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 tensions are spilling out in China over their struggling property development and shadow banking industries.

But first, US mortgage applications slipped yet again last week, the fourth week in a row it has done that. And that was undoubtedly because mortgage interest rates rose yet again with their benchmark 30 year rate now at 7.16% plus points and back to matching its October 2022 highs. Prior to that, you have to go back more than 20 years to find a higher level.

US housing starts bounced back in July from their disappointing June levels with a better result than anticipated, rising to an annualised rate of 1,452,000 and almost +6% above the level of a year ago. Canadian housing starts came in at a good level too in July, better than expected, but not quite up to the June level.

American industrial production rose unexpectedly in July from June but it is virtually unchanged from a year ago. But other than construction, it would have been a healthy gain.

The Fed FOMC July meeting minutes were released earlier today and they showed most voting members continued to see significant upside risks to American inflation, which could require further tightening of monetary policy. However, there were a couple that cited the risks to the economy of pushing rates up too far.

China's new home prices fell in July from a year ago, and from a month ago they were unchanged. But in their largest 70 cities, prices for second hand homes are falling in 65 of them from the same month a year ago and at a faster pace. The pressure is on their residential housing market in a way that makes property development a losing proposition there.

And investors in their retreating shadow bank funds industry are not happy again. We are getting reports a very small group have taken to the streets in protest at the situation, a 'brave' thing to do in China, but a sign of how desperate some of them feel. The police are out in force protecting the company at the center of the latest crisis. Beijing policy makers are reported to be pressuring funds not to sell into this troubled market. But it will be a tough conversation; when they tried this in earlier financial crises, it did not end well for the companies who held on to dodgy securities in situations like this.

Analysts are making down China's GDP 'growth' for 2023 now. They will struggle to get anywhere near their "about 5.5%" target.

In Europe, EU GDP rose +0.3% in Q2-2023 from the prior quarter, as expected. And up +0.6% year-on-year. They are holding on to positive growth when the chatter is all about decline.

And confirming that, EU industrial production rose in June when a small fall was expected. But it is still -1.2% lower than a year ago. Still, that is a far smaller retreat than the -2.5% in May and the -4.2% expected. There will be some relief in policy circles.

British CPI inflation fell tom 7.9% in June to 6.8% in July is a solid shift lower. That was the expected change however and was their lowest level since February 2022. But their core inflation was unchanged at 6.9% which policy makers would have found disappointing. It was expected to slip slightly.

The UST 10yr yield will start today at 4.27% and up +5 bps from yesterday and now a sixteen year high. 

The price of gold will start today at US$1898/oz and down -US$5 from yesterday.

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

The Kiwi dollar starts today soft at just on 59.4 USc, down -20 bps and near its lowest since November 2022. Against the Aussie we are a little firmer at 92.4 AUc. Against the euro we are marginally softer at 54.6 euro cents. That all means the TWI-5 is now at 68.5 and down -10 bps from this time yesterday.

The bitcoin price is again little-changed today from this time yesterday and still at US$29,124 which is down just -0.6%. Volatility over the past 24 hours has also 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 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 economic clouds are darkening for New Zealand.

First up today, the overnight dairy auction was a terrible one. Prices fell -7.4% in USD terms and -4.8% in NZD terms, principally on an almost -11% dive in the dominant WMP price (-8.5% in NZD terms). Remember these falls are from the prior auction two weeks ago which was also quite weak, so the declines are compounding. And these retreats are far worse than expected, and getting worse quickly. The WMP price is down -8.2% from just last week at the GDP Pulse event. Everyone expected a fall but no-one saw a crash as hard as this one.

The WMP price is back to levels we last had in August 2016. And dairy farmers will be sweating because since then we have had +20% overall inflation.

It's not all grim news; the cheddar cheese price rose +5.8% at this auction. SMP was down 'only' -5.2%, butter down 'only' -3.0%. But WMP dominates the volumes sold and is a serious pall on this market. Recent farmgate milk payout forecasts have clearly not been trimmed hard enough. Why the collapse? NZX dairy analysts remind us that China has produced +25% more WMP domestically over the last 12 months while their domestic consumption of the commodity has fallen almost -9%. That does not suggest there will be a bounceback any time soon.

Elsewhere, things are not so grim. US retail sales topped forecasts to be up +3.2% in July above year-ago levels and the best result in five months. And it came even though car sales dipped slightly. (And remember, US CPI inflation is 3.2% for the same period, so that is a real gain, at last.) The Redbook retail sales measure was up strongly for last week too.

However, New York manufacturing isn't is great shape with the NY Fed's Empire State factory survey retreating rather fast as new orders are harder to find. Perhaps unexpectedly, firms were more optimistic when they looked ahead.

And American home builder confidence weakened in August for the first time this year as record-breaking mortgage rates and still-high housing prices discouraged prospective buyers.

In Canada, their annual inflation rate rose to 3.3% in July from 2.8% in the previous month and this was above market expectations of 3%. So, very similar to the US CPI inflation rate.

In Japan, strong export growth propelled their economy in Q2-2023, up at a 6.0% annualised rate, far higher than expected (+3.1%) or the Q1 expansion (+3.7%). It was the third consecutive quarter of strong growth. Japan not only has unusual growth, it also has unusual inflation which is running at a +3.3% rate.

Japanese industrial production came in unchanged from a year ago however. But it was up +2.4% from the prior month so there is recent momentum building.

Meanwhile, China is in economic defence mode. Their central bank cut its one-year medium-term lending facility rate by -15 bps to 2.50% today. It's their biggest cut since 2020. This came after Chinese new bank loans plunged almost -90% from June to the lowest since late 2009. Loan Prime Rate cuts are expected next week now.

And it came as they released industrial production data that was weaker than expected. This was so even after steel production surged more than +14%, so a sharp cutback there seems almost inevitable. And retail sales were weaker than expected too. However, electricity production was up +3.6% from a year ago, a slightly enhanced rate from June, maybe because they kept production higher than end-market demand. A lot of steel would go into property development, but their national real estate development investment was -8.5% lower than a year ago, and that base wasn't flash in the first place.

And we should note that China is hiding more data, the latest being youth unemployment data.

German economic sentiment got less-bad in August, which is a positive for them.

In Russia, their emergency central bank meeting brought a strong response to the collapsing currency situation. They raised their policy rate to 12% from 8.5%. Observers had expected it to go up to 10%. The aggressive move brought tensions to the surface between the central bank and the Kremlin however.

In Australia, their central bank says soft wages figures have strengthened the prospect of a cash rate pause, and they warn their labour market may be about to turn down.

The UST 10yr yield will start today at 4.22% and up +3 bps from yesterday and matching its October 2022 highs. 

The price of gold will start today at US$1903/oz and down -US$7 from yesterday.

And oil prices are -US$1.50 lower at just over US$80.50/bbl in the US. The international Brent price is down to US$84.50/bbl.

The Kiwi dollar starts today soft at just on 59.6 USc and near its lowest since November 2022. Against the Aussie we are holding at 92.2 AUc. Against the euro we are marginally softer at 54.7 euro cents. That all means the TWI-5 is now at 68.6 and up +10 bps from this time yesterday.

The bitcoin price is again virtually unchanged today from this time yesterday and still at US$29,293 which is down -0.3%. Volatility over the past 24 hours has still 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 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 China's woes are affecting us, devaluing our currency to a nine month low. And the AUD is suffering similarly.

But first today, we can report that American inflation expectations continue to retreat, falling to their lowest since April 2021 and are now at 3.5% in July for the year ahead (and that is down from 3.8% in June). This mirrors the sort of levels we had noted in recent consumer sentiment surveys. Although this is not back to what the Fed says it needs, it is clearly on track, and consumers themselves seem to believe the Fed's actions won't bring a renewal of price pressure.

The same survey showed households’ perceptions about their current financial situations and expectations for the future improved. The share of respondents expecting to be better off a year from now is the highest since September 2021.

India however does not have control of inflation. Retail prices consumers face jumped to 7.4% in July, the highest since April 2022. A rise was expected, but nothing like that. It is a jump from 4.9% in June caused mainly by sharply rising food prices that were up +11.5%, their highest since January 2020, and in turn led by the cost of vegetables which were up an eye-watering 37% for the year.

As high as that may be, it is nothing like what the Argentines are facing. They just reported CPI inflation running at the rate of 116% and yesterday the Argentine peso was devalued sharply to 350 to the USD. This was all triggered when a wild-card hard-right populist took the top spot in a poll ahead of their upcoming presidential elections. They are in a sad spiral and that poll was probably the last straw; they are out of options and out of money.

Yesterday we noted the rapid devaluation in the Russian ruble. Well, today their central bank announced it will be holding an emergency meeting which will likely raise its policy rate sharply. It is currently at 8.5% and will probably go to at least 10% then. The ruble has devalued -27% so far this year amid a slowing economy, unbalanced currency flows, and capital flight.

In Australia, iron ore prices are falling, solely because of negative sentiment about the Chinese economy. We are seeing other commodity prices retreat too, including food commodities with declines for soybeans and wheat. Tomorrow morning, we have another dairy auction and everyone should hold their breath over that. As you know prices have been very weak recently, resulting in Fonterra cutting their pay-out forecast to well below break-even levels for most dairy farmers. The question that tomorrow will answer is how deep the current pressures will reveal. There is almost zero chance prices will hold or rise. Last week's WMP Pulse auction brought a -7% price drop and that probably foreshadows what is ahead tomorrow. Yes, the dairy sector is hurting, but the sheep and beef sector is finding it tough going too. Farmers will have shelved spending plans and the ripple effect on our whole economy will be significant.

The UST 10yr yield will start today at 4.19% and up +3 bps from yesterday and still near its October 2022 highs. 

The price of gold will start today at US$1910/oz and down -US$3 from yesterday.

And oil prices are a touch lower at just over US$82/bbl in the US. The international Brent price is unchanged at just on US$86/bbl.

The Kiwi dollar starts today essentially unchanged at just on 59.8 USc and near its lowest since November 2022. Against the Aussie we are a little softer at 92.1 AUc. Against the euro we are marginally firmer at 54.8 euro cents. That all means the TWI-5 is now at 68.5 and down -20 bps firmer than this time yesterday.

The bitcoin price is also virtually unchanged today from this time Saturday and still at US$29,374 which is up +US$52 or +0.1%. Volatility over the past 24 hours has been very low at just on +/- 0.2%.

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

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

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

Kia ora,

Welcome to 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 this week, all eyes will be on the Wednesday RBNZ Monetary Policy Review, and especially the regulator's forecasts (even if no change in the OCR is anticipated).

Elsewhere, potential market moving data might come from the US Fed's release of the minutes of is July meeting, or US retail sales, or US industrial production data updates.

Or market movers might come from Japanese growth and CPI data, or Canadian CPI data, or EU GDP and CPI data. Who knows?

Of more likely from Chinese retail sales of industrial production data. They could be weak. Investors are watching what is unfolding in their economy with growing alarm. Maybe it isn't a "ticking time bomb" yet but stresses are building and not being dealt with. An economically struggling one-man-ruled situation is also politically risky because a military adventure might seem like a distraction worth trying.

China's banks lent ¥346 bln in new yuan loans in July, the least since November 2009 and well below analyst expectations of ¥800 bln. In June this new loan value was ¥3.05 tln; a year ago it was ¥679 bln so by every measure the July level is very low. If clients now won't take on more debt, it is something of a watershed moment (perhaps) and suggests it will be very hard for Beijing to use its usual levers to overcome the lackluster economic recovery. Household lending, mostly mortgages, was down to ¥201 bln, while corporate lending fell to ¥238 bln in July. Remember it was ¥2.3 tln in June. Meanwhile, outstanding yuan loan balances rose +11.1% in July.

Calls for more decisive action are growing more strident.

Meanwhile, vehicle sales slipped in July to just under the 24 mln/year pace in China, the world's largest vehicle market - by far. They fell -1.4% from the same month a year ago and this was the first decline since January. It was maybe a bit worse than it appears because the base a year ago was low too, but July is the off-season of their car market. Local sales went down -6.3% to under 2 mln units in the month, while export sales increased +35% to 392,000 units, some of which ended up here, especially EVs like Teslas and BYDs.

And property developer Country Garden signaled it will be reporting a very large loss soon, maybe as much a -NZ$12 bln. In the same period a year ago it said it made a profit of +NZ$440 mln. It might be going down and like its larger rival Evergrande, its fall is causing fury on social media. And there are also signs of liquidity problems in the wider funds management sector.

Elsewhere in the region, Singapore cut its economic growth expectations for this year to "0.5% to 1.5%", down from "0.5% to 2.5%" in an earlier assessment. They see a weak global economy and low demand from key trade partners like China.

Across the Pacific, annual producer price inflation in the US rose to +0.8% in July from +0.2% in June. A rise was expected but this was higher than those forecasts. Still it is quite a low level and doesn't really alter the downward trend that started in July 2022 when PPI was rising at more than an +11% annual rate. It's been slowing since.

Americans seem to be starting to acknowledge the gains being achieved in the battle against inflation. First the July, and now the August University of Michigan survey records a significant improvement in sentiment from a year ago, and this is really around 'current conditions'. This is a widely-watched and influential survey. Interestingly, this survey shows consumer inflation being felt at 3.3% which is almost exactly what the official data shows.

In Australia, RBA Governor Philip Lowe has told a Canberra parliamentary hearing that there would be major ramifications if productivity did not return to pre-Covid levels. Inflation will stay high and interest rates would too, unless this problem can be solved. It is doubtful he got much sympathy from that audience. But he will be proved right in the long term.

The UST 10yr yield will start today at 4.16% and little-changed from Saturday and still near its October 2022 highs.

The price of gold will start the week at US$1913/oz and unchanged from Saturday. But they are -US$28 lower than a week ago (-1.4%).

And oil prices are little-changed at just on US$82.50/bbl in the US. The international Brent price is up slightly at just over US$86/bbl. These levels are almost exactly what they were a week ago.

The Kiwi dollar starts today essentially unchanged at just on 59.8 USc. This is its lowest since November 2022. Against the Aussie we are holding at 92.2 AUc. Against the euro we are marginally firmer at 54.7 euro cents. That all means the TWI-5 is now still at 68.7 and only +10 bps firmer than Saturday. A week ago it was 69.4.new

The bitcoin price is also virtually unchanged today from this time Saturday and still at US$29,374 which is up +US$52 or +0.1%. Volatility over the past 24 hours has been very low at just on +/- 0.2%.

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

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

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

New Zealand survived a tight electricity supply situation on Friday morning - the 12th so far this year.  

It happened after Transpower warned the residual quantum of electricity available for use was sinking towards the 200 megawatt danger mark between 7 am and 9 am. 

In the end, the 200 megawatt level was not breached, and even if it reached zero, unused reserves would still be available.

But it is a predicament that keeps Transpower on constant alert, which it warned about in May and again a month later. 

This subject and other energy problems are the subject of the latest interest.co.nz Of Interest podcast.  

*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 market chatter is building for a Fed rate pause.

First up today, the American consumer inflation rate came in at 3.2% in July, almost exactly as expected (3.3%). Base effects and rising rents were behind the tick up, and it marks a halt in the 12 consecutive months of declines. A year ago they were reporting CPI inflation of 9.1% so it is actually huge progress from there and a solid tick for monetary policy positioning, especially as a year ago it was widely predicted the US would be in recession now, and it obviously it isn't.

Because this result was as expected, there has been only muted financial market responses. But one is that core inflation is still high even though it eased to 4.7% from 4.8% in June. The bond market sees this as a reason the Fed might keep rates high, or even raise them again. But most others see encouraging signs in the detail that inflation will fall from here. The next US Fed (FOMC) rate review is on September 21 (NZ).

US jobless claims rose by +20,000 last week to 226,000. That isn't a lot in such a large labour market but is was more than anticipated. There are now 1.8 mln people on these benefits, a decrease because qualification expired faster than new claimants.

The US Federal government deficit came in at -US$221 bln in July, almost the same as it was in June. But it was expected to be about half that. 

Meanwhile, despite the widely publicised stumbles, it seems that overall the 6500 American banks with a Federal charter are in good financial shape. It is data that supports the regulator judgments.

In Japan, producer prices are still rising, but at a slower rate. They rose 3.6% year-on-year in July, the least since March 2021, after an upwardly revised 4.3% rise in June and compared with market expectations of 3.5%. The latest result also marked the 7th straight month of a slowdown in producer inflation, amid the easing global cost pressures. (Japanese consumer price inflation ran at 3.3% in June and their July CPI data will be released on August 17, 2023.)

In India, their central bank kept its policy rate at 6.5%, even though their hot economy is now generating rising inflation (4.8%) although mainly driven by food prices.

In Australia, inflation expectations fell to 4.9% in August, from 5.2% in July.

Container shipping rates rose again last week, this time by another +1.7% with increases across all major trade routes. Bul bulk cargo rates were unchanged last week at historically average levels.

The UST 10yr yield will start today at 4.09% and up +8 bps from yesterday. 

The price of gold will start today at US$1913/oz and down another -US$2 from yesterday.

And oil prices are -50 USc and now at just on US$82.50/bbl in the US. The international Brent price is now at just over US$86/bbl.

The Kiwi dollar starts today -20 bps lower at just on 60.4 USc. Against the Aussie we are down similarly at 92.5 AUc. Against the euro we are softened -20 bps too to 55 euro cents. That all means the TWI-5 is now down at 69.1.

The bitcoin price is marginally lower today since this time yesterday and now at US$29,380 which is down -0.3%. Volatility over the past 24 hours has been low at just under +/- 0.6%.

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

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

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

Kia ora,

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

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

And today we lead with news it may be the summer holidays in the northern hemisphere, but that isn't making the economic news quiet. While they are holidaying the commercial world seems to be bleeding a bit.

Mortgage interest rates jumped in the US last week, taking the 30 year benchmark to 7.09% with a +16 bps rise in a week and their highest in eight months. Unsurprisingly, mortgage applications fell and it was quite a sharp weekly change. The availability of mortgage credit tightened too as banks prioritised quality lending.

One corner of the commercial office building market is in utter turmoil. WeWork shares suddenly became almost worthless yesterday after the one-time startup darling warned it could go bankrupt in a stunning reversal of fortune for a company that was once privately valued at US$47 bln. Co-working firms are finding life very tough in the post-pandemic world.

Canadian building consents continue to impress. In May they rose an outsized +12.6% and it was expected that in June they would fall back to even up. But in fact they rose another outsized +6.1%. It was commercial construction that shone, not residential construction. These may be strong recent gains, but in fact they were down -4.2% from June a year ago.

Japanese machine tool orders were weak in July. July isn't usually a strong month, but even the year-on-year comparison was weak, down almost -20%, principally due to low orders from China.

Taiwanese consumer inflation remained low at 1.9% in July, but was kept from falling lower by rising fresh food prices from a recent typhoon. Producer prices however fell -3.2% in July but that fall was much less than the -4.8% fall in June.

In China, we may be about to get a repeat of the Evergrande saga and collapse. Country Garden, another giant real estate developer has missed a bond payment, the same event that triggered the Evergrande collapse. Evergrande had liabilities of US$300 bln at its peak. Country Garden has liabilities of almost US$200 bln and large exposure in lower-tier cities. During the Evergrande saga Country Garden was viewed as a quality alternative, unlikely to follow Evergrande. The China property sector correction is far from over and will undoubtedly draw Beijing back in, to 'rescue' the wider industry - not that previous actions have stemmed the odour.

Making matters worse, Chinese banks are resisting Beijing 'encouragement' for trimming the mortgage load on millions of home loan lenders. Borrower expectations of relief are being dashed.

Deflation has arrived in China again for its consumer prices. They fell -0.3% in July from a year ago (the first time in two years) but rose a minor +0.2% from June, but given year-ago levels it is unlikely to repeat on a monthly basis in future months. Food prices are deflating, so is clothing. Beef prices are down -1.4% in a month, lamb prices are down -1.3%. Milk is holding however, unchanged from a year ago. Recently petrol prices have blipped up, but they are lower than a year ago.

China's producer prices fell -4.4% in July from a year ago, worse than market forecasts of a -4.1% decline, after a -5.4% drop in the prior month, which was the steepest decrease since December 2015. It was the tenth consecutive month of producer deflation amid weakening demand and wavering commodity prices. Yesterday's weak export data won't be helping.

World food prices rose in July, but only because vegetable oils turned up. Dairy and meat prices were little changed in the month on a global basis, cereal and sugar prices fell noticeably. Given the global weather (and war) pressures, perhaps this is all a bit surprising.

But this may all be about to change. Rice prices are suddenly rising fast in early August. There are drought conditions in Thailand, flood conditions in China, and export bans in India. Prices are suddenly back to levels than haven't been seen in 15 years. Wider grain prices are also affected by Russia's war on Ukraine.

In Europe, Italy has moved to calm market fears over its excess profits tax on banks. It has said the tax will be capped in some way, and that returned stopped the rout in bank shar valuations.

In Australia, their de facto sovereign wealth fund, the Future Fund, is under attack with a proposal (unofficial at this stage) to wind it up and use the funds to retire Australian Government debt.

The UST 10yr yield will start today at 4.01% and unchanged from yesterday. 

The price of gold will start today at US$1915/oz and down another -US$10 from yesterday.

And oil prices are up +US$1 and now at just over US$83/bbl in the US. The international Brent price is now at just over US$86.50/bbl.

The Kiwi dollar starts today unchanged at just on 60.6 USc. Against the Aussie we are still at 92.7 AUc. Against the euro we are also softish at 55.2 euro cents. That all means the TWI-5 is still at 69.2.

The bitcoin price is lower today since this time yesterday and now at US$29,466 which is down -1.1%. Volatility over the past 24 hours has been modest at just under +/- 1.3%.

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

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

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

Kia ora,

Welcome to 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 that China's recovery has stalled, and that is affected many trading partners linked closely to it.

But first, Moody's has cut the credit ratings of ten mid-sized American banks and said it may yet downgrade some of the US's largest lenders. It said it is concerned about impending lower earnings, and the risks to bank funding. They have an eye on how lending on commercial property may need to be written down. This downgrade action is contributing to a wider sell-off by investors in bank shares.

Meanwhile, American household debt was largely unchanged in the June 2023 quarter primarily because mortgage debt isn't rising. But credit card debt is, and although the rise was modest, it did hit US$1 tln for the first time. Total American household debt is now 63.6% of US GDP. That is down from 64.0% a year ago and down from 66.8% ten years ago. (New Zealand household debt is 92.4% of our GDP.)

US exports of both goods and services in June held steady from May although they came in -4.3% lower than year ago levels. American imports however were down -7.8% from year-ago levels. Their trade deficit shrank to its lowest in three months.

US retail sales rose marginally last week at brick & mortar stores ending a run of declines. But the improvement was still less than inflation's bite.

In China, their Customs authorities said their exports were down -14.5% from July a year ago, a deeper dip that the -12.4% from a year ago in June. It was their worst fall since the pandemic. De-risking and reshoring by international firms is gathering speed. It is being felt on the factory floor. Exports to the US were down more than -23% from a year ago. Exports to New Zealand were down more than -16% (which is a bit surprising given the amount of Tesla's we import from the Shanghai factory). China's imports from us were down -13%. Their imports from Australia were up +9.5%.

Taiwanese exports were down -10.4% in July from a year ago and imports fell -21%, which were much smaller levels than they recorded in June. In fact their exports rose a rather remarkable +19.8% in July from June.

In Europe, Italy has approved a surprise one-off 40% windfall profits on banks they earn from higher interest rates and said it will use the proceeds to help mortgage borrowers. Italian bank shares plunged more than -NZ$16 bln in a move that could threaten viability for some of the weaker ones.

In Australia, the Westpac-Melbourne Institute consumer sentiment survey index remained in deeply pessimistic territory in August. They found the RBA’s rate hike pause again did little to boost confidence. Inflation still dominating consumer sentiment, driven by recent fuel and energy price rises. Housing sentiment is mixed: deeply negative on purchase, but bullish on prices. (Surging migration, a tight rental market and relatively low supply of homes have combined to send prices flying higher across the country.)

Meanwhile the NAB business confidence survey for July showed resilience around Australian business conditions and a small rise in business confidence .Both measures are above long-run levels. This survey noted a pickup in retailer confidence, which is surprising given the consumer sentiment levels.

Australia will have its attention to what, if anything, China does to try and undo the stall their economy is clearly in.

Global passenger air travel recovered by more than +30% from June a year ago, but is still lower than pre-pandemic levels. Domestic travel has fully recovered, and more, but international travel is still -12% lower than pre-pandemic levels and in the Asia/Pacific region it is still almost -30% lower. It is very noticeable from this data that Chinese travellers are holidaying at home.

The UST 10yr yield will start today at 4.01% and down -7 bps from yesterday. 

The price of gold will start today at US$1925/oz and down another -US$11 from yesterday.

And oil prices are up +50 USc and now at just over US$82/bbl in the US. The international Brent price is little-changed at just over US$85.50/bbl.

The Kiwi dollar starts today almost -½c softer at just on 60.6 USc. Against the Aussie we are soft at 92.7 AUc. Against the euro we are also soft at 55.3 euro cents. That all means the TWI-5 has slipped to 69.2 and down -30 bps in a day.

The bitcoin price is higher today since this time yesterday and now at US$29,799 which is up +3.1% and a two week high. Volatility over the past 24 hours has been modest at just under +/- 1.5%.

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

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

And today we lead with news investors are upbeat, positioning that the economic threats will mostly be diffused.

First up today, a look at the US Q2 corporate earnings being reported. So far Q2 earnings for the S&P 500, are down sharply from the same period a year ago. But both the number of companies reporting positive earnings surprises and the magnitude of these earnings surprises are above their 10-year averages. So as the current Q2 earnings reporting builds, more results that are better than expected are coming through. This is helping keep Wall Street equity trading in an upbeat mood. And Warren Buffet's company is one of those and has posted record results.

But the threat from commercial real estate revaluations keeps on building and has the potential to rock Wall Street at some point.

American consumers are facing sharply lower inflation now. It came in at 3.0% in June and we will get the July rate on Friday NZT. Analysts expect that to inch up to 3.3% then although recent data on used car prices have them down almost -12% from a year ago. Now research at the San Francisco Fed shows that "shelter inflation" may in fact turn negative nationwide as rents stumble. So there may be risks to the downside in the upcoming US July CPI.

And American consumers are taking out modestly more consumer debt. The growth in this has been restrained for some time with a modest increase of +US$7 bln in May reported. That rose to +$18 bln in June, up +4.3%. These balances have been rising less than +2% pa recently. Prior to 2023 rises of about $30 bln per month were normal and rises of about +5% year-on-year.

Across the Pacific, China said its foreign exchange reserves rose to US$3.2 tln in July, although the change was minor, it was more about the exchange rate than anything else, and about what was expected. Foreign direct investment is tumbling, so their FX reserves may now be at a high point.

And staying in China, seven well-regarded economists told the Financial Times that their employers had told them some topics were off-limits for public discussion. The China Securities and Regulatory Commission, the stock regulator, has accused brokerage analysts of playing up risks facing the economy, which is suffering from weak consumer demand, declining exports and an ailing property sector. Two think-tank scholars and two brokerage economists, all of whom serve as government advisers, said there was pressure to present economic news positively to increase public confidence.

Meanwhile, 48 Chinese Local Government Financing Vehicles (LGFVs) were overdue on commercial paper in July, up from 29 in June, according to a report that referenced data from the Shanghai Commercial Paper Exchange. Their missed payments amounted to ¥1.86 bln (NZ$423 mln), versus ¥780 mln in June. This will aggravate concerns about the financial health of LGFVs, which are mostly tasked with building infrastructure projects that may take years to generate investment returns.

Moving on to Europe, although we earlier noted a heady rise of factory orders in Germany in June, German industrial production hasn't responded yet. In fact it came in lower than expected, slipping -1.5% from May and was down -1.7% from June 2022.

Globally, air cargo demand fell by -3.4% year-on-year in June, the smallest decline since February 2022. Year-to-date this cargo activity is down -8.1% below last year’s level. The declines were similar in the Asia/Pacific region but that actually means the region has gone backwards faster than others from May.

The UST 10yr yield will start today at 4.08% and up +4 bps from yesterday. 

The price of gold will start today at US$1936/oz and down -US$7 from yesterday.

And oil prices are down -US$1 and now at US$81.50/bbl in the US. The international Brent price is just under US$85.50/bbl.

The Kiwi dollar starts today marginally softer at just on 61 USc. Against the Aussie we are unchanged at 92.9 AUc. Against the euro we are firmish at 55.5 euro cents. That all means the TWI-5 has basically held at 69.5 and up a mere +10 bps in a day.

The bitcoin price is slightly lower today since this time yesterday and now at US$28,917 which is down -0.5%. Volatility over the past 24 hours has also been low at just under +/- 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 necessity is moderating China's "wolf warrior" diplomacy - even though the original 'wolf warrior' is back as the Chinese foreign minister.

Late last week China announced that they will drop its tariffs on Australian barley imports that have been in place for three years. In response, Australia said it will suspend its case at the WTO. It was widely expected that China would lose the case. China had already lifted its block on importing Australian coal. But don't forget China still has a blockade on Australian wine imports. Until that is lifted, the Australian prime minister won't visit Beijing, a stance that is said to annoy the Chinese leadership.

Staying in Australia, their competition regulator has knocked back ANZ's AU$4.9 bln takeover of Suncorp Bank. It is not a complete surprise, with others working to merge Suncorp Bank with Bendigo Bank. The ACCC is also promoting that 'solution'. But the problem with the alternative is that would be two weak institutions combining, and it wouldn't necessarily result in any strength improvement. However, the ACCC said “We are not satisfied that the acquisition [by ANZ] is not likely to substantially lessen competition in the supply of home loans nationally, small to medium enterprise banking in Queensland, and agribusiness banking in Queensland. ... Second-tier banks such as Suncorp Bank are important competitors against the major banks, especially because barriers to new entry at scale into banking are very high”. ANZ said it isn't giving up and will appeal the ACCC ruling.

Separately, the RBA released its Monetary Policy Review and trimmed its 2023 growth expectation from +1.2% at its last MPR to +0.9% now, as higher interest rates and inflation bite. A year ago, the RBA expected the Australian economy to grow +2% so the change since then has all been quite negative. It sees widespread "trading down" by households (p 33) as a key driver of the waning growth. In fact it might be slowing fast enough that even +0.9% is optimistic. Higher nominal wages are also driving a very much higher tax take.

Singapore said its retail sales are struggling, down -0.8% in June from May and only up +1.1% from a year ago. The key drag was from car sales, but the non-car sales activity isn't that flash either.

In the US on Saturday, the rise of their non-farm payrolls came in less than the +200,000 expected, up only +189,000 in July from June in seasonally-adjusted terms. This was very similar to the June rise of +185,000. But it was far less than the +568,000 surge they had in July 2022. There are now 156.1 mln people employed by 'establishments', up +3.25 mln from a year ago.

Regular readers will know that we also look at the household survey because this broader view brings in the self-employed and unincorporated workforce. That shows (on the same basis) the number of people in jobs was up +268,000 in July from June, and that is +3.0 mln more than a year ago at 161.3 mln.

It is mid-sized and smaller firms still hiring strongly; large firms actually shrank their payrolls even if it was only minor.

Overall, their headline jobless rate held at 3.5%. Their participation rate held at 62.6%. Average hourly earnings rose +4.4% in July from a year ago, exceeding their CPI rate of 3.0% in the same period.

This overall outcome in July from June was significantly lower than the precursor ADP Employment Report of private payrolls indicated, and for a second consecutive month. But it is still an expansion, and the year-on-year increase of people in paid jobs remains impressive. And the ADP report also showed these private payrolls +3.1 mln more than a year ago, so very similar overall.

Two Fed officials said the slower job gains suggest the US labour market is now better balanced, arguing they may soon need to focus on how long to hold interest rates at elevated levels. (There are however twelve voting members making these decisions, not just these two.)

North of the border, Canadian employment actually slipped very slightly, down -6,400 when a +21,000 rise was expected and the June rise was an impressive +59,900. But it was a fall-off in part-time jobs that skewed this result. Full-time jobs held little-changed.

Across the Atlantic, German factory orders came through with encouraging results for June however. They were expected to fall -2% from May but in fact they rose an impressive +7.0%, building on the very good +6.2% rise in the prior month. If they keep this up, it can really move the German economy's dial. They were up +3.0% in June from a year ago, and remember this is 'real', inflation-adjusted data.

The UST 10yr yield will start today at 4.04% and unchanged from Saturday but a -16 bps pullback from Friday triggered by the US jobs report. 

The price of gold will start today at US$1943/oz and up +US$2 from Saturday. But it is down -US$17/oz from a week ago.

And oil prices are still just under US$82.50/bbl in the US. The international Brent price is just under US$86/bbl. A week ago these two prices were US$80/bbl and US$84/bbl.

The Kiwi dollar starts today slightly softer at just on 60.9 USc and -20 bps slip from Saturday. A week ago it was at 61.5 USc so -½c down from then. Against the Aussie we are little-changed at 92.9 AUc. Against the euro we are still at 55.4 euro cents. That all means the TWI-5 has basically held at 69.4 which is -30 bps lower than a week ago.

The bitcoin price is virtually unchanged again today since this time Saturday and is still at US$29,050 and down -US$17. A week ago it was US$29,318 so down -0.9% since then. Volatility over the past 24 hours has been very low at just over +/- 0.2%.

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

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

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