much-better-than-expected result. The Canadians did too. They expected a +20,000 gain in employment in September but delivered a +64,000 gain and they also upgraded their August data sharply. But in Canada, it was part-time work that drove most of their gains.

This is a holiday weekend in Canada, their Thanksgiving Day and they will be closed tomorrow (NZT). It will also be a Federal holiday in the US, Columbus Day, but that has fading recognition and is not actually a holiday in many states. The bond market may be closed tomorrow, but their stock market will be open.

This coming week will bring the US CPI for September on Friday NZT. A 3.6% rate is expected, down fractionally from August's 3.7%.

In Australia, the RBA has been looking at household financial stress in their latest Financial Stability Review. They say early indicators show that financial pressures have increased and the incidence of severe financial stress has increased but remains low. The group of borrowers at higher risk of falling into arrears on their mortgage remains small.

Also falling are world food prices. They may not have fallen in September from August, but they are -11% lower than year ago levels. The drop would have been more if it wasn't for sharply higher sugar prices. Dairy prices are down -25% in a year (as the GDT auctions confirmed), and global meat prices are lower too. Grain prices are -15% lower than a year ago. These are the changes for producers, not consumers. Food prices should not be driving inflation.

The UST 10yr yield starts today up +2 bps from yesterday at 4.80% on the implications of the strong US labour data. The new conflict between Israel and Gaza may well add to risks this week however. 

The price of gold will start today at just on US$1833/oz and up +US$4 from Saturday. Although that is down -US$17 from a week ago, it would not be surprising to see this price rise sharply from the Gaza conflict explosion.

Oil prices have stabilised lower at just under US$82/bbl in the US. The international Brent price is just on US$84/bbl. These are five-week lows and are -US$8 lower in a week. But the new Middle-East conflict may well change these levels when trading resumes.

The Kiwi dollar starts today at 59.9 USc and a very minor slip from Saturday. Against the Aussie we are marginally firmer, now at 93.9 AUc although up +½c in a week. Against the euro we are unchanged at 56.6 euro cents. That all means our TWI-5 starts today at just on 70 which is actually little-changed in a week.

The bitcoin price starts the new week at US$27,926 which is up a very minor +0.1% from where we left it on Saturday. From a week ago it is up +4.0%. Volatility over the past 24 hours has been very low at just under +/-0.7%.

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

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

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

Kia ora,

Welcome to 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 a global soft landing seems much more likely now, despite China's travails.

The actual number of Americans on jobless benefits was just 1.58 mln and an eight month low, and the number of new filings were 173,000 last week and close to a seven month low. None of this very current data suggests labour market stress is about to hit them.

And the September Challenger job cut report was low too, and the recent trend shows the earlier rises seem to have run out of steam.

So perhaps estimates for tomorrow's non-farm payrolls report of jobs growth of +170,000 has upside risks attached.

Meanwhile, the US trade deficit narrowed to -US$58 bln in August, its lowest since September 2020. Both goods and services exports rose from July, goods imports fell from the prior month.

Canada also reported an improved trade balance, a rare August surplus. Their exports also rose.and by +5.7%.

And Canada's closely-watched local Ivey PMI slipped slightly but far less than expected, and remains in a good expansion phase.

Today is the last day of the extended Mid-Autumn Festival in China and Beijing has set rules for an unusual end. To ensure the break does not hurt their fragile economy, they have decreed that Saturday & Sunday will be workdays, so workers there are facing a seven day back-to-work week through to Friday a week away.

Singapore reported an unexpectedly strong retail sales surge in August, its best in six months driven by strong food sales.

South Korea is starting to see inflation rise again. It got down to just 2.3% in June but since it has risen steadily, now at 3.7% in August from a year ago. But the anualised rate between July and August was much faster than that.

In Australia, exports rose while imports fell, allowing them to record a larger trade surplus in August than expected. They reported a +AU$9.6 bln surplus in the month when a +AU$8.7 bln surplus was expected. (This is a goods and services result.) Almost all the extra surplus was exports from their gold mining industry.

Staying in Australia, it is getting tough and ugly being a renter. Data from housing portal Domain reveals their national residential rental vacancy rate was only 0.8% in Q3-2023. In Perth it was only 0.3%, in Sydney 0.9% and hardly better (for renters) in Melbourne, Adelaide or Darwin. But it was easier in both Canberra and Hobart.

We mentioned yesterday that the coal price is falling. It is, and did so more today taking it back near two year lows. The copper price is shifting lower too, near one-year lows. Nickel and tin prices are soft as well. None of this shows traders are expecting rising demand from China.

Container freight rates fell less this week than last, but they did fall again, taking the sequence to seven straight weeks of declines and costs are now lower than pre-pandemic levels (by -2%). Every major trade route reported slippage this past week. But bulk cargo rates were up marginally again last week and building on an impressive spurt over the past month.

The UST 10yr yield starts today down -2 bps from yesterday at 4.72% as the correction embeds. 

The price of gold will start today at just on US$1817/oz and down another -US$3 from yesterday.

Oil prices have fallen another -US$2 to be just over US$82/bbl in the US. The international Brent price is just under US$84.50/bbl. These are five-week lows.

The Kiwi dollar starts today at 59.6 USc and up more than +¼c from yesterday. Against the Aussie we are also firmer, now at 93.7 AUc and down -20 bps. Against the euro we have also firmed marginally to 56.5 euro cents. That all means our TWI-5 starts today at just over 69.7 and up +30 bps.

The bitcoin price has moved very little on a net basis from yesterday, and it is now at US$27,483 and up a minor -US$41 from then. Volatility over the past 24 hours has been modest at just on +/-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.

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 a sense of dread you might get looking at financial markets from the outside isn't being reflected in the activity of those markets.

But first the worrying news. We should note that American benchmark mortgage interest rates topped 7.5% last week for the first time since November 2000. 8% rates seem in sight. So it will be no surprise to learn that mortgage applications were weak there last week, down a sharp -6% from the prior week, and down -22% from the same week a year ago.

Holding that weaker theme, and after rising +180,000 in August, the pre-cursor ADP Employment Report of private payrolls was expected to rise +153,000 in September. But it rose just +89,000 which is a negative signal ahead of Saturday's US non-farm payrolls report. Weakness was shown in factory jobs, employment in the South, and by large firms. Analysts are expected the non-farm, payrolls to grow a modest +170,000 but there seems to be downside risks. At least the US Fed will like to see an easing. And equity and bond markets responded in that way with stocks up and benchmark bond yields easing back.

But not every indicator out today is negative. The closely-watch ISM services PMI shows no such weakness for September. Yes it eased slightly, but it is just off its six month high and expanding at a healthy clip. Employment held up, but if there is a weakness it is a sag in the new order expansion levels.

Having noted that, the new factory order data in the US for August came in much better than expected and reversing the slip in July. They were up +1.2% from the prior month, although only up +0.5% from a year ago.

American crude oil stocks fell again last week, but petrol inventories jumped sharply. This surge has seen crude oil prices fall rather sharply today. The Saudi-Russian 1 mln bbl/day supply cut isn't having the impact they had hoped.

And apart from oil, some other commodity prices are sharply lower today, notably for coal, and for wheat. All up, inflation relief.

In Japan, the Markit services PMI was revised higher to 53.8 in September from 53.3 in the flash estimates, a 13th consecutive month of good expansion in their service sector. In South Korea, their latest factory PMI improved nicely as well, almost taking them out of contraction. It was an improvement that wasn't expected. Despite deep-seated cultural rivalry, it helps Korea that Japan is doing much better these days.

In China however, office vacancy rates are now higher than they were under the country's severe zero-COVID restrictions, delivering a further blow to the nation's struggling property sector. They now top 27% in tech hub Shenzhen, 21% in Guangzhou, and a still-high 18% in Beijing. It was running 16% in Shanghai. New projects will be a very tough sell when vacancy rates are so high.

Global passenger air travel is still recovering fast and is back to 96% of 2019 pre-pandemic levels. But the gains are uneven, dominated by radical changes in the nature of Chinese air travel, huge jumps in domestic travel there, and offset by very large falls in their international travel. The Chinese have become stay-at-homers. Asia/Pacific travel has a very long way to go yet to return to pre-pandemic levels.

The UST 10yr yield starts today down -7 bps from yesterday at 4.74% as a correction sets in. 

We follow the Fear & Greed Index weekly, but we should perhaps note that it has jerked suddenly in the 'extreme fear' mode yesterday and today.

The price of gold will start today at just on US$1820/oz and down another -US$4 from yesterday. This is another new low since February 2023.

Oil prices have slumped -US$5 lower at just on US$84/bbl in the US. The international Brent price is just on US$86.50/bbl.

The Kiwi dollar starts today at 59.2 USc and up +20 bps from yesterday. Against the Aussie we are softish however, now at 93.5 AUc and down -20 bps. Against the euro we have slipped marginally to 56.3 euro cents. That all means our TWI-5 starts today at just over 69.4 and down -10 bps.

The bitcoin price has moved marginally higher today from yesterday, and it is now at US$27,524 and up a minor +0.4% from yesterday. Volatility over the past 24 hours has been low at just on +/-0.8%.

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

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

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

Kia ora,

Welcome to 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 high interest rates are becoming the new normal, even as benchmark rates keep in rising fast. Where will it end?

But first, the overnight dairy auction was a good one again, a third consecutive rise, this one by +4.4% in USD terms, up +5.0% in NZD terms. That takes the year-on-year change to -20.6% and an improvement from the -25% change at the last event. And today's gains only take things back to where we were at the start of August. But it is much better than more retreats. A very good sign is that SMP rose +6.6% indicating the foodservice market demand is returning in China. But EU buyers have been active too. We should note two more things; volumes sold at this auction were high, the most in three years. And worth noting is that milk production in both New Zealand and the US is down, and a decline is anticipated for China soon too, encouraging buyers to secure supplies now. NZ production is down -2.1% and American production down -0.2%. Luckily prices are up more.

In The US, more strong labour market indications. Their August job openings rose by +690,000 from the previous month to 9.61 million, well above the market consensus of 8.8 million.

The American LMI (Logistics Managers Index) rose more than expected too in September, indicating stronger distribution activity.

The US retail Redbook survey rose +3.5% last week above the same week a year ago and still good enough to indicate better-that-CPI growth in retail bricks-and-mortar retail sales.

But the big news continues to be the intensifying bond selloff. The capital losses are going to hurt big-time, remembering there is US$140 tln in global bonds, and more than the market cap on equity markets. And equity markets are retreating now too; the giant US equity markets are down more than -6% in a month although to be fair they are up +15% from a year ago. But mark-to-market bond valuation changes will flush out huge losses.

But the sharp jump in yields isn't worrying Fed officials at this point; they see it as what would happen "in an ordinary tightening cycle."

But real American interest rates are soaring, attracting foreign investors, big time, and turbocharging the US dollar. The yen is touching 150 to the USD as it did in November. But it is much tougher on others like the Russian ruble and the Turkish lira. The NZD is getting off lightly so far. But the AUD is now down to an eleven-month low.

In India, new orders, production and employment all expand further in September in their factory sector and their factory PMI is still expanding fast, even if not quite as fast as in August. This is in clear contrast to China.

In Australia, new housing loans rose marginally in August from July, but remained a steep -12.3% lower than the same lending a year ago. Meanwhile, Australian building consent approvals for housing also rose in August from July, but these too remain lower than last year and by -9.4%.

And staying in Australia, the RBA kept its cash rate target unchanged at 4.1% during the first meeting under new Governor Michele Bullock, extending the rate pause for the fourth straight month.

Globally, air cargo demand rose in July, its first gains since February 2022.

The UST 10yr yield starts today up another sharp +13 bps from yesterday at 4.81%. It was last at this level in August 2007. 

The price of gold will start today at just on US$1824/oz and down another -US$8 from yesterday. This is another new low since February 2023, all driven by the sharply rising yields.

Oil prices have stabilised lower at just on US$89/bbl in the US. The international Brent price is just on US$91/bbl. Both are +50 USc rises from this time yesterday.

The Kiwi dollar starts today at 59 USc and down another -½c as the greenback surges. Against the Aussie we are firm however, now up at 93.7 AUc and a new four month high. Against the euro we have slipped -¼c to 56.4 euro cents. That all means our TWI-5 starts today at just under 69.5 and down -30 bps.

The bitcoin price has moved lower today from yesterday, and it is now at US$27,393 and back down -2.1% and taking the top off yesterday's jump. 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.