Economy Watch

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 our credit rating has been held with a stable outlook, and WMP prices didn't fall further, as expected.

But first in the US, job openings edged down in July and the number of people quitting their jobs fell. They declined by -338,000 from the previous month to 8.827 million in July, the lowest level since March 2021. These are early signs of an easing labour market, and that the Fed's tightening policies are having the 'desired' impact on their economy. Markets expect the rise in non-farm payrolls, to be reported for July on Saturday NZT, to be up a modest +170,000. The pre-cursor ADP employment report also sees a modest +195,000 rise in the employed workforce when they report tomorrow.

As we noted last week, there is a good move up in bricks & mortar retail sales underway in the US. They were up a creditable +4.2% last week from the same week a year ago on a same-store basis. Given they have 3% inflation, this is actually a quite positive sign and ends a six month dry patch, or a 10 month patch on an inflation-adjusted basis.

But you wouldn't know that from looking at the latest update from the Conference Board consumer sentiment survey. It dipped unexpectedly. They say consumers are noticing a cooling labour market and interest rates biting. But they also found consumer fears of an impending recession continued to recede.

The follow-up Dallas Fed survey of the Texas service sector was less negative than their factory sector and less negative that expected. But it was still negative in their region.

The US 7yr bond auction yield rose from 4.02% to 4.16% earlier today, reinforcing the bite of rising interest rates, although savers will be cheering and in the US there are more savers than borrowers.

In Japan, their unemployment rate rose for the first time in four months in July. It rose to 2.7% from June. Analysts had expected the reading to hold at 2.5%. The number of workers fell by -100,000 from the previous month to 67.5 mln, while those without jobs rose by +110,000 to 1.8 mln.

In China, Beijing is leaning on its large state-owned banks to cut home loan interest rates to encourage home buying, and cut deposit rates to discourage saving. There is fear in the air in the Chinese economy. But you wouldn't know it from their equity markets as the 'home team' buys aggressively to keep up appearances. Unfortunately for them it is foreign investors who are taking advantage of the 'market' and selling.

And despite 'opening up' rhetoric from China, US officials say American firms tell them China is now 'uninvestable' after all the fines, raids and other political measures like embedding Party committees inside their firms.

In Singapore, producer prices fell -8.9% in the year to July, but as sharp as that may seem it is a significant easing from the -14.3% drop in June. They rose +1.7% in July from June, a turn up that wasn't expected.

In New Zealand there was something of a surprise result in the GDT Pulse auction of WMP overnight. It came in unchanged, ending a series of sharp falls from late July, and staying at US$2450/tonne. Another fall was expected. Still this locks in a level we last saw in August 2016.

And staying in New Zealand, ratings agency Fitch has held its AA+ credit rating for New Zealand with a Stable Outlook. It identified our current account deficits a key weakness. But it isn't overly worried about household debt levels, less so about government debt levels and although fiscal target levels have been delayed, it likes both the RBNZ's monetary policies and our overall 'policy framework'..

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

The price of gold will start today at US$1937/oz and up +US$17 from yesterday.

And oil prices are +US$1.50 higher at just under US$81/bbl in the US. The international Brent price is +US$1 higher at US$84.50/bbl.

The Kiwi dollar starts today +½c firmer than yesterday at just on 59.6 USc of a greenback pullback. Against the Aussie we are little-changed at 92.1 AUc. Against the euro we are also little-changed at 54.8 euro cents. That all means the TWI-5 is now at 68.6 and up a net +30 bps.

The bitcoin price has jumped sharply today and now at US$27,894 and up a whopping +6.9% from yesterday. Volatility over the past 24 hours has been very high at just over +/- 4.3%. In the US, a three-judge appeals court overturned a decision by the US Securities and Exchange Commission to block a bitcoin ETF.

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 pressure remains on the Chinese economy and Beijing seems committed to tough it out without its usual debt-inducing stimulus strategies.

But mainland China equities as well as those in Hong Kong jumped more than +1% yesterday after Beijing announced new measures to boost its capital markets, including halving the stamp duty on stock trading, and they were effective immediately. But they opened up +5.5% and it was downward from there, so questions are being asked if this can last much more than a day or two.

Yesterday we noted that factories are under pressure in China because export order flows are drying up. Today we can note that this is heaping pressure on factory owners and their workers. Strikes, accidents and staff seeking help with their employment situation are rising now.

In the US, the Dallas Fed factory survey posted negative indications although these were less than in July, and in fact the least negative in five months. Employment growth slowed, but at least it is growth. New order levels aren't back positive yet, so it is no surprise that in this region, one dominated by the oil patch, the future general business activity index is negative too.

In Europe, the tight policies of the ECB designed to quell inflation are having a tough impact on new lending, especially new lending to companies. Yes, lending grew in July, but at its slowest pace since 2015.

In Australia, retail sales rose by +0.5% in July from June, topping market estimates of a +0.3% gain and reversing from a -0.8% fall in the previous month. But this may not be sustainable. The largest gainers were cafés and restaurants, up because of additional spending linked to the 2023 FIFA Women’s World Cup and school holidays. But when you account for population growth, retail sales are effectively flat on a per capita basis; and incorporating the effect of price increases, the result is even weaker on a real per capita basis, running lower between -3% and -3½ per year.

Perhaps we should also note that the international price of wheat has continued to fall and is now back to where it was almost three years ago. And India's tightened ban on rice exports isn't materially affecting the international rice price, yet, anyway.

Locally, the IMF released its latest review of the New Zealand economy, pointing out that government spending needs to be reined in. We have the full details of this review on our website

The UST 10yr yield will start today at 4.22%, down -2 bps from this time yesterday.

The price of gold will start today at US$1920/oz and up +US$5 from yesterday.

And oil prices are -50 USc softer at just under US$79.50/bbl in the US. The international Brent price is -US$1 lower at US$83.50/bbl.

The Kiwi dollar starts today a marginal +10 bps firmer than yesterday at just on 59.1 USc. Against the Aussie we are down -¼c at just under 92.2 AUc. Against the euro we are unchanged at 54.7 euro cents. That all means the TWI-5 is now at 68.3 and down -10 bps.

The bitcoin price is little-changed again today and now at US$26,090 and up +0.3% from yesterday. Volatility over the past 24 hours has been low at just under +/- 0.7%.

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

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

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

Kia ora,

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

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

And today we lead with news the next 15 weeks will set the tone for 2023. So far in 2023 the benchmark equity market is up +15% (S&P500), benchmark bond yields are up +70 bps (UST10yr +20%), and the USD is unchanged.

First we are now in the last week before the America's Labor Day holiday, signaling the end of the "sell in May (Memorial Day) and stay away (until Labor Day)" hiatus. Financial markets will then come back to full capacity. If investors did sell in May, they have missed a +5% stock market rally. The benchmark UST 10yr rate rose +50 bps hurting bond prices. And US CPI inflation fell -1% over that time. But what awaits them? How they react will lock in 2023's reputation.

This upcoming week will be a busy one for big data releases. It will be a very busy week in the United States with investors closely following their labour market report (the non-farm payrolls report) which for August drops on Saturday, September 2 (NZT). Markets currently expect only a gain of +170,000 this time. Before then we will get the US PCE price index, personal income and spending data, JOLTS job openings, ISM Manufacturing PMI, and the second estimate of American Q2 GDP growth.

Elsewhere, the focus will be on inflation rate figures for the EU, Germany, France, Italy, Spain, and Switzerland. Additionally, flash manufacturing PMI readings will be released for China, South Korea, India, Russia, Spain, Italy, and Canada. Finally, Turkey, India, Brazil, and Canada are set to report their Q2 GDP growth figures.

The last big northern 'holiday season' event is the central banker conference at Jackson Hole.

With his eyes firmly on expected American inflation pressures, Federal Reserve Chair Jerome Powell, speaking at the symposium, emphasised the potential necessity for additional interest rate hikes in order to effectively manage the pressures they still see ahead. Despite currently waning inflation, they still have "robust" consumer spending, and an expanding economy he said, and a healthy labour market. However, he did suggest they could hold rates steady at its next meeting in September.

Market reactions to this closely-watched speech have been modest, although Wall Street equities rose and they have ended with a winning week. And the USD rose modestly.

At the same conference a respected Stanford professor warned that liquidity risks in the gigantic US Treasury bond market may get worse if another crisis like the March 2020 pandemic shock occurs again. (Also, see this.) And that is because dealer balance sheets are growing much more slowly than the holdings of US Treasuries (because so much more is being issued). Attempts to sell those down in a financial crisis will get stymied by what dealers can handle without themselves coming under stress. And that could cause a meltdown. He did have some suggestions for policymakers.

Meanwhile the one piece of American data that was released over the weekend, the University of Michigan consumer sentiment survey, didn't have much market impact. After rising sharply for the past several months, this consumer sentiment indicator moved sideways in August. Still, it was at its second highest reading in 21 months and is now about 39% above the all-time historic low reached in June of 2022.

In China, they said they will scrap a rule that disqualifies people who’ve already had a mortgage from being considered a first-time homebuyer in major cities; the official Xinhua news agency reported this. It is couched in slightly different terms, but that will be the effect. It does look like an odd approach to take to spark an uptick in their residential property markets.

Meanwhile, Country Garden isn't getting much support for delaying payments on its bond. Bond holders are digging in.

And not helping China's labour markets, the giant tech assemblers (like Foxconn) just aren't hiring like they used to, and this is the high season for manufacturing for shipment to the US for the end of year holiday season. Brands like Apple are de-risking away from China. Those new manufacturing centers are getting the bulk of the orders (like India and Vietnam) while any softness from weaker end-market demand is being felt primarily at the Chinese centers in an accentuated way. This lack of hiring is actually quite a big deal.

And it will be no surprise that the persistent weakness in Chinese industrial profits is extending, even if not quite as weak in July as June. These profits last month fell -6.7% from a year earlier, compared with a drop of -8.3% in June. For the first seven months of 2023, profits declined -15.5%, although that eased from a -16.8% decrease a year earlier.

In Europe, and after peaking in April, it has been downhill for German business sentiment, and it fell again in August in the latest Ifo survey and is back to October 2022 levels.

The UST 10yr yield will start today at 4.23%, down -1 bp from this time Saturday to where it was a week ago. 

The price of gold will start today at US$1915/oz and up +US$2 from Saturday. A week ago it was at US$1889/oz, so up +1.3% over that period.

And oil prices are marginally softer at just under US$80/bbl in the US. The international Brent price is now just on US$84.50/bbl, both levels very similar to a week ago.

The Kiwi dollar starts today -20 bps lower than Saturday at just on 59 USc. Against the Aussie we are firmish at 92.3 AUc. Against the euro we are unchanged at 54.7 euro cents. That all means the TWI-5 is still at 68.4, and actually little-changed from a week ago.

The bitcoin price is little-changed today and now at US$26,018 and up +0.4% from Saturday. It is down by -1% from a week ago. Volatility over the past 24 hours has been very low at just under +/- 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.

Ten years from now Kiwibank CEO Steve Jurkovich wants New Zealanders to be thinking about their big five, rather than big four, banks, with Kiwibank in there mixing it with the four Aussie owned banks and not the smallest among them.

In the latest episode of interest.co.nz's Of Interest podcast, Jurkovich speaks about where the now 21 year-old Kiwibank has come from, where it's at, and where it's heading. This comes with the bank having just posted a 34% increase in annual profit to a record high of $175 million.

"I'd certainly like New Zealand to be thinking about its big five banks. And I guess my stretch goal is that we're not the fifth biggest, we're the third or the fourth. And I don't think there's any reason we can't be that. Whether I'm here running it or not, I hope I've played my part in getting it there. I'd like people to look back and go 'remember when it was only making $175 million? Remember when it only had a million customers? And look at it now'," he says.

Speaking about the Commerce Commission's market study into personal banking competition, Jurkovich says if they want a bigger Kiwibank and more bank profit staying in NZ, New Zealanders need to exercise their choice.

"Because leaving it up to the Government, and we have lots of people in New Zealand who complain that the Government does too much, I don't think is going to change anything. We have to be good enough to earn your business, and you have to be fired up enough to make a move. And if we can get those two things together, then we'll have a way more competitive market place." 

Jurkovich also reveals he has been meeting weekly with the CEOs of the big four banks - ANZ NZ, ASB, BNZ and Westpac NZ - for about the past month to discuss mounting concerns about scams and frauds being committed against their customers. The New Zealand Banking Association's CEO Roger Beaumont has facilitated these meetings.

"If I think about the things I really worry about, scams and fraud are definitely one of them. Our own fraud rates are growing at north of 100%," says Jurkovich. "This needs to be a joint arms race otherwise we've got no chance."

In the podcast he also talks about tough times in the housing market as customers' mortgage payments jump, the potential for a partial government sell-down of Kiwibank via a share market listing should the Government change in October's election, Kiwibank's plans to grow and build capital and what a requirement to pay a chunky dividend would mean for these, how the bank has moved on from an expensive, failed core banking system upgrade just before he joined as CEO five years ago, why Kiwibank won't be entering the institutional or rural banking markets anytime soon, and the bank's role in a decarbonising economy.

"I really feel like a 21 year-old. We're just getting started," Jurkovich says.

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

Kia ora,

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

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

And today we lead with news that all the 'rich men north of Richmond' have now decamped to Jackson Hole WO, and are awaiting Fed boss Powell's speech.

So today we are left with the granular details of the American economy - which is actually doing remarkably well for the non-rich men south of Richmond (even if they can't actually acknowledge it).

New jobless claims last week fell to under +200,000 which is a low benchmark and confirming their labour market is in pink health still. There are now still 'only' 1.8 mln people on these benefits, an unusually low level even if has become normalised over the past two years.

American durable goods orders in July recorded a rather sharp -5.2% decrease following a +4.4% rise in June. But the July drop is all about the timing of large aircraft orders. Excluding those, durable goods orders rose in July. And overall they are +3.3% higher than year-ago levels. Orders for capital goods are +4.2% higher than a year ago. None of this suggests rust-belt activity is under any special pressure.

And the Chicago Fed's more broad national activity index pointed to a pickup in economic activity in July, again belying the doomsters.

And this in turn is confirmed by the Kansas City Fed factory survey which reported a sharp recovery in their key measures. And firms surveyed indicated that they expected a further pickup in the months ahead, so hiring remained positive.

The rich men north of Richmond seem to be organising an expansion that is keeping those south of Richmond in a positive economic state. New research shows that American males won't leave their jobs unless the new offer is US$78,645 pa on average (NZ$133,000), +8% higher than a year ago when CPI inflation is only 3.0%. That is the highest on record. (And for men - who seem attracted to the viral anthem - they won't switch jobs unless the offer is US$91,000 (NZ$154,000).) They may 'feel' left behind but clearly it is their sense of entitlement that is the thing that is unmoored.

In Turkey, the shift back from the disastrous Erdogan experiments with their monetary policy positions is requiring some rather sharp changes. Today they raised their benchmark policy interest rates by +750 bps to 25% following a +250 bps hike in the previous meeting. This rate has risen from 9% in June. All this is in the face of a currency that devalued by -77% from the pre-pandemic period and an inflation rate that is still at 48%. However, this latest indication that they are serious about tackling inflation saw the Turkish currency gain more than 5% against the USD in a day.

In China, the stories about foreign investors pulling out their exposures just keep on coming.

The recent rise in container freight rates hasn't been maintained in the latest weekly assessment. They fell -3.5% last week from the prior week, with the falls occurring on all major routes. Bulk cargo rates reversed to be lower too.

The UST 10yr yield will start today at 4.23%, recovering +3 bps from this time yesterday in a small bounce.

The price of gold will start today at US$1917/oz and unchanged from this time yesterday.

And oil prices are down yet another -50 USc at just over US$78.50/bbl in the US. The international Brent price is now just over US$82.50/bbl.

The Kiwi dollar starts today another -½c weaker at just on 59.2 USc. Against the Aussie we are softer at 92.2 AUc. Against the euro we are -¼c softer at 54.8 euro cents and a two week high. That all means the TWI-5 is now at 68.4 and down -40 bps from yesterday.

The bitcoin price is lower today and now at US$26,033 and down by -1.8% 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 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 the northern summer data is full of variety today, some positive, others not so much.

The early look at the American PMIs shows a small slip in August with their services sector expanding slower, and the contraction in their factory sector easing slightly. Both measures seem to be heading to a steady state in this PMI review. (We won't get the widely-watched ISM PMI results until Saturday, September 2 (NZT). That one will more likely move markets.)

But new US mortgage applications fell hard last week as mortgage interest rates rose. In fact, applications dropped to their lowest level since April 1995. Benchmark rates rose to 7.31% plus points which was their highest since December 2000. The existing home market seems to be closing up shop.

So it was somewhat unexpected that new home building starts came in strong in July, up to a +714,000 annual rate of build from a +684,000 rate in June and a surge way above what was expected. And the latest rate is more than +30% higher than the year-ago rate. Perhaps this corner of the American residential housing market is on the move again. All this is happening despite those much higher mortgage rates and correlates well with the positive home builder sentiment survey.

In China, the failure of one of their largest non-bank 'trust' companies to pay interest on its investment products has hit the books of at least six listed companies, in a sign that the turmoil in the nation's property market is spreading to the wider economy.

Meanwhile, the US Administration has removed 33 firms from their trade "Entity List", 27 of them Chinese. One criteria for removal is agreeing to adhere to international sanctions. This should help trade resumption, and it is interesting that the Chinese companies, at least, have [seemed to] fallen into line with what the Americans want.

Things are looking up in Japan. Their factory PMI erased the July contraction, almost. And their services expansion gathered pace. In Australia, declining new order levels saw both their factory and services PMIs contract in August.

The early look at EU consumer confidence found it hesitated in August, interrupting the long recovery from September 2022.

And that is mirrored by the slip in the EU services PMI. The EU factory PMI was already very low and its small improvement isn't particularly impressive. Essentially their downturn became a little steeper, and the inflation signs are really improving.

Although crash landings seem to be a "thing" in Russia, India has managed to land a spacecraft on the moon. The contrasts say a lot.

The UST 10yr yield will start today at 4.20%, down -13 bps from this time yesterday in a sharp correction. 

The price of gold will start today at US$1917/oz and up +US$20 from this time yesterday.

And oil prices are down another -50 USc at just over US$79/bbl in the US. The international Brent price is now just over US$83/bbl.

The Kiwi dollar starts today another +¼c firmer at just under 59.8 USc. Against the Aussie we are softer at 92.4 AUc. Against the euro we are +¼c higher at 55.1 euro cents and a two week high. That all means the TWI-5 is at 68.8 and up +20 bps from yesterday.

The bitcoin price is higher today and now at US$26,514 and up by +2.6% from yesterday. Volatility over the past 24 hours has been moderate at just under +/- 2.4%.

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

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

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

Kia ora,

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

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

And today we lead with news global financial markets await signals from Jackson Hole at the weekend.

In the meantime in the US, there was an unusual surge in retail sales at bricks & mortar stores last week, reporting their strongest week-on-week gain in four months (+2.9% from a year ago). And it is the first time that rise has matched inflation in 2023.

But US existing home sales came in very sluggish. The American housing market remains in the doldrums, with an annualised sales rate of 4.07 million units in July 2023, the lowest level since January and below market expectations of 4.15 million. That's more than -16 % below year-ago levels. They have 14 weeks of unsold inventory on hand now. Higher mortgage rates and limited inventory continued to be the main factors behind the decline with sellers not really interested in participating in a falling market.

'Sluggish' is also the word to describe the next regional factory survey, this one from the Richmond Fed in the mid-Atlantic states region. But more measures 'improved' including for new orders, even if the 'improvement' is just a lesser decline in this region. Interestingly however, this is another region where manufacturers are looking ahead to much better outcomes, so are still hiring and investing.

And staying in the US, S&P has followed Moody's in trimming the ratings of a set of regional banks. Many depositors have "shifted their funds into higher-interest-bearing accounts, increasing banks’ funding costs," S&P wrote in a note summarising the moves. "The decline in deposits has squeezed liquidity for many banks while the value of their securities, which make up a large part of their liquidity, has fallen." Federally insured banks were sitting on more than US$550 bln in unrealised losses on their available-for-sale and held-to-maturity securities as of mid-year, S&P said.

South in Panama, they have a persistent drought, and it is one that in affecting ships in the Panama Canal. Ships must now enter only part-loaded to navigate the lower water levels, and the average wait time to enter is now more than 80 hours, more than double the usual wait time. That will have a significant impact on trade and freight rates you would assume.

Across the Pacific, given all the challenges the country faces, within and from its northern neighbour, it is perhaps surprising that consumer sentiment is holding up very well in South Korea, better than analysts had expected. The results of their business sentiment survey will be released later today.

As you will note in the next item, the benchmark UST 10yr has recently risen sharply to a new 'recent high'. But we should keep in mind that this is still well below the long-run average for this rate, which over the past 60 years was 5.88%. From 1963 until the end of 1979 the average was 6.31%. From 1980 for the next 20 years it was 8.62%. For the subsequent ten years until the end of 2009 it was 4.46%. And for the 13 years since, it has averaged just 2.32%. Today's 4.32% is 'nothing special', despite all the current angst.

The UST 10yr yield will start today at 4.33%, down -1 bp from this time yesterday, although that is still unusually high and just off yesterday's ten year high. 

The price of gold will start today at US$1897/oz and up +US$3 from this time yesterday.

And oil prices are down another -50 USc at just on US$79.50/bbl in the US. The international Brent price is now just at US$83.50/bbl.

The Kiwi dollar starts today about +¼c firmer at just under 59.5 USc. Against the Aussie we are firm at 92.6 AUc. Against the euro we are +½c higher at 54.9 euro cents. That all means the TWI-5 is at 68.6 and up +30 bps from yesterday.

The bitcoin price is a little lower again today and now at US$25,838 and down -0.8% from yesterday. Volatility over the past 24 hours has been low at just under +/- 1.0%.

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.

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 cost of money is ending its extended 'cheap' period. There is a whole generation unused it its 'normal' level where the benchmark is about 5% with lending costs above that.

We start today noting that American bond yields are moving ever higher. The yield on the UST 10yr has hit its highest since November of 2007. Markets see the Fed encouraged to stay hawkish on 'good data', and the US Federal deficit situation will need more issuance at a time of very partisan election uncertainty and rising risks of shutdown. Investors insist of compensation for these risks. Inflation-protected 10-year Treasuries rose past 2% for the first time since 2009.

In China however, they made a modest reduction to their loan prime rates yesterday. Markets were disappointed at the timid policy action. The August fixing cut the one-year loan prime rate by -10 bps to 3.45% (a record low) in an effort to ease borrowing costs for businesses, but maintained the five-year rate, the home loan benchmark, at 4.2%.

It was a disappointing regulatory response that saw foreign banks cutting their China forecasts further. And the property sector revealed even more signs of distress.

The commercial office market in both Beijing and Shanghai is tightening significantly, extending the residential property sector's woes into the wider sector. More tenants in Shanghai's Grade A offices terminated leases than signed them during the June 2023 quarter ending, the first time that has happened since 2015. Further Beijing experienced its third consecutive quarter of rising Grade A office vacancies, also the highest level since 2015.

But their property crisis is much wider than A-grade buildings in icon cities. It is said to be triggering a liquidity crisis for municipal and provincial borrowers that pose risks to the country’s whole financial system.

Meanwhile, Taiwanese export orders rose in July from June to be at their highest level since November. However they are still -12% lower than year ago levels - but that is a big improvement from the -25% shortfall in June.

Hong Kong recorded a 1.8% inflation rate in July, little-changed from the 1.9% in June.

Thailand reported its Q2 GDP growth yesterday and it slowed much more than anyone saw coming. The Thai economy is far from irrelevant and a big miss like this will have regional ramifications.

In Australia, and just like their banks, insurance giant IAG has announced sharply higher profits while claiming the future is cloudy. After tax profits rose +37% or +140% depending on the metric you choose. Premium income was up +10.6%. They also said New Zealand premiums rose +12%. They expect the 2023/24 insurance profit of between approximately AU$1.2 bln and AU$1.45 bln. That would be a huge +50% increase from the current AU$803 mln.

The UST 10yr yield will start today at 4.34%, up +9 bps from this time yesterday and a sixteen year high. 

The price of gold will start today at US$1894/oz and up +US$4 from this time yesterday.

And oil prices are down -50 USc at just over US$80/bbl in the US. The international Brent price is now just over US$84/bbl.

The Kiwi dollar starts today little-changed at just on 59.2 USc. Against the Aussie we are softish at 92.4 AUc. Against the euro we are also softer at 54.3 euro cents. That all means the TWI-5 is at 68.3 and down another minor -10 bps from yesterday.

The bitcoin price is a little lower again today and now at US$26,038 and down -0.3% from yesterday. Volatility over the past 24 hours has been low at just on +/- 0.9%.

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 questions are deepening about the Chinese economy, and how it will extract itself from the on-going funk - or whether it can.

But first, we are now in the heart of the northern hemisphere annual vacation season. Anything happening now is reactive to the general inactivity among investors, company managers, and regulators.

The week ahead will be somewhat light for key data releases, probably the most important one being US factory orders for July. And at the end of the week, the Powell speech at the central banker shindig at Jackson Hole, WO, will be closely watched. Locally, July retail sales levels will feature (via the electronic cards version), and in Australia there is little of substance on the agenda.

In China, they released foreign direct investment data and that remained modest in July with the main inflows coming from 'friends'. Western companies are now moving to the exits. And their central bank moves to keep the yuan value elevated for wider stability reasons means those leaving now are not getting hurt by the exchange rate

Meanwhile, China's Evergrande Group, once the country's second-largest property developer (Country Garden is now the largest), filed for bankruptcy in New York on Friday (NZT). It was a Chapter 15 bankruptcy filing meaning its actually a Chinese (Hong Kong) bankruptcy, a move that protects its US assets from creditors while it works on a restructuring deal elsewhere. Rival Country Garden is going down the same 'restructuring' path. In fact, Country Garden is to be cut from the Hong Kong Hang Seng index now.

And it is not only property developers reporting huge and widening losses. Chinese carmakers are too. Cutbacks are widespread among companies and across all demographics. Anxiety levels are rising.

Over the weekend it was reported that at least five local governments will be allowed to sell ¥1½ tln (NZ$350 bln) in bonds - to repay earlier debt from local shadow financing.

Later today, China will review its prime loan interest rates. No-one seems to be sure whether they will cut them or not, but a cut seems likely. More analysts are asking whether China's 40-year development boom is over - and what that means for investors. Ratings agency Fitch is nervous. They have had China's sovereign rating at A+ (Stable) for more than 15 year, but is now signaling that conditions are changing to the downside as they see it. The Fitch downgrade of the US sovereign rating (to AA+ earlier this month from AAA) has triggered a widespread reassessment of international yields. A China downgrade won't be seen positively either. 

In Japan, CPI inflation rate was unchanged at +3.3% in July but this was notably higher than market expectations of +2.5%. Core inflation stayed above 3% too. Prices continued to rise for food which was up +8.8% in July from a year ago, compared with +8.4% in June. The latest figures are well above the Bank of Japan's 2% target, and for the 16th consecutive month.

In Canada, producer prices rose +0.4% in July from June, a big shift from the -0.6% decline in the previous month. This was their first rise of producer prices since October 2022. Year-on-year Canadian PPI is down -2.7%.

In Australia, their pipeline of investment projects has climbed to a new record high in 2023. The value of projects in the investment pipeline was worth AU$946 bln in the June quarter 2023, a +AU$180 bln (+22%) increase on the level prior to the pandemic.

The UST 10yr yield will start today at 4.25%, unchanged from Saturday but +9 bps higher than week-ago levels. 

The price of gold will start today at US$1890/oz and little-changed from Saturday. But it is down -US$12 from a week ago.

And oil prices are holding at just over US$80.50/bbl in the US. The international Brent price is now just over US$84.50/bbl. These levels are a net -US$2 lower than week ago levels.

The Kiwi dollar starts today slightly softish at just on 59.2 USc. Against the Aussie we are little-changed at 92.6 AUc. Against the euro we are marginally softer at 54.5 euro cents. That all means the TWI-5 is at 68.4 and down a mere -10 bps from Saturday and the same over the past week.

The bitcoin price is a little lower again today and now at US$26,127 and down -0.5% from Saturday. But for the week it is down more than -10%. 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 UST yields are now near a 16-year high on fears American interest rates will stay higher for longer. And EU bonds yields are moving up too. Higher interest rates will weigh on asset valuations, especially real estate and commercial real estate in particular.

But first, new US jobless claims came in at 212,000 last week, less than the week before and lower than expected. There are now 1.8 mln people on these benefits, a +10,000 increase from the prior week.

The US Conference Board leading economic index is still pointing to an upcoming decline in near-term American economic activity but the weight is very much less now, in the July survey out today.

And the Philadelphia Fed's factory survey in its industrial heartland is pointing to a good pickup in new order levels. It was a sub-index that had been negative for 14 consecutive months, so it is a sharp turnaround. And it wasn't the only improving indicator.

Across the Pacific, Japan's exports fell -0.3% in July from a year earlier, the first drop in more than two years, reflecting the slowing global economy including in key trade partner China.

But Japanese machinery orders rose slightly in June.

Today, all eyes will be on the release of Japan's July CPI. It was running at 3.3% in June and analysts expect the July increase to come in at about 2.5%.

In China, their central bank is trying to force the value of the yuan up when it is under devaluation pressure. It's in a tough spot because it needs to cut local interest rates to support growth but that would normally depress its currency. But markets aren't buying the moves and have devalued the currency anyway despite the official fixing indication. The gap between the official rate and the market rate is now its widest in ten months. But without a better rate, the central bank will have to absorb some very chunky losses.

In London and New York, China's major state-owned banks were seen selling US dollars to buy yuan in an attempt to slow the yuan's depreciation. Though they also trade on their own behalf or to execute clients' orders, state banks often act for the central bank when the yuan is under pressure, as it is now.

And in China itself, investors who put money in a troubled shadow bank said police officers visited their homes and urged them to avoid public protests, the latest sign authorities are worried about unrest as fears grow of financial contagion.

It is increasingly noticeable that the financial media in China are avoiding any coverage of their economic stresses. And because there isn't a lot of 'good news', their coverage of any economic news has become somewhat trivial.

As expected the Philippines left its official policy interest rate unchanged at 6.25% in their regular review.

Overnight Norway raised its policy rate by +25 bps from 3.75% to 4.0%.

In Australia, they released their July labour market data. Their jobless rate rose to 3.7% in July from 3.5% in June, above market expectations of 3.6%, and the highest level since April. There are now 541,000 unemployed in Australia, and increase of +35,600 in one month. Employment unexpectedly fell by -14,600 when analysts expected a +15,000 rise. Full-time employment fell by -24,200 while part-time employment rose by +9,600. Their participation rate fell to 66.7%.

And staying in Australia, there is a listing surge underway in their housing markets, rising at a rate far higher than the market can absorb without selling price discounting.

Freight rates for containerised cargoes rose another +2.3% last week as the upturn gathers pace. Bulk cargo rates turned higher as well.

The UST 10yr yield will start today at 4.31% and up another +4 bps from yesterday and now a new sixteen year high. 

The price of gold will start today at US$1885/oz and down -US$13 from yesterday.

And oil prices are +50 USc firmer at just under US$80/bbl in the US. The international Brent price is just under US$8/bbl.

The Kiwi dollar starts today softish at just on 59.3 USc, down -10 bps and it’s lowest since November 2022. Against the Aussie we are a little firmer at 92.5 AUc. Against the euro we are marginally softer at 54.5 euro cents. That all means the TWI-5 is still at 68.5 and little-changed from this time yesterday.

The bitcoin price is very much lower today from this time yesterday and now at US$27,929 which is down a rather substantial -4.1%. Volatility over the past 24 hours has also been moderate at just on +/- 2.7%. The latest CFTC survey shows hedge funds and commodity trading advisors ramped up bearish bets in CME-listed cash-settled bitcoin futures. And in the UK Pay-Pal pulled back from allowing crypto purchases via its platform. Neither move improved sentiment for bitcoin.

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.