Economy Watch

Like it or not banks are a cornerstone of our economy, meaning they'll need to be a key influence in the push to decarbonise.

One of the ways BNZ is trying to do this is through membership of the Net-Zero Banking Alliance (NZBA).

Speaking in interest.co.nz's Of Interest podcast Rebekah Cain, BNZ's Chief Sustainability Officer, describes the NZBA as "a group of banks committed to transition the finance sector to net-zero." Finance, she notes, is "a key lever to pull in order to shift the real economy."

"Part of the reason for this is because if something is funded it happens. And if it isn't funded it doesn't happen," Cain says.

The industry-led, United Nations convened NZBA has 133 bank members from 43 countries holding a combined US$74 trillion in total assets, which is estimated to be 41% of global banking assets. BNZ's the only New Zealand member, although the Aussie parents of all NZ's big four banks are members, as is the Dutch parent of rural lender Rabobank NZ.

BNZ's NZBA targets disclosureinitially features2030 targets for the coal mining, dairy farming, power generation and oil and gas sectors. For dairy, which contributes 23% of NZ's annual export earnings and 22% of its annual gross emissions, the target assumptions include reducing dairy cow numbers, lowering milk production, and less use of nitrogen fertiliser.

For BNZ Cain acknowledges there's both derisking going on and lending growth opportunities being eyed. In terms of the latter, in the power generation sector BNZ's assuming a 50% increase in electricity demand between 2020 and 2050.

"I think the focus needs to switch from what's being taken away to the opportunity that exists," she says.

NZBA criteria features 10 sectors banks needs to have targets for. That means by November next year BNZ must also have targets in place for other parts of the agriculture sector such as sheep and beef, and residential real estate where it has its biggest lending exposure.

The NZBA has been criticised with Germany's GLS Bank quitting in February over concerns about US bank members continuing to support oil, gas and coal projects in emerging markets. 

"Any of these initiatives are only valuable if they are interrogated and criticised. Otherwise it's really easy to sign-up, set and forget, not really report on it," Cain says.

Due to being part of the NZGA and NZ's new mandatory climate-related disclosure regime, Cain says BNZ's having internal conversations they were never having before.

"So that has got to be good."

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 the down-graded Fitch rating is costing the US higher wholesales interest rates. But to be fair, the benchmark UST 10 year yield is only back to what it was in late October, but that was a post GFC high.

And perhaps we should note a comment by Warren Buffet overnight: "There are some things people shouldn’t worry about," he said. "This is one."

In fact, the latest US earnings season company reports show that there is a definite shift to reinvest rising profits in new projects rather than returning money to shareholders. This is a big shift and a positive sign, probably an indication that the collective corporate view is that they will have no recession and that opportunity abounds.

Meanwhile, US jobless claims actually fell last week but not by as much as seasonal factors would have expected. (In seasonally adjusted terms there was a reported rise.) There are now 1.836 mln people on these benefits, unchanged in a week. The number of job cuts reported in July also fell, and to their lowest level in almost a year.

Remember, we get the US labour market reports for July tomorrow, and analysts expect non-farm payrolls to grow +200,000, similar to the June expansion.

And recall yesterday we noted that the US Markit manufacturing PMI "improved" slightly (contracted less) to be basically at a steady state helped by new orders. Today we can report that the equivalent survey for their services sector slipped to a lesser expansion. This one found a slower rise in new business despite sharper uptick in exports. It also found hiring that was slowing - still rising but at a slower pace.

Meanwhile, the widely-watched local ISM services PMI slipped as well, to a very similar level to the Markit expansion, and noting similar reasons.

At the same time, factory order data was released for the US for June, and that came in much better than it has been recently. Despite that however it wasn't enough to exceed the order levels of June a year ago (-0.2%) although if you exclude orders by their military, they are rising.

In China, the private Caixin services PMI has delivered a surprise, and a positive one. The official services PMI earlier recorded a fast-slowing sector. But this alternative survey paints the opposite picture. It rose in July back to a modest-to-moderate expansion from June’s five-month low, beating forecasts of a further slip. It was the seventh straight month of expansion in services activity supported by a small uptick in new orders, and a good expansion in their payroll numbers, the fastest pace in four months. New orders growth accelerated, despite foreign demand expanding at a minimal pace that was the slowest for six months.

They aren't now getting international orders, India is.

In India, new order growth remained high in their factory sector in July although the pace softened a little bit. However, they reported a near-record upturn in services exports spurring their fastest expansion in new services business since 2010.

And China is facing some urgent challenges to its food supply. The recent deadly rains have damaged crops and their rice harvest fell, the first time it has done that in five years. At the same time India, Russia and the UAE have recently announced rice export bans. Global rice prices are rising.

The English central bank raised its policy rate by the expected +25 bps to 5.25% which is a fourteenth consecutive increase and a 15 year high for them. But they probably have more to go; this new rate is lower than the US Fed and the RBNZ, and they have much higher inflation (7.9%) than either the US (3.0%) or NZ (6.0%). They are not expecting their inflation rate to retreat to its target range until 2025.

Australia's trade surplus had another stellar result in June, although nowhere near its record. It widened to a three-month high of +AU$11.3 bln in the month from a downwardly revised +AU$10.5 bln in May, beating market forecasts of an +AU$11 bln gain, even as exports fell but they fell less than imports.

And staying in Australia, their office vacancy rate has now risen to its highest level since 1996, at 12.8%. Vacancy rates are much higher in Melbourne especially, and Sydney. The Melbourne problem is exacerbated by significant overbuilding as well.

Perhaps reflecting the 'no recession' vibe and an uptick in global trade, containerised freight rates surprised has week with an almost +12% rise. Most of this was from outbound China freight to the US and Europe. But we didn't see an equivalent rise in bulk cargo rates.

The UST 10yr yield will start today at 4.20% and up +13 bps from this time yesterday and equalling their October high. 

The price of gold will start today at US$1934/oz and down -US$3 from yesterday.

And oil prices are back up +US$2 at just over US$81/bbl in the US. The international Brent price is now just over US$85/bbl. Saudi Arabia said it might cut oil production more if the previous cuts fail to raise prices. But the world seems to need less these days, and higher prices just spur more alternatives.

The Kiwi dollar starts today slightly softer at just on 60.8 USc. Against the Aussie however we are also a bit softer at 92.8 AUc. Against the euro we are soft at 55.5 euro cents. That all means the TWI-5 has fallen another -10 bps to 69.4.

The bitcoin price is little-changed today since this time yesterday and is now at US$29,228 and up a mere +0.3%. 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 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 Fitch downgrade has cast a pall over financial markets today, trumping any data. Equity markets are grumpy, bond yields are rising and the US dollar is rising.

But first in the US, we get their July labour market details on Saturday NZT and today the precursor ADP Employment Report is out. That says private businesses hired +324,000 extra workers in July, following a downwardly revised +455,000 increase in June and surpassing market expectations of a +189,000 rise. Consensus analyst forecasts are for the US non-farm payrolls to rise +200,000 in July, so there seems to be upside there.

Also rising were American total vehicle sales in July, up to an annualised rate of 15.7 mln. That is up from a 14 mln annual rate in July 2022. Of course, the American vehicle markets is far smaller than the Chinese one that ran at a 26.1 mln annual rate in June.

But falling, and for a second successive week, were American mortgage applications, and it was a moderate -3% fall. The benchmark mortgage interest rate rose and back near its highest since November 2022. Rates near 7% really hurt the perception of house-buying affordability. The US home ownership rate was little-changed in Q2-2023 at about 66% although that is up from 63% in 2016 after for than a decade of previous falls.

However the big news was that credit rating agency Fitch cut the US Federal Government one notch from AAA to AA+, echoing a move made more than a decade ago by S&P. Moody's still rates the US Aaa. Tax cuts and new spending initiatives coupled with multiple economic shocks have swelled budget deficits, Fitch said, while medium-term challenges related to rising entitlement costs remain largely unaddressed. The White House isn't happy. Nor the US Treasury.

In China it is summer holidays and the senior leadership has decamped Beijing to the nearly beach resort area of Beidaihe. They probably won't re-emerge for two weeks or so, baring emergencies. Before they left, as we noted previously, they rattled off a list of support measures for their economy, a list that underwhelmed.

Now they have followed that up with the National Development and Reform Commission saying they will boost loan access for private companies and extend other funding measures to small firms. Also, the central bank and others pledged to increase financial support to smaller firms in key supply chains. Then both the central bank and the State Administration of Foreign Exchange said that banks will be "guided" to adjust existing mortgage rates lower to support the real estate market.

It is a good time to leave this year because we should note that the Beijing flooding has turned out to be pretty severe, involving loss of life. Of course, the problems are wider than just the capital city.

The UST 10yr yield will start today at 4.07% and up +2 bps from this time yesterday and a ten month high. 

The price of gold will start today at US$1937/oz and down -US$8 from yesterday.

And oil prices are down -US$2 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 down nearly -½c to just on 60.9 USc. Against the Aussie however we are firmer at 93 AUc. Against the euro we are -¼c lower at 55.6 euro cents. That all means the TWI-5 has fallen another -30 bps to 69.5.

The bitcoin price is higher today since this time yesterday and is now at US$29,131 and up +0.7%. Volatility over the past 24 hours has remained modest at just under +/- 1.9%.

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 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 Australians look like they have finished their rate-hiking cycle.

But first up today there was another dairy auction overnight and it wasn't a good one. Overall prices fell -4.3% in USD terms, although they were down a much lesser -2.1% in NZD terms. It was the dominant WMP price that took the main beating, down -8.0%. All this comes with volumes sold almost the most of 2023. Buyers were out for bargain WMP and they got it. Fortuitously, all the other products offered basically held the line. And it would have been much worse if the NZD wasn't sharply lower than at the prior event.

Elsewhere the economic data out overnight was quite mixed.

In the US there were two factory PMI's released for July. The widely-watched local ISM one came in with a lesser contraction than in June, but its ninth straight month of contraction. The internationally-benchmarked Markit version was less negative as well. If there was an upside, it was that the 'best bit' was that the new order contraction eased in both surveys.

Similarly, pressures have evaporated in their supply chains with the LMI easing again in July.

Pressure is also easing in their labour markets with the June JOLTS report showing the number of job openings fell by -34,000 from a month earlier to under 9.6 mln, reaching the lowest level since April 2021. The number quitting their jobs also fell and layoffs were low, so workers are now tending to stay put. We get their overall labour market report for July this Saturday, NZT, and the expectation is that it rose by another +200,000 in July, a further solid gain.

Meanwhile the Redbook survey of sales at bricks and mortar retail outlets actually rose last week from a year ago. It was a rise far less than inflation, but it was their first weekly rise in a month. That's something I suppose, perhaps an indication it has reached a bottom. We should perhaps also note that the year-ago base was unusually high.

It is holiday season in the US (or 'driving season'). This period runs until their Labor Day weekend (Monday, September 4, 2023). Petrol prices often rise during this period, but this year they seem to be running -11% lower. They are higher than the 2015 to 2021 period, but they are only back to what they had in 2014. Petrol prices there are no inhibition to summer holidays.

Across the Pacific, the economic news just keeps sliding lower for China. Yesterday the Caixin China General Manufacturing PMI fell, now contracting in July after a small expansion in June. Market estimates expected another small expansion but it hit its lowest reading in six months. It also confirmed the official factory PMI contraction. It was the first Caixin drop in factory activity since April, as new orders dropped after growing in the prior two months, and export sales contracted the most since September 2022.

Germany's jobless rate edged down to 5.6% in July, which was lower than both the previous month and the market expectations of 5.7%. Unemployment levels declined by -4000 to 2.6 mln people, defying market forecasts of a +20,000 increase. Given the surge in Ukrainian refugees in the country, this is actually a very resilient result.

In Australia, the RBA kept its cash rate target at 4.1% following a cooling of inflation pressures (including retail sales), while keeping the door open to future hikes. It was a second month of a rate pause, and wrong-footed most economists but it was in line with financial market expectations. The longer pause suggests the RBA may be approaching the end of its tightening cycle and that sent the AUD sharply lower.

Look out for the NZ labour market data at 10:30am. We will have full coverage of this key indicator. Our jobless rate is expected to stay low at about 3.5%.

The UST 10yr yield will start today at 4.05% and up +9 bps from this time yesterday. 

The price of gold will start today at US$1945/oz and down -US$26 from yesterday.

And oil prices are little-changed at just over US$81/bbl in the US. The international Brent price is now just under US$85/bbl.

The Kiwi dollar starts today down almost a full -1c to just on 61.3 USc. Against the Aussie however we are almost a +½c firmer at 92.9 AUc. Against the euro we are -½c lower at 55.9 euro cents. That all means the TWI-5 has fallen -40 bps to 69.8.

The bitcoin price has eased again since this time yesterday and is now at US$28,934 and down -1.0%. 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 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 a quiet end to July as the northern hemisphere holidays in the heat, has brought out some tame second tier data. And China chipped in with an underwhelming announcement of how they will deal with their slowdown.

First, although it improved in July from June, the Chicago PMI that measures activity in the key Mid-West manufacturing region remained solidly negative. And there were also signs of improvement in the Dallas Fed's July factory survey even if it stayed negative as well. But it is the Mid-West one that needs to move up more to indicate a better outlook.

However, we are seeing a good recovery in Japanese consumer sentiment. It still has a way to go to get back to pre-pandemic levels but it is rising quickly now. Meanwhile the Bank of Japan ran an unscheduled bond auction yesterday in a bid to stop yields rising too fast.

China's official factory PMI survey contracted the least in July in the last four months of contraction (49.3). But their official services PMI fell to its weakest level of the year, now with only a tame expansion (51.5). The private Caixin version is out later today for factories, and Thursday for services.

Yesterday's 'big stimulus announcement' in Beijing turned out to be a damp squib, with almost all of it a restatement of previous piecemeal initiatives. But it did show that Beijing is keeping a wary eye on the situation, and it still has its big set-piece direct stimulus options up its sleeve. Beijing wants people to consume more, including buying more cars and investing in property. It also wants people to take more holidays. And it is calling for more private sector investment. But to outsiders, it look like policy makers are just too confident that Party exhortations will work.

China's property crisis which has been going on for more than two years with waves of defaults, is entering a new phase. State-backed developers are now having trouble making bond payments and repaying debt. It's a big deal with more than NZ$575 bln in maturing bonds potentially triggering new stresses.

Singapore's business confidence is now back in positive territory and at its best level of the year.

EU inflation slowed for a third consecutive month to 5.3% in July from 5.5% in June. This was the expected easing.

In Australia, there is some evidence their rising official interest rates are keeping a lid on property prices. They rose in July from June and a fifth consecutive month of gains, but this was the slowest in that set. Year-on-year they are down -3.4%. Listings are up as some stressed homeowners shift to quitting the market. They are seeing a similar easing pattern in home loan borrowing. The RBA will review its cash rate target later today and analysts are expecting a +25 bps rise again, taking their rate to 4.35%, and that may hasten the housing market cooling. However it is no certainty there will be a rate hike today. Recent retail sales data was decidedly weak and the RBA may think it has done enough already.

The UST 10yr yield will start today at 3.96% and unchanged from this time yesterday. 

The price of gold will start today at US$1971/oz and up +US$12 from yesterday.

And oil prices are up another +50 USc at just over US$81/bbl in the US. The international Brent price is now just over US$85/bbl.

The Kiwi dollar starts today up more than +½c at just on 62.2 USc but still in its recent range. Against the Aussie we are marginally softer at 92.5 AUc. Against the euro we more than +½c higher at 56.5 euro cents. That all means the TWI-5 has risen +50 bps to 70.2.

The bitcoin price has eased very slightly since this time yesterday and is now at US$29,226. Volatility over the past 24 hours has remained low, also at just under +/- 0.8%.

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

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

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

Kia ora,

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

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

And today the fizzling Chinese economy is looking for a big policy boost from Beijing.

In Beijing, they said that at 4pm today (NZT) a senior official will announce new measures "to restore and expand consumption" in the government’s latest effort to engineer a revival in their economy. There have been a number of measures announced over the past few months with nothing effective so far, and all have fizzled against a backdrop of people prioritising savings as they turn cautious about their future. If this one is to be a game-changer, it would have to be pretty dramatic.

Emphasising their problems China, new data released for the June quarter showing that household mortgage balances were lower than in March as borrowers prioritised paying down this debt and took out much fewer new home loans. That is the first time that has ever happened. Rising household saving and aggressive deleveraging will make it harder for their economy to expand. When households lack confidence to invest and expand, it is then all down to the private, and especially the government sectors. Their "dual circulation" strategy is failing. The pressure is on Beijing.

And staying in China, we all know the north of the country has suffered through heat-dome conditions recently with its extreme temperatures. In the South it has been very heavy rain. Now new rains are hitting the north and they have issued 'red' alerts.

Taiwan said its economic activity (GDP) rose +1.5% in Q2-2023 to be +7.0% higher than a year ago. These results were better than expected, and interestingly outshone the mainland China results.

The Bank of Japan tweaked its monetary policy framework on Friday, providing more flexible bandwidth for government bond yields to fluctuate. Long-term interest rates rose sharply in the bond market ahead of the policy announcement, with the 10-year yield crossing the BOJ's ceiling of 0.5% for the first time in more than four months. But they claimed the move was a not a step toward giving up its ultra-lax monetary policy.

Over the weekend, the parallel inflation measure the US Fed prefers shows that inflation is easing there, but also not yet back to its target range. Core PCE prices, which exclude food and energy, went up by +0.2% in June from May and in line with market expectations. The annual rate rose by +4.1%, the lowest since September 2021 and less than market expectations of +4.2%. When including food and energy costs, the PCE price index rose +0.2% from the previous month and +3.0% from June a year ago, the lowest increase in 27 months. The headline rate fell far faster than the core rate because oil prices decreased sharply.

Meanwhile personal income rose +5.5% from year ago levels, and personal spending rose +3.7% on the same basis. Household savings rose. They seem to be in a goldilocks period.

EU sentiment continued its decline in July, with both consumer and business sentiment easing. Employment expectations are down too.

German economic activity was unchanged in the June quarter after falling -0.1% in the prior quarter. Technically that isn't two consecutive quarters of decline so no 'recession'. But it isn't a great result and Q2-2023 has ended down -0.6% from the same quarter a year ago so no way can you say that is progress.

In Australia, cost of living pressures are being felt in their retail trade, with retail sales unexpectedly falling in June and by -0.8% which was enough to mean that there was no gain in retail trade in Q2-2023. And they were only up +2.3% from a year ago. This means, because they have inflation at 6.0% there are 'real', volume reductions in retail turnover there.

Australian producer prices rose at just a +2.0% rate in Q2-2023 from Q1. Year on year they were up +3.9%, which is a fast slowing from the +5.2% in Q1 on the same basis. That confirms the recent shift lower.

The UST 10yr yield will start today at 3.96% and unchanged from Saturday. 

The price of gold will start today at US$1959/oz and down -US$1 from Saturday, but very similar to levels both one and two weeks ago

And oil prices are up another +50 USc at just over US$80.50/bbl in the US. The international Brent price is now just over US$84.50/bbl. But these levels are +US$3.50 above week ago levels (+3.9%).

The Kiwi dollar starts today little-changed at just on 61.6 USc and very little different to week-ago levels. Against the Aussie we are firmer at 92.7 AUc. Against the euro we unchanged at 55.9 euro cents. That all means the TWI-5 has held 69.7. A week ago it was at 69.5 so a mere +20 bps higher than then.

The bitcoin price has firmed very slightly again since this time Saturday, still in its long yoyo pattern. It is up +0.3% and now is at US$29,397. A week ago it was at US$30,023. Volatility over the past 24 hours has remained low, also at just over +/- 0.3%.

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

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

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

At the heart of suggestions the so-called BRICS countries may develop a new international currency system based on gold that's separate from the US dollar are some simple necessities, according to Nathan Lewis.

The United States-based Lewis spoke about this issue in a new episode of interest.co.nz's Of Interest podcast. Lewis runs New World Economics, is an author, a former analyst and money manager for institutional investors, and a fellow of the wealth and poverty programme at the Discovery Institute think tank.

As Lewis puts it, the BRICS countries - Brazil, Russia, India, China and South Africa - need or want some plumbing for trade and debt financing for their governments and corporates.

These countries have been coming together at least in part because their trust and satisfaction with the US-led global financial order, which has the US dollar as reserve currency, has been declining. This has increased as tensions between the US and China have heightened, and following Russia's invasion of Ukraine, which saw it locked out of the Western financial world including the SWIFT international payments system.

"What was low level grumbling for a long time now has become active efforts to create a new alternative," says Lewis.

"The first basic need is just to be able to buy stuff."

"Most of these countries' currencies have a history of mediocracy or outright failure, which means they tend to fall in value a lot. So no one wants to borrow or lend for any length of time in Russian rubles," Lewis says.

"They need a currency that's reliable enough so they can access the world debt markets, that international lenders will buy these bonds and their own people will buy these bonds. Historically that has meant 'pay me in dollars'."

So why gold?

"They want to land on some kind of internationally acceptable medium...There's one thing that everyone's always been able to agree on and that is gold," says Lewis.

"The reason why it [gold] has been the basis of money for literally 5000 years is because it works. And the reason it works is because it does not vary in value very much. The basic premise is that gold is stable enough [so] it doesn't really cause a problem."

The 15th BRICS Summit scheduled for Johannesburg between August 22 and 24 will be watched closely. Basically these countries want a financial system that functions even if the US does not approve, says Lewis.

If such a system gets off the ground, what might it mean for a small trading nation like New Zealand, that's close to the US but has China as its key trade partner? Lewis expects pragmatism. Ultimately, he suggests, you could; "just go down to your local office of the [Industrial and] Commercial Bank of China and open an account and you're in."

Lewis envisages a scenario where; "99.99% of the time you're just trading gold checking accounts, it's all digital. But if push came to shove yeah, 'you've got to deliver some gold buddy'."

"So I think there are ways of minimising the need for international cooperation," says Lewis.

*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 a lot of "good news" on the economic front in the major economies.

First, new orders for US durable goods jumped +4.7% in June from May, the most since July 2020, following an upwardly revised +2% rise in May. They are +9*.3% higher than year-ago levels, and handily exceeding inflation. The June result easily beating market expectations of a +1% increase. It was the fourth straight month that durable goods orders rose. Strong orders for civilian aircraft and cars drove the result.

And the first look at the US Q2-2023 GDP result is a very positive one. Their economy expanded an annualised +2.4% in the second quarter of 2023, higher than +2% in the previous period and way above market expectations of +1.8%. It is a resilience few picked, although remember there are still two more revisions ahead. This good result is driven by strong investment; consumer demand came in weaker than the overall result.

The number of Americans filing for unemployment benefits fell sharply from the prior week to 214,000 last week, the lowest in five months, and sharply below market expectations of 235,000. There are now 1.846 mln people on these benefits, the least since January, and suggesting that jobseekers are quickly able to find new jobs. The result further underscored the stubborn tightness in the American labour market, backing views the Federal Reserve may extend its tightening cycle in September.

US pending home sales aren't sharing in the gains. They were down -15.6% in June from year-ago levels, but they did manage a small rise from May.

The American trade deficit fell in June from May to -US$88 bln for the month, and down from -US$106.3 bln in June 2022.

Much of this data is first-tier, and shows an American economy powering ahead and likely to avoid a recession. "Soft-landing" optimism is everywhere today. It basically validates the Fed's policy positioning, and certainly leave the door open to more rate hikes without excessive pain.

Regulators are taking the opportunity to force banks to hold more capital, something they will no doubt use all their lobbying power to try and avert. The proposals are stiff for some. Banks with at least US$100 bln in assets would have to boost the amount of capital set aside by an estimated 16%. The eight largest banks face about a 19% increase, with lenders between US$100 bln and US$250 bln in assets seeing as little as +5% more.

In Canada, average weekly earnings rose +3.6% in May which was a faster rise than expected and up at a faster pace than the +2.9% rise in April.

Next up, Japan's central bank will review its policy positioning later today amid persistent inflation running well above their targets. They are expected to tweak their yield curve control policy to let long-term interest rates rise beyond its cap of 0.5% in a shift to a more flexible policy approach.

China's industrial profits data has been released for June showing them falling -8.3% from June a year ago. This is better than anticipated because the decline for the first half of the year rolls up to -16.8%. That indicates the profit pressures are receding somewhat. That said, "operating income" has been bouncing along at break-even for every month of 2023 and that is indicative of a zombie situation. Given the companies tracked in this data series are large state-owned enterprises mainly, that isn't a good thing.

However in Taiwan consumer confidence improved in July and to a thirteen-month high. It marked the most optimistic level since April 2022, as households' sentiment rose across the board.

The European Central Bank raised interest rates by +25 bps overnight, a ninth consecutive rate hike, saying inflation is still expected to remain "too high for too long" despite the recent slowdown. This brought the rate on main refinancing operations to 4.25%, the highest since October 2008.

Meanwhile, Germany's GfK Consumer Climate Indicator eased to be less negative in July.

The cost of containerised freight rose last week, a second week this has happened and confirming the bottom may have been reached. This was driven by outbound cargo rates from China to the US. Meanwhile bulk cargo rates were little-changed.

The UST 10yr yield will start today at 4.01% and up an unusual +16 bps from this time yesterday. 

The price of gold will start today at US$1948/oz and down -US$20 from yesterday.

And oil prices are up +50 USc at just under US$79.50/bbl in the US. The international Brent price is now just under US$83.50/bbl.

The Kiwi dollar starts today slightly lower at just on 62 USc. Against the Aussie we are slightly firmer at 92.1 AUc. Against the euro we are back up nearly +½c at 56.4 euro cents. That all means the TWI-5 has basically held at 69.9.

The bitcoin price has dipped slightly again since this time yesterday. It is down -0.3% and now is at US$29,216. Volatility over the past 24 hours has remained low at just over +/- 0.3%.

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

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

Kia ora. I'm David Chaston. And we will do this again 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 inflation is hard to beat and the US Fed is unsure it has done enough yet.

First up today, the US Federal Reserve raised its benchmark interest rates by +25 bps to 5.25%-5.5%, in line with market expectations. It was a unanimous decision. That takes them to their highest levels since January 2001. At this level it matches the RBNZ OCR.

Because it was expected, there was little reaction in financial markets on the announcement, with equity, bond and currency markets deciding the increase was already priced in. Perhaps the bond market is showing some caution however after the press conference. Even though markets don't expect it, the Fed did leave the door open for more increases because they seem unsure they have done enough to quash inflation.

Elsewhere in the US, mortgage applications eased -1.8% last week, the first drop in three weeks. That fall came despite mortgage interest rates being essentially unchanged.

Sales of new single-family houses dropped -2.5% in June, retreating from May's 15-month high. The June level was lower than expected. Sales in the West were down -14%, while those in the Midwest tumbled -28%. On the other hand, sales in the South rose +4.3%, and those in the Northeast surged +21%. It was an unusually mixed picture regionally.

Across the Pacific, Singapore's industrial production rose in June from May, reversing a soft patch earlier in the year. It was a bigger gain that anticipated, and trimmed the year-on-year retreat to a smaller level than expected.

In June in the EU, bank lending to households rose +1.7% from a year ago in June 2023, the lowest growth rate since May 2016. On the other hand, lending to companies grew by +3.0%, but it still marked the slowest rate of growth in seven years. The overall private sector credit growth, encompassing both households and non-financial corporations, decelerated to +2.0% in June, representing the slowest expansion since August 2016.

And even these levels may be hard to sustain. An ECB bank survey showed that loan demand is falling sharply now as the ECB tightening bites harder. Some shifts in this survey seem quite large, but in the past such big shifts (either way) don't end up in actual lending. However, it is still a worrying signal.

In Australia, CPI inflation rose +6.0% in the June quarter from the same period a year ago. But it is slowing; it only rose at the rate of 3.2% annualised from the March quarter to the June quarter. New Zealand has already released its June CPI rate and that was up +6.0% as well. Australia also tracks CPI inflation monthly, and the year-on-year June month rate was 5.4%, down from 5.6% in May. Housing and food costs are keeping inflation elevated in Australia.

Also part of the pressure holding inflation up is electricity prices. In the background, wholesale electricity prices increased +31% in June over the March quarter, even if they weren't as high as last year’s record levels.

The UST 10yr yield will start today at 3.85% and down -6 bps from this time yesterday. 

The price of gold will start today at US$1968/oz and up +US$6 from yesterday.

And oil prices are down -50 USc at just under US$79/bbl in the US. The international Brent price is now at US$82.50/bbl.

The Kiwi dollar starts today unchanged at just on 62.2 USc. Against the Aussie we are slightly firmer at 91.9 AUc. Against the euro we are down nearly -½c at 56 euro cents. That all means the TWI-5 has held at 69.9.

The bitcoin price has firmed slightly again since this time yesterday. It is up +0.2% and now is at US$29,311 US$29,266. Volatility over the past 24 hours has been low at just over +/- 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 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 of more evidence and expectations that the "impending recession" might be avoided.

First up today, the IMF has raised its global growth forecast. They say the world's economy is expected to expand by +3% in 2023, slightly higher than the 2.8% seen in their April forecast. However, at that level growth still remains weak by historical standards mainly due to the impact of the central bank policy rate hikes aimed at combating inflation. The say they now expect the US to expand +1.8% (up), China by +5.2% (unchanged), India by +6.1% (up), Japan by +1.4% (up) and the EU by +0.9% (up). Neither Australia nor New Zealand get a mention in this latest update. China is now the key risk to global growth, they say.

The US certainly isn't getting any expansion impetus from bricks & mortar retail sales. They fell again last week for a third week in a row on a same-store basis.

But that may just be that corner of retail sales. The widely-watched Conference Board consumer sentiment survey reported something of a surge in confidence in July, up sharply from June which was also a good rise from May.

And you can see those improvements also in the two Richmond Fed July surveys out overnight, a bit more in the services survey, but also in their factory survey.

If the American tide keeps coming in, maybe the IMF will need to raise their US growth forecast again. They say the Americans are more likely to avoid a recession now.

Notably absent from a raft of Statements from an emergency Politburo meeting in Beijing yesterday has been any confirmation of widely-expected new economic stimulus measures. However, there were announcements about a relaxation of property restrictions, plans to tackle local government hidden debt, and measures to stabilise employment.

But Reuters is reporting that several Chinese steel mills, all state owned and including the world's largest, have received verbal instructions to cap this year's output at the same level as 2022. This will likely cap iron ore demand in the world's top steel market.

Separately in China, President Xi has fired his recently-appointed foreign minister. In the very unusual move, which probably indicates a power struggle in the ministry, he has been replaced by the recently retired Foreign Minister, Wang Yi. The reason allowed to be talked about is an alleged affair with a TV reporter.

China appointed Pan Gongsheng as governor of their central bank, replacing respected Yi Gang who is said to have reached retirement age. These changes at the top in Beijing aren't the only ones.

South Korea said its economy grew more than expected in Q2-2023, a second straight quarterly expansion. This is despite a decline in exports. Now their central bank expected their GDP will grow +1.6% this year from 2022, slightly higher than the IMF's forecast of +1.5%.

In Germany, the widely-watched Ifo Business Climate indicator fell for the third month in a row in July to the lowest level since last November and well below market expectations.

The UST 10yr yield will start today at 3.91% and up +5 bps from this time yesterday. 

The price of gold will start today at US$1962/oz and up +US$3 from yesterday.

And oil prices are up +US$1 at just over US$79.50/bbl in the US. The international Brent price is now at US$83/bbl.

The Kiwi dollar starts today up +¼c at just on 62.2 USc. Against the Aussie we are slightly softer at 91.7 AUc. Against the euro we are up nearly +½c at 56.4 euro cents. That all means the TWI-5 has risen only slightly and to 69.9 which is up +10 bps from this time yesterday.

The bitcoin price has firmed slightly since this time yesterday. It is up +0.8% and now is at US$29,266. Volatility over the past 24 hours has been modest at just over +/- 1.1%.

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

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

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