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 a bit of price stabilisation is returning to the Chinese economy.

Chinese consumer price inflation came in little-changed for August. It was up +0.3% from July, and up only +0.1% from a year ago. Milk and lamb prices fell in the month, beef prices were unchanged from July. Year-on-year milk prices are essentially unchanged but beef and lamb prices were down almost -5%.

Producer prices fell again in China but in August this fall was less than in any month since March on a year-ago basis. There were essentially unchanged from a month ago which is the 'best' they have been since October last year.

The Japanese economy expanded +1.2% in Q2-2023 from the prior quarter, compared with a flash reading of a +1.5% gain and after a downwardly revised +0.9% rise in Q1. This was the second straight quarter of growth, coming slightly less than market forecasts of a +1.3% rise, and despite being the fastest growth for a year, it was downgraded because of weaker-than-expected household consumption, and investment. Year-on-year, the Japanese economy was +2.0% larger, although the Q2-2023 grew at an annualised +4.8% rate, so relatively fast recently. Just not as fast as earlier indicated.

The Americans reported that their household net worth rose to a record US$154 tln in Q2-2023, a rise of +4.8% in a year. They managed that because their household liabilities only rose +3.6% in the same period. Helping is the surprisingly quick recovery suggesting that the residential real-estate downturn is turning out to be shorter and shallower than expected.

US consumer credit rose a modest +US$10.4 bln in July, a second month with a solid but unspectacular rise. Household debt isn't an overall problem for them.

Meanwhile, under-scrutiny American regional banks saw their profits and deposits broadly steady in Q2-2023, suggesting the turmoil earlier in the year has eased considerably. But a regulator watch is still on for unrealised losses, especially around commercial property loans.

There is a major strike threat at American carmakers that we should keep an eye on, however

And also worth noting, Fed whisperer Timiraos says officials are now leaning to a rate pause at their September 21 meeting in ten days

The Canadian economy added almost +40,000 new jobs in August, far exceeding market expectations of a +15,000 increase. Full-time work rose +32,000 and part-time jobs increased by +8,000 in the month from July. But there were some notable distortions. The number of self-employed rose by +50,000. And the overall population rose +103,000 in the month. That meant that their jobless rate stayed at a relatively high 5.5%. Those in jobs saw their pay rise +5.5% from a year ago, and well above their inflation rate of +3.3%.

Meanwhile, global food prices fell -2.1% in August to now be at their lowest since April 2021. These prices are now -25% below their peak in March 2022. A key reason for the latest fall is the retreating dairy price which was down -4% as the world seems to have a dairy surplus now. Meat prices are falling too, related to the fall in grain feed prices.

The UST 10yr yield starts today unchanged at 4.26%.

The price of gold will start today at just on US$1919/oz and down -US$1 from Saturday. But that is down -US$20 from a week ago.

And oil prices are down -50 USc from Saturday at just on US$86.50/bbl in the US. The international Brent price is now down -US$1 at just over US$90/bbl. 

The Kiwi dollar starts today little-changed from Saturday at 58.8 USc. Against the Aussie we are starting the week at 92.3 AUc. Against the euro we are unchanged at 55 euro cents. That all means the TWI-5 is still at 68.5. A week ago it was at 68.7, so very little changed from then.

The bitcoin price is a little lower from this time Saturday, and is now at US$25,685, a net fall of just -0.5% over the weekend. Volatility over the past 24 hours has been very low at just on +/-0.4%.

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

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

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

Kia ora,

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

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

And today we lead with news of more of the same - continuing American economic strength, worries about China's prospects.

The number of American filing for new jobless claims fell to +190,000 last week which is their lowest since February. A rise to +234,000 was expected so this is a much better-than-anticipated result. There are now 1.75 mln people on these benefits, also much lower than expected. The US labour market is remaining much stronger than almost anyone thought by the end of Q3. With this sort of continuing run, it is hard to see their September non-farm payrolls showing the weakening that has long been foreshadowed - and hoped-for by the Fed.

American labour costs are rising (+2.2%) and with the extended labour market pressures this isn't really a surprise. But it is a surprise that pay rates are rising faster (+5.7%) than inflation (+3.0%), and they are getting good labour productivity at the same time (+3.5%). Rarely do you get a 'virtuous combination like this in tight labour markets. It is actually quite remarkable.

On the labour front, the GM workers union rejected the carmaker's +16% wage offer as far below their asking +46% demand. Such are levels in a hot labour market.

In Canada, they have their own positive surprises. Their widely-followed Ivey PMI came in in August with their strongest expansion since April, reversing a downtrend and a contracting July.

Also 'positive' in a back-handed sort of way, Canada's July building consents fell -1.5% which was a much smaller correction than anticipated after the strong +7.5% june rise, meaning most of the June momentum was maintained. In fact their residential consent level rose another +5.4%, so the housebuilding sector maintained it's push up.

China's August exports inched higher than in July, but were still -8.8% lower than year-ago levels and this was the fourth straight month of year-on-year declines - and comes despite a weakening yuan. They ran a +US$33 bln surplus with the US which accounted for about half their total trade surplus. They remain very dependent on their trade with the US. Versus Australia, they had an August deficit of -US$6.2 bln in the month, and with New Zealand a deficit if -US$220 mln.

China's FX reserves slipped -1.4% to US$3.16 tln, a fall of US$44 bln in the month and to their lowest level since February. But they are well up from just over US$3 tln in July 2022.  The yuan weakened to a 16 year low today.

The EU's third estimate of its Q2 economic activity was revised lower to an expansion of just +0.1% in the period.

For most non-oil countries, an +$8 bln monthly trade surplus would be something to celebrate. But not for Australia. Their trade surplus declined to +AU$8.0 bln in July from a downwardly revised AU$10.3 bln in June, below market forecasts of a +AU$10 bln gain. It was the smallest trade surplus since February 2022, as exports shrank while imports rose.

Global container freight rates fell last week by -3.4%, continuing the recent retreat. The biggest falls were China to the EU; in fact China to the USWC rates actually inched up last week. Freight rates for bulk cargoes were little-changed.

The UST 10yr yield starts today down -3 bps at 4.27%. 

The price of gold will start today at just on US$1918/oz and essentially unchanged from yesterday.

And oil prices are down -US$1 at just over US$86.50/bbl in the US. The international Brent price is now at just over US$89.50/bbl.

The Kiwi dollar starts today little-changed from yesterday at 58.8 USc. Against the Aussie we are back up +¼c at 92.2 AUc. Against the euro we are also +¼c firmer at 55 euro cents. That all means the TWI-5 has edged up by +20 bps to 68.4.

The bitcoin price is virtually unchanged from this time yesterday, and is now at US$25,922, a net rise of just +US$6 in a day. Volatility over the past 24 hours has been low at just on +/-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.

The Commerce Commission should be looking closely at banks' overall interest margins in its market study into personal banking services, says David Cunningham.

Cunningham is CEO of Squirrel Group, a mortgage broker that also offers lending and investing products and services, and a former CEO of The Co-operative Bank and manager at Westpac New Zealand.

In the latest episode of interest.co.nz's Of Interest podcast, Cunningham talks in detail about how interest rates are set for borrowers and savers, and the key area the Commerce Commission should look as it assesses competition for deposits and home loans.

Banks ultimately manage to the overall interest margin across both sides of their balance sheet covering their lending via the likes of home loans, and borrowing via the likes of deposits, Cunningham notes.

"Banks use something called transfer pricing, where they use the wholesale [interest] rate as a benchmark and then they assess the margin above that for loans and below that for deposits. But of course those margins on loans and deposits move in and out through the interest rate cycle. They're wider on lending at the lows, narrower in lending at the highs," says Cunningham.

"I think what the Commerce Commission should be looking at is that overall margin."

He says it's "disingenuous" for a banker to say margins are low on home loans at the moment without looking at the other side of the balance sheet because margins could be high on deposits.

"Unfortunately right now we're actually having that behaviour where we've got some banks setting rates with only reference, it would seem to me, to the wholesale [interest] rates."

"The key point is margins move in and out but you've got to look at the total. And that's what I think the Commerce Commission will be looking at, that quantum of the whole pricing decision. Not just a pricing decision on an individual product in isolation," says Cunningham.

The record low 0.25% Official Cash Rate (OCR) through most of 2020-2021 followed by a rapid increase to 5.50%, has allowed banks to expand interest margins by about 20%, Cunningham says.

"It's a lift in the price of the net margin you're charging on your product of 20%, which actually most New Zealand businesses would love if they could do that as an industry. And that's an oligopoly in action, and that's what the Commerce Commission will be exploring."

In the podcast Cunningham also talks about why he doesn't believe banks' net interest margins are justifiable at the moment, what to be wary of in a high interest rate environment including break fees, the role of bank capital in driving decisions on sectors banks like lending to, secured and unsecured lending, and how interest rates are set on everything from the OCR, to the bank bill benchmark rate, swap rates, home loans, term deposits, personal loans, car loans, credit cards, business lending, rural lending and bonds, and his own role in making fixed-term mortgages more popular than floating rates.

Kia ora,

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

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

And today we lead with news the world's largest economy keeps on throwing up unexpected positive surprises.

First up today, there was a very strong August services ISM PMI out for the giant American economy. It is a widely-watched and influential metric and it rose unexpectedly with its strongest growth in six months. Faster increases were seen in business activity, and both new orders and employment especially. It's a confirmation of the resilience we have been pointing out recently, and might even change the mind of some Fed waverers. Markets think so, and equities recoiled somewhat on the prospects of a rate hike again.

A widely-watched GDP-Now tracker is suggesting that most analysts are significantly underestimating American economic growth for Q3-2023.

Unnoticed, small business optimism rose sharply too in its independent August survey.

Meanwhile, the yo-yoing of mortgage application levels continued last week with them falling -2.9% from the prior week after an earlier lift. But the outsized fall took them down to their lowest level since the end of 1996 - and that was despite mortgage interest rates easing slightly in the same period.

The Redbook survey of American bricks & mortar retail activity is again reporting a year-on-year sales increase higher than inflation, a situation that has only turned positive in the past couple of weeks.

US exports rose +1.6% in August to a four month high but the US merchandise trade deficit widened marginally , even if -US$3 bln less than expected. Exports were boosted by vehicles, airplanes and pharma.

The US Fed's September Beige Book update reported that economic growth was modest during July and August. Consumer spending on tourism was stronger than expected, surging during what most considered the last stage of pent-up demand for leisure travel from the pandemic era. The found that labour market pressures are easing but many employers still see shortages. Price rises are easing they said, but they did find sharp increases in property insurance costs during the past few months.

Of course, not everything is positive, and the threats to regional banks who loaded up on commercial real estate remain large.

The Bank of Canada held its policy rate unchanged at 5% in its September meeting overnight, as largely expected by financial markets and marks an extended pause in its tightening cycle. But it is still selling down its bond holdings.

In China, reports are emerging that President XI was "reprimanded" by Communist Party elders at the Party's secretive summer enclave. And that he wasn't happy about the supposed dressing-down. In turn the elders aren't happy about China's recent off-track trajectory. To be fair, high-level policy making is very opaque in China, but someone is leaking these private discussions.

Their downward turn is affecting the world. And the opacity is extending.

Taiwanese inflation rose to 2.5% in August and while that may not seem high, it is the highest for them since January

Global air travel is now back to 95% of its pre-pandemic levels. Domestic air traffic has fully recovered almost everywhere. but international travel is more than -10% lower still. In the Asian/Pacific region it is lagging significantly, still -25% below pre-pandemic levels as Chinese travellers remain more reluctant to venture abroad. But they are making that up with a huge +22% surge on pre-pandemic levels.

In Australia, they released their Q2 GDP result and their economy expanded +0.4% from the March quarter, the same pace as an upwardly revised figure in Q1 but above market forecasts of a +0.3% growth. This was the seventh straight period of economic growth for them and came from better exports, business investment and public spending. Household consumption however contributed very little. For the year, their overall expansion was +2.1%. New Zealand's Q2-GDP will be released on Thursday, September 21, 2023. It will probably be marginally positive too.

The UST 10yr yield starts today up +3 bps at 4.30% and getting back to the highs of three weeks ago. 

The price of gold will start today at just under US$1918/oz and down another -US$6 from yesterday.

And oil prices are up +US$1.50 at just over US$87.50/bbl in the US. The international Brent price is up +US$1 at just over US$90.50/bbl as markets react to the Saudi production curbs.

The Kiwi dollar starts today little-changed from yesterday at 58.7 USc. Against the Aussie we are almost -¼c softer at 92 AUc. Against the euro we are little-changed at 54.7 euro cents. That all means the TWI-5 has slipped ever-so-slightly to 68.2.

The bitcoin price is up +0.7% from this time yesterday, and is now at US$25,916. Volatility over the past 24 hours has been modest 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 the return of Wall Street from their long weekend holiday has been a quiet one, although Saudi Arabia greeted them back with a move that raised oil prices.

But first up, the overnight dairy auction delivered a +2.7% rise in overall prices, headlined by the +5.3% rise in the WMP price. (From the last GDT Pulse event, the WMP price rose +10% which is quite something.) This follows seven main events that recorded price declines overall so it isn't clear whether this breaks the declining pattern or not. At the same time the NZD fell too, so the rise at this event in NZD was more than +4.1%. Volumes were much higher this time at over 37,700 tonnes sold. Price movements for other commodities than WMP were modest.

US factory orders were expected to fall in July and they did - but not by as much as anticipated. And without aircraft orders they actually rise from June nicely. There had been four consecutive monthly gains in new orders prior with the last one being quite strong, so a settling was expected. Still, year-on-year these orders are still running lower than a year ago, down -1.4%, so pretty lackluster.

But there was an expansion in the US logistics sector in August, a shift up from the July contraction. Warehousing and freight activity rebounded.

In China, the private Caixin service sector PMI for August came in weaker than expected (in contrast to their factory PMI which came in better). The Caixin services PMI is at 51.8 and down sharply from the July 54.1. That is twelve straight months of expansion although the August result is the weakest in that sequence in 2023. (50 is neither expanding nor contracting.) The official services PMI for August was recorded at 51.0. But at least they are still expanding.

In the EU, producer prices fell at a record pace. They dropped -7.6% from a year ago in July but it was in line with market estimates. It was the third consecutive decline in producer prices and at the steepest pace since 2009, largely due to base effects from the surge in energy prices following Russia’s invasion of Ukraine. Hence, energy prices sank by -24% from the -16% in the previous month.

Turkish inflation, which peaked at over 85% in October 2022, and then fell to 38% in June, is moving back up strongly again. In August it came in at 59% pa. The more conventional monetary policy that was started in July hasn't had an effect on inflation yet - nor their exchange rate either it seems. Once public policy loses control of its policy levers, it is fiendishly difficult to get it back under control. Turkey (and Argentina) remain cautionary tales for most other central bankers.

In Australia, in Governor Lowe's swansong meeting, they claimed that inflation there is retreating now and left their cash rate target unchanged at 4.1%.

Internationally, global air cargo demand came in just marginally lower in July from a year ago, but continued its good recovery since February. Asia/Pacific demand was actually up year-on-year but other regions struggled to get back to the year-ago surge. However the 2023 track higher is a good sign.

The UST 10yr yield starts today up +6 bps at 4.27%. 

The price of gold will start today at just under US$1926/oz and down -US$12 from yesterday.

And oil prices are up +50 USc at just over US$86/bbl in the US. The international Brent price is up +US$1 at just over US$89.50/bbl, hitting US$90 briefly, the first time in 2023 it has done that. Saudi Arabia has extended its oil export curbs until the end of the year.

The Kiwi dollar starts today down -½c from yesterday at 58.8 USc. Against the Aussie we are +¼c firmer at 92.2 AUc. Against the euro we are down about -¼c at 54.8 euro cents. That all means the TWI-5 has slipped -25 bps to 68.3.

The bitcoin price is down -0.6% from this time yesterday, and is now at US$25,735. Volatility over the past 24 hours has been low again 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 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 it will be worth keeping an eye on Chinese housing sales in September.

But first we should note that the rest of the world has basically had its feet up overnight, and there is little new data, or events to report.

China has nothing to say (because it won't say anything unless it is 'good'), and the US and Canada are making the most of their long weekend holiday. Europe has nothing special to report, and Japan seems out to lunch too.

Probably best you just skim the data updates below and move on to other stuff today!

If you really want to know, we can report that the Swiss GDP grew +0.5% in Q2 from a year ago, unchanged from Q1. But that has no implications for New Zealand of course.

Or we can report that German exports fell -0.9% in July from June to be -1% delow of the same month a year go.

Or we can report that major Chinese retailers are shutting down stores at a faster pace as they are unable to lure back customers who switched to online shopping during pandemic lockdowns.

Or that President Xi is skipping the G20 meeting in India, a break from his habit of attending every G20 leaders’ summit since taking power in 2012. The possible reasons are many, including focusing on economic problems at home, to trying to avoid being held accountable for a growing number of border disputes with its neighbours (and not the least, with host India). Accountability is something Xi doesn't do - he expects it of others, doesn't like it for himself.

In Australia, maybe you are interested that company profits fell -13% in the June quarter from the March quarter? Or are down -12% from year ago levels? (No evidence of 'greedflation' there.) No? Didn't think so.

Maybe you have come across something more interesting overseas that might affect New Zealand? If so, note it in the comment section below.

Actually, here is something that we should really keep an eye on. In the US, a set of major insurers are cutting natural disaster cover, especially in areas that need it most. Warren Buffet's Berkshire Hathaway, which also offers reinsurance, wrote that increased climate disasters mean “it is possible that policy terms and conditions could be updated or revised to reflect changes in such risk.” (It is a significant change of view by Warren Buffett.) The companies pulling back, or saying they will, are large and influential, and their influence will be felt here. Berkshire Hathaway is active in New Zealand and Australia. Further, life insurance companies are reassessing whether they should have as much invested in mortgage portfolios - also due to climate risks embedded in the mortgages of those portfolios. Climate uninsurability is a real thing right now.

And perhaps this is also worth noting. The relaxation of mortgage standards in China has in fact brought out the buyers - in some major cities at least, and in the first weekend of the relaxation. And shares in Chinese property firms have jumped after developer Country Garden reportedly secured an extension to a key debt payment deadline. Major home builders including Country Garden and Evergrande saw their shares rise in Hong Kong yesterday.

The UST 10yr yield will start today up +3 bps at 4.21%. 

The price of gold will start today at just under US$1938/oz and down -US$2 from yesterday.

And oil prices are holding at just on US$85.50/bbl in the US. The international Brent price is firmish at just over US$88.50/bbl.

The Kiwi dollar starts today unchanged from yesterday, still at 59.4 USc. Against the Aussie we are -¼c lower at 91.9 AUc. Against the euro we are also down about the same at 55 euro cents. That all means the TWI-5 has slipped -15 bps to 68.6.

The bitcoin price is up a mere +US$10 today from this time yesterday, and is now at US$25,895. Volatility over the past 24 hours has been low at just on +/- 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 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 of a slight easing of labour market pressure in the US, but the long predicted recession still seems far away.

But first in the week ahead, it will get started slowly with the US currently on its long end-of-summer Labor Day weekend. We won't see them back in international financial markets until Wednesday, NZT. Then they will deliver their ISM Services PMI, factory order data, and foreign trade data. Elsewhere, Australia and Canada will announce interest rate decisions. Also, inflation rates will be released in Turkey, South Korea, the Philippines, Mexico, and Russia. GDP growth figures will be released for Australia, South Africa, and Switzerland. Additionally, we will get service sector PMI readings for China from their private Caixin series..

Over the weekend their August non-farm payroll report showed that American labour markets are still expanding although not as fast as previously.

The US economy added +187,000 jobs in August, compared to the downwardly revised +157,000 in July and more than market expectations of +170,000. These are the headline, seasonally-adjusted changes. It was the third consecutive month with job gains falling below 200,000, indicating a gradual easing of American labour market conditions, largely attributed to the Federal Reserve's significant interest rate hikes aimed at cooling inflation. There is a downshift, but it is a smooth one - so far at least

However as regular readers know we also look at the original data and that rose +268,000 to 156.4 mln people on company payrolls, a new record high and up +3.0 mln from a year ago. Meanwhile there are 161.4 mln employed when you also account for the unincorporated self-employed, up +2.7 mln in a year, so that indicates a shift into company jobs. It is this overall longer-term and sustained surge in employment that is making the American economy so resilient.

Over the past year, average weekly earnings rose +4.0%, and while that is still rising faster than inflation, it is at a slightly slower pace than in previous months.

Meanwhile, the widely-watched ISM factory PMI 'improved' slightly, meaning it contracted less. In fact it has now contracted for a tenth consecutive month. Recall on Friday the internationally-benchmarked Markit PMI came in with a very similar result. Basically their factory sector is in a shallow trough and analysts are suggesting it will climb out of it from here.

Also in a trough is the Canadian economy. Their Q2 GDP data was released over the weekend and it did not grow from Q1. It is however now +2.2% higher than year-ago levels.

In China, the Caixin factory PMI surprised with a small expansion, when a small contraction was anticipated. Given the official factory PMI out earlier showed a contraction, this is a double surprise. The Caixin survey has been volatile about the 50 point mark for a number of months now. Their survey noted a rise in new orders overall and the downturn in new export orders easing. This wasn't what the official factory survey found however. But both surveys noted that selling prices are still falling.

Out soon will be the official data on Chinese home sales. The anecdotal evidence is that volumes will be very weak. But the official stats are unlikely to suggest anything but a 'stable situation', trying to keep the risk of market panic under control.

In Hong Kong and the Pearl River delta, they are bracing for a second typhoon in less than a week. The cost of the first one is being counted in the billions.

EU factory PMIs don't look flash at all, with factory orders shrinking disarmingly fast. But this is essentially a German and French problem. Country-level data showed that positive sentiment was strongest in Ireland and Italy, followed by Greece, offsetting the pessimistic outlooks at firms in Germany, France and Austria. Meanwhile in the UK, their factory situation is absolutely terrible.

In Australia, new home loan lending fell -2.3% in July from June to be -14% lower than a year ago. This same metric fell -3% in June and was expected to bounce-back in July, but that didn't happen. Lending for commercial property dived -33% on the same basis as lenders took fright at how that sector could hurt bank exposures.

The UST 10yr yield will start today still at 4.18%.

The price of gold will start today at just under US$1940/oz and back down a mere -US$1 from Saturday.

And oil prices are holding higher at just over US$85.50/bbl in the US. The international Brent price is now at US$88.50/bbl.

The Kiwi dollar starts today unchanged from Saturday, still at 59.4 USc. Against the Aussie we are very slightly firmer at 92.2 AUc. Against the euro we are also marginally firmer at 55.2 euro cents. That all means the TWI-5 is still at about 68.7.

The bitcoin price is up +1.1% today from this time Saturday, and is now at US$25,885. Volatility over the past 24 hours has been very low at just on +/- 0.5%.

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

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

Kia ora. I'm David Chaston. And we will do this again 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 American inflation and consumer spending remain at levels above where the US Fed needs them to be.

But first, actual American jobless claims came in at a low 192,000 last week, lower than expected and there are now under 1.8 mln people on these benefits. This is a good way to head into their Labor Day holiday, with only the August non-farm payrolls report due now. That is out tomorrow and is expected to show a modest increase of +170,000 jobs created.

US PCE inflation was confirmed at 3.3% in July.

American personal income rose by +0.2% from the prior month in July, after a +0.3% increase in June. This was slightly below market forecasts of a +0.3% rise. But the growth in wages and salaries rose by +0.4%. Year on year, these are up +4.6%.

Meanwhile, personal spending jumped by +0.8% in July, the most since January and above market expectations. Year on year, these are up +6.4%.There is consumer resilience here that the Fed will have noticed. Note that the difference between income and spending is actually little different in dollar terms, only marginally less savings are being recorded and only a marginally lower savings rate.

Elsewhere, the Chicago PMI came in much "better" (less worse) than anyone expected and a large improvement from July, even if it is still contracting. Only just, now however, which is quite a turnaround from the recent trends.

In China, their official August PMI data is out. Their factory activity gauge improved marginally in August, but was still below the 50-point mark that separates a contraction from an expansion amid a global economic slowdown and sluggish domestic demand. Their service sector expansion cooled again and is barely at the 50 benchmark now (51.0). New export orders are weakening although new orders generally are at a steady state (50). The private Caixin equivalent monitoring is not out until tomorrow (factory) and Tuesday (services). Recently that has been marginally more optimistic than the official data.

In China, the minimum deposit for a home purchase is currently 30%. They are moving it down to 20% for 'first home buyers' (after redefining this very loosely). Interest rates are falling too. These are the practical steps for the previously announced loosening, to try and get their housing markets functioning again as an engine of growth. Developers there are facing broad insolvency risks, so the 'need' is urgent. Their financial system cannot afford property prices to fall.

Hong Kong retail sales rose +14% in July from a year ago, but this is all about the very low base in July 2022. But they fell from June to July. These retail sales actually decreased by -7.0% in the three months ending July 2023 compared with the preceding three-month period. Hong Kong is shutting down today ahead of Typhoon Saola's arrival. It is a big one.

We should keep an eye on the long-simmering border dispute between India and China. China released new "official maps" of the country which publishers worldwide are expected to respect (or face tough sanctions). But this latest version creeps the Chinese border into India and which brought a strong protest from New Delhi who had thought the issue had calmed down. Interestingly, these same maps have extended the "nine dashed line" in the South China Sea to now ten dashes. China has lost every claim in international arbitration over the sea claims, but that isn't stopping their expansion ambitions. The creeping has all the hallmarks for potential conflict.

India released its Q2-2023 economic growth data and it came in at an impressive +7.8% from a year ago. But it has to be noted that this is dominated by investment activities and the personal consumption side of this is under +6%, still good though. It is certainly a stark contrast to China. But there is growing weather stress there. The monsoon has been weak this year. Monsoon rains irrigate about half of India’s farmland and are crucial for crops such as sugar and soybeans. Food prices are under severe stress. India has more than weather-related problems however.

EU inflation was unchanged in August at 5.3% when a dip to 5.1% was anticipated The ECB is facing stubbornly embedded inflation there. Germany and France are keeping it up. Greece, Spain, and the smaller northern nations are all running much lower inflation rates.

Last week, container freight rates resumed their falls, although it was only minor in the latest update. Bulk freight rates were unchanged.

The UST 10yr yield will start today at 4.09%, down -3 bps from this time yesterday.

The price of gold will start today at US$1940/oz and down -US$4 from yesterday.

And oil prices are +US$1.50 higher at just on US$83/bbl in the US. The international Brent price is now at US$86.50/bbl.

The Kiwi dollar starts today fractionally softer than yesterday at just under 59.6 USc. Against the Aussie we are softer as well at 92 AUc. Against the euro we are firmer at 54.9 euro cents. That all means the TWI-5 is still at 68.6 and again, essentially unchanged.

The bitcoin price has fallen back today, wiping out almost all the earlier gains and is now at US$26,319 which is down another -3.1% from yesterday. Volatility over the past 24 hours has been moderate at just under +/- 2.7%.

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.

New Zealand's anti-money laundering (AML) regime could be simplified and improved, although care would need to be taken to avoid jeopardising our good standing in the international community, not to stop information flow to the police, and to avoid creating loopholes criminals can exploit, says leading AML lawyer Gary Hughes.

Hughes speaks about the Anti-Money Laundering and Countering Financing of Terrorism Act, which has just notched up 10 years since taking effect, in a new episode of interest.co.nz's Of Interest podcast.

The Act's impact is widely felt. This isn't surprising given the police describe businesses operating in the financial, legal, property and high value goods markets as being at the frontline for countering illicit activity, while describing themselves as the last line of defence against money laundering and terrorism financing. As an election approaches, both the National and ACT parties are making noises about lessening the AML/CFT burden on businesses, which the Ministry of Justice estimates costs NZ about $260 million a year.

Hughes, an Auckland-based barrister who chairs the AML and Sanctions Experts Committee at the International Bar Association, sees "a good deal of scope for simplifying and improving the regime," thus potentially making compliance for businesses easier. He gives the example of a code of practice around identity verification for small businesses, noting there can be too much tick box regulation and a one size fits all approach.

But he says care needs to be taken.

"You don't want to lose the benefits of good standing in the international community. We're now seen by the FATF [Financial Action Taskforce] and others as doing very well in this regard. And also you don't want to lose the information flow to the police or create loopholes that criminals are rich enough or cunning enough to exploit. So it's always a balancing act," Hughes says.

In the podcast Hughes also talks about how to measure the extent to which the Act is preventing money laundering and terrorism financing, what the impetus behind the Act was, why FATF is described as "the most powerful international body you've never heard of," how the Act is instrumental in collecting key data and evidence for police, why he thinks NZ should have one AML/CFT Act supervisor instead of three, what happens to the thousands of suspicious activity and transaction reports, whether the regime is outcomes focused enough, financial exclusion and more.

"People say it's too costly and it's a handbrake on business. And yes it is partly. But equally some of those businesses, if you look at the banking sector, are making enormous profits and have very good information that I would think why shouldn't they be forced to actually use some of that and pass on the intelligence to support the law enforcement efforts? I don't think you can take all the cream out of the economy and not offer something back," says Hughes.

*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 there are worries the Aussie energy transition is falling short and they could face tough choices as early as this summer.

But first, US mortgage applications rose +2.3% last week from the prior week and mortgage interest rates held steady at a very high 7.31% plus points. It was their first rise in six weeks and doesn't really interrupt the lower track this market has been on.

US pending home sales also ticked a minor +0.9% higher in July from June (in just a 'noisy' change) to be -14% lower than a year ago.

The pre-cursor report to the Saturday (NZT) non-farm payrolls report, the ADP employment report, revealed a +177,000 jobs gain by private employers for August. This was slightly less than the +195,000 expected. They said this level is consistent with the pace of job creation before the pandemic. After two years of exceptional gains tied to the recovery, they are moving toward more sustainable growth in pay and employment as the economic effects of the pandemic recede. +170,000 more jobs are expected for the non-farm payrolls report.

The second estimate of US Q2-2023 economic growth was market down slightly to an annualised +2.1% from the first estimate of +2.4% growth. In Q1-2023 the growth rate recorded was +2.0%. This latest markdown was because both consumers and government spent slightly less in the period than originally estimated. There will be a third and 'final' estimate in about a month. This same data release has PCE inflation running at +2.5%, well down from the Q1 rate of +4.1%.

In China, things for Country Garden just get worse. They announced a gigantic loss today and warned of default. The country's overall property crisis is deepening.

And elsewhere we have been noting the rise and rise of the Chinese dairy industry. But there are limits and China seems to be bumping up against them now. Demand for meat and dairy is increasing the need for production of feed grains as arable land grows scarce.

Japanese consumer confidence dipped marginally in August when a continuing improvement was expected. Prior to July it had risen for eight straight months. The dip was minor however.

And staying in Japan, Toyota told suppliers it may produce more than 10 mln vehicles in 2023, a new global record, 3.4 mln in Japan and 6.8 mln overseas. And this is despite a -15% fall in production of its vehicles in China. (Although they have higher revenue, Volkswagen Group produces about 9 mln vehicles per year.)

The German CPI inflation rate is proving to stubbornly high, not continuing the fall we saw from January to April. For four months now it has held at +6.1% and a long way higher than policy makers need it to be. Other countries around it are reporting similar stories for August. This sticky inflation problem has investors betting that the ECB will raise rates again soon. Their next meeting is in about two weeks.

In Australia, their energy regulator says this summer could be hotter than normal and electricity demand higher than planned. Major stress looms for South Australia and Victoria. A hot dry summer with low wind, along with the failure to replace ageing coal plants with clean power fast enough, could bring widespread blackouts at a time of heat stress. This is a far grimmer assessment of what lies ahead than their last review six months ago.

Australia's July monthly inflation indicator rose 4.9% from a year ago, a rate that is down from 5.4% in June. Annual price rises continue to ease from the peak of 8.4% in December 2022. Even though they came in lower than expected, the July levels are still far higher than the RBA needs them to be, but it will probably lock in a rate pause there because it is going in the right direction.

And staying in Australia, their residential building consents fell at an -8.1% rate in July from June to be down -10.6% from a year ago. The private sector components are more negative than the overall results. Interestingly, these are falling faster recently than in New Zealand and both are fast month-on-month falls.

The UST 10yr yield will start today at 4.12%, unchanged from this time yesterday. 

The price of gold will start today at US$1944/oz and up another +US$7 from yesterday.

And oil prices are +50 USc higher at just under US$81.50/bbl in the US. The international Brent price is now at US$85/bbl.

The Kiwi dollar starts today fractionally firmer than yesterday at just on 59.7 USc. Against the Aussie we are unchanged at 92.1 AUc. Against the euro we are also little-changed at 54.7 euro cents. That all means the TWI-5 is still at 68.6 and essentially unchanged.

The bitcoin price has fallen back somewhat today after yesterday's big jump and is now at US$27,164 which is down -2.6% from yesterday. Volatility over the past 24 hours has been modest at just under +/- 1.8%.

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.