Economy Watch

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 all eyes have been on Washington DC and the US Fed.

As expected, the American central bank's September policy review was a "hawkish hold". It kept its policy rate at 5.25% following a +25 bps hike in July but signaled there could be one more hike this year. They pointed out that their labour market strength isn't wavering and inflation risks remain high. Tighter credit conditions haven't dampened activity to the extent they need and the remain "highly attentive to inflation risks".

In the economic projections they released with today's decision, the 'dot-plot' shows most voting members see a higher rate by the end of the year (12 of 19 whose projections were plotted). Essentially they are signaling that rates will stay elevated well into 2024 with fewer projected cuts.

Market reactions included the USD rising +20 bps vs the NZD, the UST 10yr benchmark was little-changed having fully priced in the outcome, it seems. Equities (the S&P500) fell -0.3%. So overall, markets have taken this review in its stride.

Somewhat surprisingly, American mortgage applications jumped +5.4% last week, the first rise in three weeks, and the biggest since mid-June. And this was despite benchmark mortgage interest rates rising again, to 7.31% plus points.

In Japan, household assets are growing, and in a different way to the usual cash-priority they have had traditionally. Total financial assets rose +4.6% in the year to June and to US$14.3 tln (NZ$195,000 per capita). But the cash portion only rose +1.4% (or 53% of them), while equity holding jumped +26% (to 13% of those overall holdings) and funds in investment trusts rose +16%. The re-emergence of inflation is changing Japanese household investment motivations.

After a good surge in 2021 and 2022, Japanese exports slipped -0.8% in August from a year ago, a second month of no expansion. Their exports to China dropped -11%. But at least overall they are holding on to their earlier gains. And the August slip was less than feared. Imports however fell more than expected, the most in three years. But most of this can be attributed to big falls in oil products (-33%), and it is encouraging that Japan is learning how to do with significantly less oil.

Taiwanese export orders fell -15.7% in August from year-ago levels, although they held at the value levels we have seen every month this year. Still the year-on-year fall was more than expected and extends the retreat to 12 straight months.

China held its Loan Prime rates in its monthly review yesterday. This is what analysts expected. The one-year loan prime rate (LPR), which is the medium-term lending facility used for corporate and household loans was kept unchanged at a record low of 3.45%; and the five-year rate, a reference for mortgages, was held at 4.2% for the third straight month.

China is worried about the outflow of funds by foreign investors. Yesterday it held a 'symposium' for JPMorgan Chase Bank, HSBC, Deutsche Bank, BNP Paribas, UBS Securities, Mitsubishi UFJ Bank, Tesla, BASF, Trafigura, Schneider and other foreign financial institutions and foreign-funded enterprises to hear of their concerns, and provide reassurances.

In Germany, fast-retreating energy costs are allowing producer price inflation to cool fast. Their PPI tumbled -12.6% in August from a year ago, matching market forecasts while very much faster than the -6.0% July retreat. It was the second straight month of decline and the steepest pace since data collection began in 1949, largely due to a base effect. Energy prices slumped -32%, with electricity prices dived -43%. They will appreciate the relief.

British CPI inflation fell marginally to +6.7% in August from +6.8% in July, and this was lower than the expected +7.0% rate.

An Australia, the Victorian State Government said (page 20) it will tax short-stay rental platforms 7.5% from 2025. There are more than 36,000 short-stay accommodation places in Victoria and almost half of these are in regional centers. More than 29,000 of those places are entire homes. The goal is more affordable long-term rental accommodation. But their tourism industry is livid.

They need to build more houses too. Nationally, housing starts by their major builders slumped -23% last year to a decade-low as insolvencies soared. The legacy of fixed price contracts and fast rising input costs was behind the pullback. But there is now some evidence that the houses now being built are being done so for more than cost.

The UST 10yr yield starts today unchanged bps at 4.35%. 

The price of gold will start today at just on US$1943/oz and up +US$13 from yesterday.

And oil prices are -US$1 lower from yesterday at just over US$89.50/bbl in the US. The international Brent price is now at US$92.50/bbl.

The Kiwi dollar starts today still in its recent yo-yo range and up a net +30 bps from this time yesterday at 59.5 USc. Prior to the Fed decision it was up to 59.8 USc. Against the Aussie we are holding at 91.9 AUc. Against the euro we are a little firmer at 55.7 euro cents. That all means our TWI-5 is also up about +20 bps at 69.

The bitcoin price has barely moved from this time yesterday, and is now at US$27,215, a rise of just 0.1%. Volatility over the past 24 hours has been low at just on +/-0.8%.

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 both equity and bond markets are displaying some nerves ahead of tomorrow's US Fed rate and policy decisions.

But first, there was another dairy auction overnight and a good gain was achieved even if not as strong as some market forecasts expected. Overall prices were up +4.6% in US dollar terms on top of the prior event's +2.7%. In NZD terms the increase was a lesser +3.7%. WMP rose +4.6% from the last event, SMP was up +5.4% and butter up +3.8%. But cheddar cheese fell -1.7%. These are positive signals and momentum going into tomorrow's Fonterra result announcements, but we need to keep in mind even after these rises, overall prices are still -24% lower than year-ago levels and the recent rises only take them back to early August levels. This event is a positive sign, but will hardly move the needle on milk payout forecasts. More here.

In the US, residential building consents rose rather sharply in August, but housing starts fell sharply, and it is the falling starts data that is getting all the headlines. With more applications to build being approved, the fall in housing starts might be just temporary.

US retail sales at brick & mortar stores on a same store basis were up +3.6% last week from a year ago, good, but really only enough to keep pace with inflation.

Meanwhile, Canadian CPI inflation rose to +4% in August from +3.3% in July, overshooting market expectations of +3.8%. Rents and petrol are getting the blame. Their central bank has said inflation at these levels is inconsistent with their targets. That will raise expectations for more rate hikes there.

Separately, we should keep an eye on how relations between Canada and India develop, after Canada said it had direct evidence the Indian Government assassinated an opponent in Vancouver, Canada. US evidence in the link is a key component. India's embarrassment will likely result in extended anti-Canada and anti-US reactions.

In China there is a massive exit underway by investors. Official data shows holdings by foreigners of Chinese equities and bonds has now fallen by more than -NZ$330 bln from the peak in December 2021 until August this year when -NZ$20 bln left in that month alone. Those with direct, on the ground investments in China are growing less optimistic too.

The OECD is out with its updated global growth forecasts. It sees global GDP growth at +3% this year (vs +2.7% at its last review in June) and +2.7% in 2024 (vs 2.9%). The US economy is expected to grow +2.2% this year and +1.3% in 2024. The Eurozone is seen rising +0.6% in 2023 and +1.1% in 2024. And China is seen expanding +5.1% in 2023 and 4.6% in 2024. For Australia it is +1.8% this year and +1.3% next. New Zealand doesn't get a mention. As well as growth extending, they also see inflation pressures moderating.

Although it is one of the last to come to this conclusion, the Australian Bureau of Meteorology has declared we have now slipped into an El Niño weather pattern.

The UST 10yr yield starts today up +3 bps at 4.35%. And we make that it a 15 year high, since the end of 2007. 

The price of gold will start today at just on US$1930/oz and down -US$3 from yesterday.

And oil prices are +50 USc firmer from yesterday at just over US$90.50/bbl in the US. The international Brent price is now over US$93.50/bbl.

The Kiwi dollar starts today still in its recent yo-yo range and up about +10 bps from this time yesterday at 59.3 USc. Against the Aussie we are holding at 91.9 AUc. Against the euro we are marginally firmer at 55.5 euro cents. That all means our TWI-5 is also up about +10 bps at 68.8.

The bitcoin price has moved up further from this time yesterday, and is now at US$27,190, a rise of 1.4% and its highest in a month. Volatility over the past 24 hours has been modest at just on +/-1.6%.

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 entering the shadow period before the next US Fed review on Thursday (NZT) and activity is restrained. The Bank of Japan is also doing its regular review and expectations of changes driven by its new governor are uncertain now.

But we can first report that the NAHB/Wells Fargo American Housing Market Index slipped for a second month in September and it is now at its lowest in five months. Quarter-century-high high mortgage rates are clearly taking a toll on both builder confidence and consumer demand, as a growing number of buyers are electing to defer a home purchase. Rising unaffordability of housing is a growing problem.

However, across their northern border, Canadian housing starts are holding relatively high.

Staying in Canada, the recent bump up in energy prices has seen their August producer prices jump by +1.3% over the previous month, the first rise since October 2022. This was much higher than expected. This upturn in producer prices is similar to what they had in consumer prices and raises the chance that the Bank of Canada will hold its policy rates higher at 5.25% for longer than anticipated.

In China, the business sector is starting to worry about the aggressive encroachment of their 'national security' laws into how business functions. There is growing talk the moves have already gone too far and effectively stifling decision-making and diverting resources.

Singaporean exports are limping along with large year-on-year decreases, reflecting the weak state global trade is in. Exports to the US of electronic products is holding up, and their exports to Indonesia are growing, but these seem to be the only bright spots.

In Europe, benchmark interest rates are rising. The yield on the German 10-year Bund has surged to 2.7%, marking its highest point in over six months, primarily driven by the hawkish statements made by ECB officials. It was 7 bps higher in March, but prior to that, this is its highest since 2011.

And staying in Europe, the BIS is warning (p4) about the sudden re-emergence of large speculative positions by leveraged investors in US Treasuries. They see a risks there that could blow up suddenly.

Meanwhile in Australia, a survey of manufacturers found that deep pessimism is rolling over the sector. More than a third of factories expect conditions to worsen over the next six months, taking the mood to the worst since 2008. Driving the gloom are fast-falling orders in response to weakening consumer demand.

The UST 10yr yield starts today down -2 bps at 4.32%. 

The price of gold will start today at just on US$1933/oz and up +US$9 from yesterday.

And oil prices are -50 USc lower from yesterday at just over US$90/bbl in the US. The international Brent price is now over US$93/bbl.

The Kiwi dollar starts today still in its recent yo-yo range and up about +¼c from this time yesterday at 59.2 USc. Against the Aussie we are holding at 91.9 AUc. Against the euro we are little-changed at 55.3 euro cents. That all means our TWI-5 is actually up about +20 bps at 68.7.

The bitcoin price has moved up further from this time yesterday, and is now at US$26,809, a rise of 1.2%. Volatility over the past 24 hours has been modest at just on +/-1.9%.

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 Chinese people are very concerned about their country's tense relationship with the United States and it's a factor in weak consumer confidence, says Beijing-based David Mahon.

Mahon, a New Zealander who has lived in China since 1984, is Managing Director of Mahon China Investment Management. He spoke to interest.co.nz in the latest episode of our Of Interest podcast.

Mahon says during a recent visit to a mountain village in Yunnan Province,  one of the more remote places in China, he had dinner with local officials. This highlighted worry about ongoing tensions with the US.

"All were asking me about why is it America wants a war with China. They are concerned with the tension they could sense. It worried them for their own futures, their kids, their own prosperity," Mahon says.

"If people living as remotely from the centres of power and commerce are concerned about a dynamic like that, it shows all of China is concerned. It is a factor of the low consumer confidence at the moment."

Mahon says the Chinese economy's "probably more complex than I can remember."

"There's a lack of confidence, consumers are not going back to buying and investing as they were and the Government is now struggling to reset things as far as it feels it needs it must to get demand back on track."

"China's not in the doldrums but there are a patchwork of doldrums across the country," says Mahon.

Nonetheless Mahon says by the second quarter next year "all these major concerns and these doubts about the Chinese economy will be being put to one side." And whilst there's a challenging 12 to 18 months for New Zealand dairy exports to China and Fonterra, with China sitting on more than 500,000 metric tonnes of whole milk powder in storage, there are good times ahead, which will be helped when all NZ dairy exports to China become tariff free from the start of 2024.

In the podcast Mahon also talks about China's efforts to become carbon neutral, why he thinks deflation fears are overdone, what's gong on with China's property sector, the importance of the Chinese middle class, what the Chinese Communist Party needs to do to shore up the tacit support of the people, why tax changes are needed, recent floods, and more.

*You can find all episodes of the Of Interest podcast here, including two previous ones featuring David Mahon.

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 China is showing signs of struggle, and yet the Wall Street-anticipated signs the US would slow in 2023 are yet to emerge.

But first, this coming week will be dominated by the US Federal Reserve's interest rate decision on Thursday (NZT). Also on Thursday, Fonterra will report its profit result and it is expected to be an unusually good one. Additionally in the United States, all eyes will be on the release of  September PMI figures at the end of the week, as well as several housing indicators earlier including housing starts, building permits, and existing home sales. Central banks in England, Japan, China, Turkey, Norway, Sweden, Thailand, Switzerland, Brazil, Indonesia, the Philippines, and South Africa will all be reviewing monetary policies and rates. Eyes will be on updated inflation rates in the UK, Canada, and Japan. And there will be PMI data for France, Germany, the UK, the Euro Area, Japan, and Australia.

Over the weekend, China said the cost of new houses slipped -0.1% in August from July, the same slippage as in the month before. Given the known low sales levels, this seems a dubious outcome, especially as only 16 of the 70 largest cities reported prices holding or advancing very slightly. The rest fell. For pre-owned houses, prices inched up in only 3 of the 70 major cities in August from July. The reported slippages in the other 67 cities were remarkably similar, which also doesn't pass the smell test. This all has significant implications for international travel volumes, and visitor levels from China.

China also said that "the total retail sales of consumer goods was 3,793.3 billion yuan, a year-on-year increase of +4.6%. Among them, the retail sales of consumer goods other than automobiles were 3.382 billion yuan, an increase of +5.1%" which is actually quite good. But it is simple math to extract from that "retail sales of automobiles", and that showed virtually zero growth.

Meanwhile, Chinese electricity production retreated in August from July coming in -2.5% lower, which for a country as large as China is quite a drop. Year on year, electricity production rose only +1.1%, also not indicative of an expanding economy. But nevertheless, they reported industrial production rose +4.5% from a year ago. Either China is undergoing a recent spectacular burst of energy efficiency and reduced energy density, or one of those statistics is unreliable.

And also struggling was foreign direct investment. "The actual amount of foreign capital used was 847.17 billion yuan, a year-on-year decrease of -5.1%" on an 8 month-to-date basis, they reported. But given they reported the seven month total as ¥767 bln that means the August inflow was ¥80 bln or less than NZ$19 bln which is a decline in the pace we have seen recently and tiny for an economy as large as China.

Over the weekend, the Russian central bank raised its policy rate by +100 bps to 13% to both battle rising inflation and defend the ruble. They can't seem to get it up from the 1 USc value. Meanwhile, Russian inflation is rising again, currently at 5.2% and the central bank expects it to rise to 7% by the end of the year.

Indian exports rose in August from July on the usual seasonal basis, but were down -6.9% year-on-year due to elevated commodity prices and weakening foreign demand. Imports fell too, so their trade deficit rose.

In the US, industrial production rose +0.4% from a month earlier in August 2023, above market expectations of a +0.1% increase and compared with a downwardly revised +0.7% rise in July. Year-on-year it is a small gain of +0.2%. One sector keeping these levels positive is their mining industry (which includes oil production).

However, the New York state factory survey turned quite positive in September. The headline general business conditions index rose twenty-one points to be a positive +1.9. New orders and shipments increased. Delivery times remained steady, and inventories continued to contract. And perhaps more importantly, looking ahead, firms continued to grow more optimistic about the six-month outlook.

But perhaps American factory data however won't be flash in September because of those strikes starting at their big three carmakers.

Also not quite so upbeat was the August University of Michigan consumer sentiment survey, however. It slipped from July, but is still at a higher level than at any time since late 2021, apart from the prior two months. Consumer views on current sentiment, current conditions and expectations of future conditions are all very much higher than a year ago.

Meanwhile, the US Fed balance sheet continues its wind-down even if the sell-off in the past week was relatively small.

The UST 10yr yield starts today up +1 bp at 4.34% and again near their August highs. A week ago this rate was 4.26% so up +8 bps from then. 

The price of gold will start today at just on US$1924/oz and up +US$2 from Saturday. And this is only marginally firmer from the week ago level of US$1920/oz.

And oil prices are +50 USc higher from Saturday at just under US$90.50/bbl in the US and back to its ten month high. The international Brent price is now over US$93.50/bbl. But for the week these are rises of +US$3.50/bbl or +4%.

The Kiwi dollar starts today little-changed from this time yesterday at 59 USc, still settled in its tight range. A week ago it was at 58.9 USc so little-change from then also. Against the Aussie we are holding at 91.8 AUc. Against the euro we are still at 55.4 euro cents. That all means our TWI-5 is actually little-changed at 68.5 and little-changed in a week too.

The bitcoin price has moved up a bit from this time Saturday, and is now at US$26,486, a small rise of 0.4%. A week ago, this price was US$25,820 so a +2.6% rise since then - in fact its first weekly gain since August. But volatility over the past 24 hours has been very low at just on +/-0.3%.

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 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 central banks in both China in the EU have been active overnight, both dovishly.

But first up, initial American US jobless claims last week came in little-changed at +220,000 so there are now 1.69 mln people on these benefits, also very little-changed. Their long-awaited labour market stress still hasn't arrived. It surely will, but has defied the gloomsters for nearly two years now. They may have a long time to wait yet before their stopped-clock position is achieved.

American retail sales rose +0.6% in August from July and easily beating forecasts of a +0.2% rise. Year-on-year these sales are up only +2.9% however which is less than inflation. But the recent rises point to good consumer spending despite high prices and borrowing costs. But part of the recent increase is due to higher fuel costs. Excluding those fuel costs, retail sales only rose +0.2% in August from July, but they were +4.3% higher than year-ago levels which bests inflation by +1.0%.

On the factory floor, producer prices rose by +0.7% in August from July, the highest level since June 2022, and higher that analysts expected of a +0.4% rise. On an annual basis however, producer price inflation reached a four-month high of +1.6%, while the core rate actually eased and to +2.2%, which interestingly was its lowest level since January 2021.

Meanwhile, neither wholesale nor retail inventories are rising, so there is no inventory stress building in this economy.

In Japan they recorded a drop in new machinery orders in July. This series does not include orders for ships or electric power systems. Including them, orders rose sharply. The decline in core orders was driven mainly by a -5.3% decrease in the manufacturing sector, while the non-manufacturing sector posted a +1.3% increase. Industries in the manufacturing sector with the sharpest falls include for petroleum & coal products where orders fell a startling -57%.

Overnight, the People's Bank of China has announced a -25 bps cut in their reserve requirement ratio for all banks, taking it to a weighted average deposit reserve ratio of 7.4%. The banks already on 5% however got no change. At the same time they doubled down on defending the yuan and the managed rate they want to see.

The ECB hiked its policy interest rates for the 10th consecutive time overnight. But it also signaled that it is likely done with its tightening policy, as inflation has started to decline. After this change, their main refinancing operations rate reached a 22-year high of 4.5%, and the deposit facility rate set a new record at 4%. According to the projections released with this policy change, average inflation is forecasted to be at 5.6% in 2023 and 3.2% in 2024, both higher than previous estimates, primarily due to higher energy costs.

In Australia, there was a bigger than expected surge in employment in August but most of it was for part-time jobs. Full time jobs grew by a tiny +2,800 while part-time jobs grew by +62,100. Their jobless rate stayed at 3.7% in August as expected but that remains a 3 month high matching July's rate. There are now 540,500 people without jobs, up +42,600 from a year ago. (For comparison, Australia has 69.5% of their employed workforce in full time jobs, its lowest level in 10 months; New Zealand has 80.0%, a level we have been at for five years and the best since the 1990s.)

And a new report out from the Australian Productivity Commission shows that almost all (95%) of workers got pay increases equal or better than productivity increases. 

Internationally, last week there was a sharp drop of more than -7% in global container freight rates. It was particularly noticeable in outbound rates from China to the EU. Meanwhile bulk cargo freight rates are on the move up.

The UST 10yr yield starts today up +5 bps at 4.29%. 

The price of gold will start today at just on US$1909/oz and down -US$1 from yesterday.

And oil prices are +$1.50 higher from yesterday at just over US$89.50/bbl in the US and back at its ten month high. The international Brent price is now over US$93/bbl.

And perhaps we should note that the price of uranium is rising fast now, approaching a decade high on rising demand.

The Kiwi dollar starts today little-changed from this time yesterday at 59.1 USc, still settled in its tight range. Against the Aussie we are softer at 91.9 AUc. Against the euro we are +½c higher at 55.6 euro cents. That all means our TWI-5 is actually little-changed at 68.7.

The bitcoin price has moved higher from this time yesterday, and is now at US$26,627, a net rise of +1.9%. Volatility over the past 24 hours has been modest at just over +/-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.

New Zealand ought to change its political party funding system so it encourages politicians to connect with as many ordinary New Zealanders as possible, Max Rashbrooke argues, whilst noting it's not in political parties' interests to do so meaning such a change probably won't happen anytime soon.

Rashbrooke, a senior research fellow in the school of government at Victoria University, spoke about political donations in a new episode of interest.co.nz's Of Interest podcastas the October 14 election looms. Rashbrooke, and his Victoria University colleague Lisa Marriott, last year published a report on political party funding in NZ called Money for Something.

Rashbrooke says work on the report gave the authors "a glimpse into quite a murky world" of access and influence. One where party leaders, including prime ministers, fund raisers and big money donors, are in each other's company through a socialisation network featuring big fundraising dinners and other encounters.

This enormous and informal access to party leaders is something the rest of us wouldn't hope to enjoy, he says.

"So there's an immense socialisation and during that process I think it's fairly obvious that the views and interests of the donors and the politicians are to some extent going to become aligned," Rashbrooke says.

One of five key recommendations from the report is for the introduction of state funding in the form of tax credits and democracy vouchers, plus lump sum payments to smaller parties.

Rashbrooke notes NZ already has state funding for political parties via a broadcasting allowance, and money for parties to run their parliamentary wings. The question is whether we would benefit from a small increase in that, when the public has "massive distrust" in the current system given research shows more than 70% of New Zealanders say they don't trust the way political parties are funded. 

"The thread that I think holds together all of our recommendations is that we as New Zealanders would all be better off if we shifted from a system that relies on large amounts of money from a small number of donors to a system that relies on small amounts of money from a large number of donors. You are preserving peoples' freedom to donate to a political party of their choice, but what you're doing is creating a world where political parties aren't beholden to any one donor because no one is giving them a very large amount of money. And actually they are incentivised to go out and connect with a huge range of ordinary New Zealanders, which is what we want political parties to do," Rashbrooke says.

"Whereas the current system for their funding just encourages them to spend a huge amount of time on a small number of very wealthy people."

The report recommends a version of the Canadian system where for small donations, up to about $2,000, the donor gets a tax credit for a proportion of that donation.

"So basically through those tax credits the state is subsidising people to give small amounts to political parties, but capping the subsidy at a very low level so the incentive is just for those small donations," says Rashbrooke.

"We're talking about maybe $5 million to $6 million a year, that's it. So my pitch is for probably for less than $2 per person in New Zealand, $2 per voter, we could just clean big money out of the system completely and remove the potential for influence that it brings."

In the podcast he also talks about why he doesn't think such a change is likely in the short-term, the unprecedented situation where National and ACT are getting way more money than Labour, what a donation is, who can make one, how important donations are to political parties, what we know about the people and entities that donate and what they want, whether it's possible to draw a direct line between donations and policies, whether there's an advantage for the party or parties who raise more money, and more.

*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 all eyes are in the latest inflation updates.

But first, mortgage applications in the US fell -0.8% last week, following a -2.9% drop in the previous week and hitting a new 27 year low, since December 1996. This was even after adjusting for their Labor Day holiday weekend. Getting the blame are higher mortgage interest rates, with the benchmark 30 year rate edging up by +6 bps to 7.27% plus points, getting close again to high levels not seen since December 2000.

The American CPI inflation rate for August came in perhaps only slightly higher than expected. But it was a rise for a second straight month, taking the annual rate to 3.7% from 3.2% in July, above market forecasts of 3.6%. Oil prices have been on the rise in the previous two months, which coupled with base effects from last year, have been the main reason. The more recent month-on-month change was a rise of +0.6% and exactly as expected. Stripping out the volatile food and energy items, 'core inflation' fell to a 4.3% annual rate, its lowest in two years.

The Americans release their producer price inflation levels tomorrow and they are expected to be about half the consumer levels.

Will these price numbers motivate the US Fed to make another hike? We won't know until today week after their next review meeting. Markets doubt another hike is coming although there are some talking up the possibility.

There was something of a surprise in the August release of the US monthly budget statement. It recorded a monthly deficit of -US$221 bln in July with spending exceeding income. A similar deficit was expected in August. But in fact they reported an +US$89 bln surplus for the month. Despite that improvement, they are still reporting a -7.2% deficit to GDP, up from -5.3% the previous year. Still, that is nothing like the Trump-era deficits of -14.8% of GDP. Or the GFC-era deficits of -9.8%.

In Japan, producer prices rose by 3.2% in the year to August, slowing slightly from a downwardly revised 3.4% gain in July. It was the lowest rise since March 2021. The latest figure also marked the eighth consecutive month of a slowdown in producer inflation in Japan.

Meanwhile, business sentiment in Japan rose its most in August of any month in 2023, especially large businesses.

And in South Korea, their jobless rate fell to its lowest ever to 2.4% of their workforce (or 2.0% on an unadjusted basis).

In Hong Kong, there is a lot of value destruction in their commercial property market. One way to look at that its to see the changes in the Hang Seng REIT index. Since the start of 2023 it has fallen -32%. And that is just the start of it. Since its all-time peak in 2019 it has fallen -60%. Currently it is now down to levels last seen in 2009.

Globally, ratings agency Standard & Poor's said the number of new corporate defaults reached 16 in August, the highest August monthly number since 2009 and a sign that corporate stress is building. This brought the global corporate default tally to 107 for the year so far, with most of the defaults coming from Europe and the United States.

The UST 10yr yield starts today down -2 bps at 4.24%. 

The price of gold will start today at just on US$1910/oz and down -US$2 from yesterday.

And oil prices are -50 USc lower from yesterday at just under US$88/bbl in the US and off its ten month high. The international Brent price is now under US$91.50/bbl.

The Kiwi dollar starts today +¼c up from this time yesterday at 59.2 USc, settled in to a tight range. Against the Aussie we are similarly firmer at 92.1 AUc. Against the euro we are also fractionally firmer at 55.1 euro cents. The TWI-5 is +20 bps higher at 68.6.

The bitcoin price has moved higher from this time yesterday, and is now at US$26,127, a net rise of +0.5% overnight. Volatility over the past 24 hours has been low however at just on +/-1.2%.

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 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 Australian business and consumer sentiment remains stunted.

But first, American retail sales last week as monitored for bricks & mortar stores on a same store basis, rose +4.6% from the same week a year ago, the best gain of the year and indicating demand is back and gains are now more than can be accounted for by inflation.

Following hot and dry weather in August, and in its first report since field sampling, the USDA lowered its estimates for corn and soybean yields. The outlook for wheat is unchanged and its price is falling on good harvests worldwide. American beef production levels are slipping and imports from Australia and New Zealand are rising, they say. They also lowered milk production forecasts for the US as cow numbers retreat. But they don't see imports rising either.

With the ending of pandemic support in the US, their poverty levels are rising back to previous levels. Their measures of what constitutes poverty is specific to the US and covers many factors on a variety of perspectives. But for a four person household with two children, it is an annual income threshold of US$29,700 or NZ$50,300 or NZ$24.15/hr.

In India, consumer price inflation eased from 7.4% in July (which was the highest since April 2022) to 6.8% in August which was a sharper improvement than expected. Food inflation fell from 11.5% (which was the highest since January 2020) to 9.94%.

There was also July industrial production data released by India and that rose +5.7% from the same month the prior year and right at the top of the range of increases over the past 12 months. It was also impressively above the expected +4.8% rise.

In China, there are resurfacing concerns about risks with their insurance sector. You may recall these were front-and-center in 2017, but they are back again now.

In Australia, the latest Westpac-Melbourne Institute survey of consumer confidence shows households are still very concerned about finances and cautious on spending. But they are less fearful of rate hikes. It is the cost of living and inflation that remain the key drags.

Business confidence is still low in Australia, even if the widely-watched NAB survey picked up a point in August. Still, it was the highest level since January. Business conditions strengthened because there was a broad uptick in sales, profitability, and employment. But the squeeze is going on with weaker forward orders, higher labour costs, and input costs rising faster too.

Meanwhile, the WTO says the US-China trade war decoupling between the two economic giants is gathering pace and spreading to the countries aligned with each superpower.

The UST 10yr yield starts today down almost -2 bps at 4.26%. 

The price of gold will start today at just on US$1912/oz and down -US$9 from yesterday.

And oil prices are up +US$2 from yesterday at just over US$88.50/bbl in the US and a ten month high. The international Brent price is now up over US$91.50/bbl.

The Kiwi dollar starts today -¼c lower from this time yesterday at 59 USc. Against the Aussie we are fractionally softer at 91.9 AUc. Against the euro we are also fractionally softer at 55 euro cents. The TWI-5 is marginally lower at 68.4.

The bitcoin price has bounced back sharply from this time yesterday, and is now at US$25,992, a net rise of +3.3% overnight. Volatility over the past 24 hours has been high at just on +/-3.2%.

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 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 both China and Japan are making background moves to raise the value of their currencies after long weak periods.

But first, American inflation expectations for the year ahead were little-changed at 3.6% in August from 3.5% in July, but it was the first increase in five months. Expectations for rents rose to 3.1%, the highest since July 2022. Also, price pressures were seen for petrol, food, medical care, and education but these were all also very minor. Three-year ahead inflation expectations slipped slightly to 2.8%.

Across the Pacific, Japanese machine tool orders inched ahead in August from July, an improvement. Orders from local customers fell less and export orders rose. But they still haven't gotten back to year-on-year gains yet.

Meanwhile, Japanese bond yields rose to their highest since 2014 as remarks by the head of their central bank suggest they want to push back against the very low value of the Yen.

China's central bank moved to raise the value of the yuan on Friday, and held its higher fixing yesterday.

New vehicle sales in China in August were strong at almost 2.6 mln in the month, and this level is near the highs for the month over the past ten years. And it is somewhat unusual that these peaks are occurring in August - usually the peak of the year for them is in November. The NEV segment is now dominating and their total fleet has made a big enough shift that air quality in major cities is improving noticeably.

There was a bounce-back in new lending in August after the unusually low levels in July. New yuan loans rose by nearly +¥1.4 bln which was actually slightly more than the bounceback expected (+¥1.2 bln). From the perspective of the past five years however, the August increase was modest - only 'high' because July was so low.

More major Chinese cities are removing all restrictions on home purchases and resales to revive their sluggish housing markets.

In Europe, the EU said their economy is likely to grow by +0.8% in 2023, which is lower than the previously projected +1.1% expansion. It is being held back by persistent inflation which is hurting consumption and bringing tight monetary policy restraints economic activity.

Locally, all eyes will be on the Pre-election Economic and Fiscal Update (PREFU) and the updated bond issuance required. We will have full coverage from about 1pm this afternoon.

The UST 10yr yield starts today up +2 bps at 4.28%. 

The price of gold will start today at just on US$1921/oz and up +US$2 from yesterday.

And oil prices are also little-changed from yesterday at just over US$86.50/bbl in the US. The international Brent price is still just over US$90/bbl.

The Kiwi dollar starts today nearly +½c firmer from this time yesterday at 59.2 USc. Against the Aussie we are -¼c lower at 9 AUc. Against the euro we are little-changed at 55.1 euro cents. However the TWI-5 is actually unchanged, still at 68.5.

The bitcoin price is lower again from this time yesterday, and is now at US$25,157, a net fall of -2.1% overnight. Volatility over the past 24 hours has been moderate at just on +/-2.0%.

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

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

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