Economy Watch

Labour Party finance spokesperson Grant Robertson admits to overspending in one area, his own personal home sound system, but he doesn’t regret it. 

“I probably spent more money on stereo equipment than [I should’ve], but I get a great deal of joy out of it,” he said, after Interest.co.nz asked for an example.

It turns out he is something of an audiophile and a huge fan of Flying Nun Records and the Dunedin Sound which were a pop culture phenomenon in the 1980s. 

Robertson also doesn’t regret using the Crown’s borrowing power to insulate New Zealand’s economy and workers from the worst effects of the pandemic and its response.

Steering the country through the crisis and coming out the other end with a bigger economy and record employment rates was his greatest accomplishment, he said. 

More than $70 billion was spent on wage subsidies, low-interest loans for small businesses, the health response, vaccines, managed isolation, and other pandemic related things. 

This caused net debt to climb from just $5.4 billion in 2019 to about $71 billion today, or from 1.8% of gross domestic product to 18.1%. 

Despite the sharp increase, debt is forecast to remain below the 30% ceiling recommended by the Treasury. This is a ceiling for business-as-usual debt and leaves room for a crisis response. 

“You could go above but you wouldn't want to be there for very long, was Treasury's advice, essentially,” Robertson said. 

In a serious economic shock, the Government could potentially raise debt levels to 40% or 50% of GDP without threatening the financial stability of the country. 

“It's not desirable. It's not what you want to do. But in a crisis, the government will always step up … Our economy is resilient. The reason we can do that is because the underpinnings of it are strong”.

“But there's also an obligation for a Minister of Finance to make sure that we don't unnecessarily strain the economy, especially at a time when cost of borrowing is quite high”.

Duelling mandates

Borrowing costs are high because central banks around the world have been hiking interest rates to stave off a post-pandemic inflation shock. 

Inflation is incredibly unpopular with voters and it has given political momentum to a pre-existing critique of the Labour’s decision to broaden the Reserve Bank’s mandate. 

In 2019, the Government amended the central bank’s legislation to make monetary policy a committee decision and to formalise its role in supporting employment. 

This dual-mandate, price stability and full employment, has been the model used by the US Federal Reserve since 1977 and the Australian Reserve Bank since 1957. 

The National Party has promised to remove employment from the RBNZ’s mandate in its first 100 days, if elected.

Robertson said this would be a step backwards. The central bank's primary job is to keep annual inflation between 1% and 3% — but that is a fairly wide channel to swim in. 

“We also believe that when decisions are being taken about [price stability], the broader economy also needs to be borne in mind”. 

The best proxy for economic well-being was employment and so the RBNZ was told to ‘support’ the maximum sustainable level, as determined by the bank itself. 

It is also inherently linked to price stability, as inflation tends to pick up when employment is above sustainable levels and fall away when it is below those levels. 

Robertson said the dual mandate was important and could have a significant impact on monetary policy in the future, but it hadn’t done so yet. 

“Adrian Orr has made clear that in the period since the mandate changed, they wouldn't have changed an individual decision because of that,” he said. 

“There's no problem here. The Reserve Bank knows what its job is, and if the Federal Reserve can do it, and the Reserve Bank of Australia can do it, and to a certain extent, the Bank of England can do it, then I think RBNZ can do it as well”.

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 benchmark UST yields are rising fast again but the rate inversions are unwinding just as fast.

But first up, we should note that the World Bank has cut its forecast for 2024 growth in the Chinese economy sharply, down from +4.8% it forecasted in April, to now +4.4%. Its expectation for 2023 remains +5.1%, so the 2024 deceleration is substantial for China. Their property sector is getting most of the blame.

In the US, the widely-watched ISM factory survey came in much 'better' than expected in September, building on an improvement that started in July. The sector is still contracting the report shows, but only just and the improvement from August was marked. New order levels remained flat, but production rose into expansion territory.

The parallel Markit PMI survey, the internationally benchmarked version, delivered a very similar result for the US, both showing that employment remained strong (expansionary). But the carmaker strike is going to hurt October. And Tesla said for the first time in more than a year, its global deliveries to customers fell quarter over quarter, by -6.7%. And at these levels they are lower than the lowered expectations they earlier set.

In a community event in York, Pennsylvania (in the manufacturing heartland of the US), Fed boss Powell said his institution is now focused on keeping the American labour market at full strength for as long as possible. “Lots of good things happen” in addition to real wage increases, when a good labour market lasts for a sustained period of time, he said. "To have that, though, the record is also clear that we need price stability,” Powell said.

But the really big key news is the return of the sharp rises in benchmark UST yields, up another +10 bps today for the US 10yr, and up +5 bps for their 2 year. If there is a silver lining, it is that the rate inversions are evaporating quite fast now, and indication that recession pressure risks are less important to the bond markets. 

In Japan, sentiment among large businesses is improving, back to its best since March 2022.

Despite that optimism, the Japanese PMI eased lower into contracting territory in September. And the Australian version did as well.

And in Australia, Sydney house prices have bounced back +11% since bottoming out in January. But they dropped -12.4% in the period to that trough. However they are getting close now to making back all those losses, up +1% in September from August. Melbourne is the laggard there, Perth and Adelaide where the percentage gains are highest.

In something of a surprise for a region that has long struggled with embedded unemployment, the EU reported an August jobless rate of 5.9% - which is is lowest since records for the EU started in 1995.

Globally, the factory PMIs delivered a contraction but at a slower rate, led by new order levels. Mainland China was one of only seven nations to register growth of total new orders, almost all of them in Asia. (It will probably be no surprise, but war is good for Russian factories.)

The UST 10yr yield starts today up another sharp +10 bps from yesterday at 4.68%. It was last at this level in August 2007. 

The price of gold will start today at just on US$1832/oz and down another -US$16 from yesterday. This is another new low since February 2023, all driven by the sharply rising yields.

Oil prices have moved down -US$1.50 from yesterday to just on US$88.50/bbl in the US. The international Brent price is just on US$90.50/bbl.

The Kiwi dollar starts today at 59.5 USc and down -½c. Against the Aussie we are firm however, now up at 93.5 AUc and a new four month high. Against the euro we unchanged at 56.7 euro cents. That all means our TWI-5 starts today at 69.8 and down only -10 bps.

The bitcoin price has moved even higher today from yesterday, and it is now at US$27,972 and up +3.1% in the sort of move we haven't seen for a while. Volatility over the past 24 hours has been moderate at just under +/-2.8%.

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 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, a pair of surveys confirm the giant Chinese economy is just crawling along, neither expanding nor contracting.

First up today however, we need to note that it is a holiday in much of Australia, their Labour Day.

And late on Friday, they released a review of June quarter foreign investment rulings. In the residential section, China (including Hong Kong) had AU$1.3 bln of applications approved, taking the total for the prior 12 months to AU$4 bln (page 6). The next eight largest country sources got approvals for AU$2 bln combined. From all sources, they approved AU$7.9 bln in that year. So there seems to be a rush on by buyers from China and Hong Kong to acquire Aussie houses.

In China, their factory sector moved back to expansion in September, according to the official PMI survey, their first expansion since March. Their timid service sector expanded too, and at a fractionally faster rate. But also released over the weekend were the private Caixin PMI surveys for September. That confirmed the marginal factory expansion, but suggested the services expansion was weaker than the official measure.

And staying in China, their Mid-Autumn Festival has started and they are on holiday from Friday until the end of this week. This year, the National Day holiday spans from September 29 to October 6, overlapping with the Mid-Autumn Festival. To partially offset the seven consecutive days of the National Day holiday, Saturday, October 7 and Sunday, October 8, have been designated as official workdays, resulting in a 7-day working week next week. But Hong Kong will only be closed for National Day, on Monday, October 2, 2023.

All this is generating a surge in internal travel. More than 20 million trips were made across the rail network on the first day of the holiday, with travel by all means expected to jump almost 80%.

In Japan, August retail sales rose +7% from a year earlier, unchanged from an upwardly revised July result. This August increase was much higher than the consensus forecast for +6.6% growth and was the fastest pace since February. Consumption continues to recover solidly after the pandemic-induced retreat. Japan has CPI inflation at 3.2%.

In the US, a truly last minute short-term compromise to keep the US funded was agreed, but only after the blocking Republicans were sidelined with a bipartisan deal. They will be back with another attempt to get an enduring resolution in 45 days - mid-November, when all this silly drama will probably happen again.

In the meantime, progress on inflation. The American core PCE inflation level came in at 3.9% from a year ago, the lowest since May 2021. And the recent track has it running at an annualised rate well below 2%. So some inflation progress here.

US personal income growth however is running faster than that, picking up in August to be +4.6% higher than a year ago, and a faster pace recently. This is not a sign of stress among most households. Personal expenditure remains strong and is continuing to underpin the global economy.

US wholesale inventory levels are not rising, but retail inventories are although broadly in line with inflation. And the American merchandise trade deficit is falling.

The manufacturing heartland Chicago PMI fell back in September to July levels. The strikes at carmakers won't be helping.

But consumer sentiment held in the month, as measured in the widely-watched UofM survey, and is +16% better than a year ago. This result confirms its earlier 'flash' reading.

In Canada, an interesting class-action lawsuit is underway, claiming the residential real estate industry conspired to agree fixed prices for brokerage and commissions, and this has hurt vendors.

EU inflation fell more than expected in September, down to 4.3% year-on-year and reaching its lowest level since October 2021. Analysts had expected a 4.5% rate.

Tomorrow and Wednesday, we will get Monetary Policy Reviews from both the RBA and the RBNZ. Neither are expected to change policy rates. But each will still be important in its own way. The RBA's decision will be the first under new Governor Bullock. The RBNZ one is in the shadow of the upcoming election, and its observations about where we stand will be closely followed for how they will react after the election.

The UST 10yr yield starts today up +1 bp from Saturday at 4.58%. And that is up +12 bps from a week ago, up +38 bps in a month.

The price of gold will start today at just on US$1848/oz and down another -US$2 from Saturday. This is a new low since February 2023, all driven by the sharply rising yields. A week ago this price was US$1923/oz. A month ago it was US$1941/oz, so almost -5% lower since then.

Oil prices have moved little since Saturday so still at just on US$90/bbl in the US. The international Brent price is just over US$92/bbl. A week ago these prices were very similar. A month ago they were -US$5 lower.

The Kiwi dollar starts today at marginally under 60 USc. A week ago we were at 59.6 USc and at the start of the month 59.7 USc. Those indicate very little net movement. Against the Aussie we are firmish too at 93.3 AUc and to a four month high. Against the euro we up +½c at 56.7 euro cents. That all means our TWI-5 starts today at 69.9, up +60 bps from a week ago, and up +140 bps in a month. We have had significant rises against almost all others, except the greenback.

The bitcoin price has moved back up today from Saturday, and it is now at US$27,135 and +1.0% firmer from then. A week ago, this price was US$26,812, and a month ago US$27,303. So the net movements have all also been very minor. However, at the start of July the price was US$30,445 so a -12% quarterly loss for this benchmark crypto. Volatility over the past 24 hours has been low at just under +/-0.6%.

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.

The New Zealand First deputy leader and finance spokesperson Shane Jones is calling for higher growth and more productivity as a way to bring prosperity to a wider class of New Zealanders.

He adds this is the way to help Maori overcome negative social statistics, and the thicket of regulation governing business in all areas of the economy only makes things worse for everyone.

Jones adds tax relief will have to be looked at again because of the country's vulnerable economic condition. 

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, so far the sky is not falling despite the higher benchmark interest rates

First in the US, the actual number of new initial claims for jobless benefits fell to just under 175,000 last week, emphasising the continuing strength of the American labour market. True, the seasonally-adjusted version rose marginally, but even so, this data has been falling since July and is almost back to the very low levels they had a year ago. It might not be 'news' but it is an impressive run, one that makes it much harder for the Fed to meet its inflation-fighting mandate even if it is acing its full employment one.

They also released their third and 'final' Q2-2023 GDP result today, confirming it rose at an annual rate of +2.1%, a minor slip from the Q1 rate of +2.3%. (That took their GDP on a nominal basis to US$27.1 tln, up +5.9% from a year ago or a gain of +US$1.5 tln. Inflation accounted for US$0.9 tln of that however.) It is likely that the real, inflation adjusted expansion for Q3 will be very much faster than Q2, perhaps twice as fast with a +4.9% growth.

But one American sector remains firmly in the doldrums, their residential real estate sector. Pending home sales for August fell a whopping -18.7% from a year ago with a very sharp fall in August from July. No asset class has immunity from asset price revaluation in a rising interest rate market, and certainly housing doesn't.

The Kansas City Fed's September factory survey reported slippage across the board, including for new orders. But interestingly, not for employment.

In Canada, weekly earnings are rising faster, up +4.3% from a year ago. Their CPI was +4.0% over the same period. The earnings rise was their fastest since March 2022.

EU business sentiment was stable in September, in contrast to the reversing consumer sentiment levels.

Meanwhile, Germany released is September CPI data overnight and while still high at 4.5%, this was lower than expected (4.6%) and sharply lower than in August (6.1%), and their lowest since February 2022.

Container shipping freight rates fell sharply again last week, down -5.1% from the prior week to be 65% lower than year-ago levels. Trans-Atlantic rates seem to have bottomed out, but again it is the outbound rates from China that still show the main weakness. Bulk cargo rates are still rising however, and are back near year-ago levels, and pretty much near their long term averages.

The UST 10yr yield starts today down -2 bps from yesterday at 4.62% but essentially holding its recent high. The inverted curves are flattening more. 

The price of gold will start today at just on US$1863/oz and down another -US$12 from yesterday. This is a new low since February 2023, all driven by the sharply rising yields. China's gold price has risen faster than in most other global markets, but overnight it plunged lower, wiping out most of the premium that had built up.

After getting as high as US$95/bbl overnight, oil prices are moving back down today, -US$1.50 lower than this time yesterday at just under US$91.50/bbl in the US. The international Brent price is just under US$93.50/bbl. The surge to US$100 being talked about isn't happening today although the long-term trend is still firm.

The Kiwi dollar starts today at 59.7 USc, up +½c from this time yesterday. But against the Aussie we are down almost -¼c to 92.9 AUc. Against the euro we little-changed at 56.5 euro cents. That all means our TWI-5 starts today at 69.6 and up +20 bps.

The bitcoin price has moved sharply higher today from yesterday, and it is now at US$27,191 up a strong +3.7% from then. Volatility over the past 24 hours has been moderate at just under +/-2.3%.

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

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

Kia ora. I'm David Chaston. And we will do this again 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 it is the same story continuing, benchmark yields are still pushing higher.

But first, after the prior week's rather unexpected surge, American mortgage applications fell last week, reverting to the negative trend we have seen since May 2023. The usual culprit was responsible; mortgage interest rates rose again, this time to 7.41% plus points, their highest level since December 2000.

And staying in the US, new orders for durable goods rose +0.2% in August from July, a minor recovery from the -5.6% slump in July. But the result was better than market forecasts of a -0.5% fall. This leaves overall August orders +3.0% higher than a year ago. Capital goods orders are +2.5% higher than a year ago on the same basis, but they did slip -1% in August from July.

Meanwhile, American household bank deposits fell for the first time in data going back to 1994, according to FDIC data. Total deposits slipped -4.8% in the year through June to about US$17.3 tln as customers pulled out money to invest in higher-yielding alternatives. In a country as large as the US, that involves a movement away from banks of -US$900 bln. The main beneficiaries were money-market funds.

In China, they released August industrial profits data yesterday. That shows profits fell by -11.7% from a year earlier in the first eight months of 2023, amid weak demand at home and abroad and persisting margin pressures. The decrease followed a -15.5 % slump in the prior period and a -4% fall in 2022. In August alone, profits rose +0.8% from the same month a year ago, far less than inflation, but the first such rise in three months. In July, they fell -1.4% from a year ago, so things may be bottoming out.

China has put the boss of Evergrande under effective house arrest. Evergrande is teetering on bankruptcy, so this may be a move to prevent him fleeing when that comes. Its restructuring plans look like they will fail, so a full formal collapse seems the next step.

In Europe, bank lending to households rose just 1% in August from a year ago, the lowest growth rate since 2015, as a result of the continued slowdown in credit demand from the ECB's policy tightening measures. Lending growth to companies slowed sharply to just +0.6%, representing its lowest level since December 2015.

Australia has a monthly "CPI indicator" series, tracking inflation between their main quarterly assessments. For August that came in at 5.2%, up from 4.9% in July. In June the rate was 5.4% although the overall Q2 official Aussie CPI was 6.0%.

Australia released job vacancy data but it is on a delayed basis and the latest is for May. That shows job vacancy levels slipping away - quite quickly, and down -10% from a year ago. It would have been worse without a +14% rise in public sector job vacancies. The private sector saw their vacancies fall by more than -12% from a year ago in May. With their labour market softening, perhaps it is no surprise that Australia's retail turnover is very lackluster, hardly growing in current dollar terms and nowhere near enough to account for inflation.

But the main overnight news continues to be the rise and rise of benchmark interest rates. The UST 10yr yield starts today up another +9 bps from yesterday at 4.64% to yet another recent high. Curves are flattening. 

The price of gold will start today at just on US$1875/oz and down -US$26 from yesterday. This is its lowest level since February 2023, all driven by the sharply rising yields.

And oil prices are moving up today, +US$3 firmer at just under US$93/bbl in the US. The international Brent price is just over US$94.50/bbl. This takes them back to levels we last saw in July 2022.

The Kiwi dollar starts today at 59.2 USc, down -¼c from this time yesterday. But against the Aussie we are up to 93.1 AUc. Against the euro we still at 56.4 euro cents. That all means our TWI-5 starts today at 69.4 and down just -10 bps.

The bitcoin price has moved fractionally lower from this time yesterday, and it is now at US$26,216 and is down only -US$31 from then. Volatility over the past 24 hours has been modest at just under +/-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 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 the fall in bond prices (rise in bond yields) is biting even harder today. Equity market valuations are taking a hit from the pressure on capitalisation as rates rise.

And a looming US government shutdown isn't helping sentiment either. JP Morgan boss Jamie Dimon is now worried the Fed could take its policy rate all the way up to 7% and the world is "not prepared" for that.

The US Redbook retail sales index we follow was up +3.8% last week from a year ago, barely holding on to inflation-adjusted gains.

New home sales were expected to slip in August, but in the end they fell more than expected from July. But they are still running at a +5.8% rate higher than year-ago levels. The slip from July does not take it out of the overall trend higher however.

September consumer sentiment as tracked by the Conference Board was also expected to slip from August, and it too retreated more than expected. But that retreat only took it back to levels it has held since mid-2022 until the more recent rises. The survey did find little-change in present conditions but that the political situation and higher interest rates are affecting future expectations.

Improving present conditions is helping the Richmond Fed factory survey, with a stronger-than-expected expansion in September. We should note the rise in new orders.

Meanwhile, the Dallas Fed services survey turned much more negative in September than expected, expanding still but at a much slower pace and clouding the outlook in America's oil patch.

And staying in the US, regulators have sued Amazon, alleging that the internet giant is illegally maintaining monopoly power. The Federal Trade Commission said Amazon uses "a set of interlocking anticompetitive and unfair strategies" to push up prices and stifle competition.

Singapore is investigating a large money-laundering case, one likely to damage its banking system integrity in the island hub.

And Singapore's industrial production shrank more than -12% year-on-year in August, more than market forecasts of -3.1% drop and slipping further from a downwardly revised -1.1% fall in the previous month. This was the 11th consecutive month of decline and the sharpest drop since November 2019, mainly due to a steep fall in output for electronics.

And in Hong Kong, major law firms there are shedding staff at an increasing rate as deals with the mainland dry up.

The clouds from China's economic woes are affecting the whole region.

And perhaps we should note that steel rebar prices in China, an essential concrete construction component, are falling and failed to hold the rises driven by expectations their property market would recover at some time. The winding-up of troubled Evergrande is now very much closer.

In Australia, the popular (with voters, not business) premier Daniel Andrews has suddenly quit, calling time on an active period as premier of Victoria.

The UST 10yr yield starts today up another +3 bps from yesterday at 4.56% to another recent high. 

Wall Street's Tuesday session is sharply lower on the strong bond market signals, with the S&P500 down a full -1.0% to a three-month low. 

The price of gold will start today at just on US$1901/oz and down -US$15 from yesterday.

And oil prices are +50 USc firmer at just over US$90/bbl in the US. The international Brent price is just over US$92.50/bbl.

The Kiwi dollar starts today at 59.5 USc, little-changed from this time yesterday. Against the Aussie we are unchanged at 92.9 AUc. Against the euro we still at 56.3 euro cents. That all means our TWI-5 starts today still at 69.5.

The bitcoin price has moved fractionally lower from this time yesterday, and it is now at US$26,247 and is down only -0.3% from then. Volatility over the past 24 hours has been low at just over +/-0.6%.

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

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

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

Kia ora,

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

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

And today we lead with news asset values are under threat as the cost of money rises.

All the focus in financial markets is on bond yields. They rose overnight as investors concluded that the world's major central banks would need to keep the interest rates higher for longer to keep inflation in check. The yield on the benchmark US 10-year Treasury note rose well above 4.5%, topping 2007 highs while Germany's 10-year bund yield surged towards 2.8%, its highest since July 2011.

The ECB warned that it will be holding its policy rates higher "for as long as is necessary" to get inflation down. That could be quite a while.

And in Washington, Moody's warned that any Government shutdown over its inability to pass a funding resolution would be negative for its rating, adding further yield pressure on the benchmark.

Meanwhile in the US, the National Activity Index compiled by the Chicago Fed slipped in August after its July rise. Activity is still expanding, but now below trend.

The September Dallas Fed factory survey reports growth returning to factory production and the level of new orders not falling away as fast. But future uncertainty levels rose, despite these near term improvements.

In China, it is crunch time for a growing number of very large property developers. More are being liquidated, others are stuck in legal limbo and unable to make bond payments, while others are are watching their equity value dive as investors flee trying to limit huge losses. It is a full-on rout. Officials are at a loss about what to do next.

And separately we should note that it is kiwifruit harvest time - in China - where 67,500 ha of crop is about to come to market.

Singapore's CPI inflation rate held at 4%, as expected. Their core inflation rate, the one their central bank watches, fell to 3.4% from 3.8% in July.

In Germany, the Ifo Business Climate indicator was little-changed, which was a pleasant surprise for them because it was widely expected to fall further.

In Australia, the excellent agriculture conditions over the past two years has seen their cattle herd and sheep flock rise sharply. Now, with the prospect of El Nino hot conditions, farmers are flooding meatworks with stock, and prices are collapsing. Industry data shows cattle prices broadly down almost -50% on last year and sheep prices down -37%. The flood of meat on offer will inevitably affect what our farmers can achieve in international markets.

The UST 10yr yield starts today up a notable +9 bps from yesterday at 4.53% and another recent high. 

The price of gold will start today at just on US$1916/oz and down -US$9 from yesterday.

And oil prices are -50 USc softer at just under US$89.50/bbl in the US. The international Brent price is just under US$92/bbl.

The Kiwi dollar starts today at 59.6 USc, unchanged from this time yesterday. Against the Aussie we are up +¼c at 92.9 AUc. Against the euro we at 56.3 euro cents and also up +¼c. That all means our TWI-5 starts today at 69.5 and a new 45 day high.

The bitcoin price has moved lower from this time yesterday, and it is now at US$26,335 and is down -0.9% from then. 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.

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

Kia ora,

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

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

And today we lead with news higher benchmark interest rates are clouding the global economy.

But after last week's big central bank meetings, this week it will be more about macroeconomic data. In the US, the spotlight will be on the PCE Price Index, as well as personal income and spending data. And durable goods orders, the final reading of the Q2 GDP growth rate, and pending and new home sales are all due. In Europe, September inflation rates will be released for the Euro area countries along with industrial production, retail sales, the unemployment rate, consumer confidence. For Japan we will get more clues from their central bank Monetary Policy meeting minutes. From China, it will be industrial profits. From Australia we will get retail sales, a monthly inflation update, and the usual end of month banking data.

Over the weekend, Taiwan released its industrial production data and it was less weak than expected. In fact, it rose in August from July to make back some of the year-on-year retreats. Meanwhile, Taiwanese retail sales came in with another strong month, especially for food services.

China is finding pork prices are zooming higher again. About sixty percent of all meat sold in the country is pork. But prices are up +30% as their government has been buying aggressively to replenish its strategic food security reserve that was run down in 2022, the culmination of a herd cull in 2018 and 2019 due to ASF. Higher pork prices might we helping farmers recover, but they will also be underpinning beef and lamb prices as pork seems less affordable to city consumers.

Japan said its CPI inflation rate in August was little-changed at 3.2% from 3.3% in July, but that was its lowest reading in three months. Prices continued to rise for food however, up a sharp 8.6%, offset by even sharper falls for fuel, down -12.3%. Outside these, core inflation was unchanged at 3.1% and that makes it 17 straight months core inflation has been above the Bank of Japan's 2% target. They must be ready to change policy settings. But the central bank met on Friday and didn't make any headline change in a unanimous decision. The lack of any clear sign of a shift in its policy stance puts a damper on market speculation over the prospects for a near-term interest rate hike. And it is fueling pressure on the yen. Perhaps we will a better indication of their thinking when the minutes of their meeting are released later this week.

The latest Markit PMI for Japan shows factory activity contracted a bit faster in September than the previous month, and sharper than market forecasts, so they now have a fourth straight month of fall in factory activity and the steepest drop since February. But their services sector is still expanding at a healthy rate.

The updated September Markit PMIs for the US paint a steady-state picture of no significant expansions nor contractions. Their factory sector is reported to be contracting very slightly but that is its 'best' reading in 2 months. Their services sector is marginally expanding, but that is a very light slip from August.

And it isn't going to improve, with the autoworker's union expanding its strike to 38 factories owned by GM and Stellantis (Chrysler) sites across the US and Canada - but none for Ford yet.

Meanwhile Republican Congressional squabbles are keeping the potential of a Federal government shutdown a live possibility.

In Canada, retail sales may have slipped very slightly in August, it their overnight update. But they are up +2.0% from a year ago. That wasn't enough to account for inflation of course, but in Montreal they did. They were weakest in Vancouver.

In Europe, the Markit services PMI reported an improvement even if it is still contracting. The EU factory PMI is also contracting but at an unchanged rate. What is a worry there is that new order levels are falling at their sharpest pace in three years.

Meanwhile in Australia, their services sector shifted out of contraction - just, but their factory sector is still contracting, extending that to a 3 month low.

For all the economic activity shifts over the past week, the most substantial one is the rise in benchmark interest rates, triggered by a hawkish American central bank.

The UST 10yr yield starts today unchanged from Saturday at 4.44%. But that is up from a week-ago level of 4.33%. 

Markets now have a full +25 bps priced in for an RBNZ rate rise in early 2024. Globally, higher rates for longer is the trend setting in, and that will continue to weigh on asset price valuations.

The price of gold will start today at just on US$1925/oz and up +US$2 from Saturday.

And oil prices are little-changed at just under US$90/bbl in the US. The international Brent price is just under US$92.50/bbl.

The Kiwi dollar starts today at 59.6 USc, a +¼c rise from Friday and up more than +½c for the week. Against the Aussie we are at 92.6 AUc (remembering we started the week at 91.7 AUc). Against the euro we at 56 euro cents and we haven't been this high since late July. That all means our TWI-5 starts the week at 69.3 and a 45 day high.

The bitcoin price has hardly moved from this time Saturday, and it is now at US$26,574 and up just +US$8 from then. Volatility over the past 24 hours has been almost non-existent at just over +/-0.1%.

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

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

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

Kia ora,

Welcome to 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 it is all about the fast-rising benchmark interest rates and steeper curves today. And higher rates may be here to stay. We should remember that in the decade prior to the GFC, which ushered in 'lower for longer', the benchmark UST 10yr rate average 4.52%. We could well be a 'higher for longer' period now.

The US Fed kicked off the shift in rates with its 'hawkish hold' yesterday and strong signal that it will raise rates again before the end of the year. But overnight there were many other central banks with policy decisions. The Philippines and Indonesia kept their rates unchanged as expected. So did the Swedes. Switzerland was expected to raise its rate by +25 bps, but in the end it didn't, leaving it at 1.75%. But the Norwegians did, taking their rate up +25 bps to 4.25%. The Taiwanese left theirs at 1.875% unchanged, as did Hong Kong. And the English (5.25%) and South Africans (8.25%) both held. For the English it was a close-run thing, a 5-4 vote to not raise. And Turkey raised their rate by another eye-watering +500 bps to 30%. Now that's a 'real' move up.

The US Fed's hawkishness was bolstered by more strong signals from their labour market. Initial US jobless claims stayed very low at +176,000 last week and an eight month low with only 1.65 mln people on these benefits, also unusually low.

The Philly Fed factory survey turned negative in September for current conditions, but also turned more positive for future conditions. They are in a temporary flat patch, it seems, and the surveyed firms are increasing their investment in capital projects.

American existing-home sales fell -0.7% in August to an annual sales rate of 4.04 mln. Sales dropped -15.3% from one year ago. However, the median price climbed +3.9% from one year ago to US$407,100 (NZ$685,000) and the third consecutive month the median sales price surpassed US$400,000. Their inventory of unsold homes dipped to just 14 weeks supply at the current monthly sales pace.

In China, their 10 year benchmark government bond yield is remarkably stable. But this needs to be seen in the light of other official rate cuts, so the gap is widening. More starkly, one and two year yields are actually rising there. What we have is tightening capital supply undermining the central bank's efforts to boost the economy by stimulating demand. China's attempt to escape the international pressure of rising interest rates is now coming out in other distortions.

Also not so positive is EU consumer sentiment in September, although the slip was relatively minor. But it is a second month to dip after a longish series of improvements.

New Zealand featured in a Canadian ranking of "economic freedom", topped by Singapore who beat Hong Kong at the head of this listing, while Switzerland, New Zealand and the US rounded out the rest of the top five spots. Australia was #8.

There was another chunky -5.2% fall last week in global container freight rates, and again led by rates from China to Europe. However, rates for bulk cargoes took off higher last week, back to the top of the range over the past year. It was quite the shift up.

The UST 10yr yield starts today up a sharp +13 bps at 4.48%. It was last at this level in October 2007 (on the way down from 5.48%). And rate curves are less inverted today.

The price of gold will start today at just on US$1920/oz and down a sharpish -US$23 from yesterday.

And oil prices are little-changed from yesterday at still just over US$89.50/bbl in the US. The international Brent price is still just over US$92.50/bbl.

The Kiwi dollar starts today still in its recent yo-yo range and down -10 bps from this time yesterday at 59.4 USc. Against the Aussie we are +½c higher at 92.4 AUc. Against the euro we are unchanged at 55.7 euro cents. That all means our TWI-5 is unchanged at 69.

The bitcoin price has retreated from this time yesterday, and is now at US$26,677, a fall of -2.0%. Volatility over the past 24 hours has been modest at just over +/-1.7%.

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.