Economy Watch

Economists Eric Crampton of the New Zealand Initiative and Craig Renney of the Council of Trade Unions share their views on what Budget 2023 got right and what it got wrong.

Crampton explains why giving subsidies to the game development industry is a sort of mutually assured waste of taxpayer money, and how tobacco tax could mean the government books take an extra year to return to surplus. 

Renney tells us how S&P Global Ratings said NZ government debt was not unlike a designer Hermès handbag and makes the case that Budget 2023 is not as inflationary as some have claimed. 

But neither think that it matched up to its 'No-Frills' moniker.

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 markets are assuming a US debt deal will be done soon to avoid a shutdown and default.

Well, equity markets seem to be assuming that. Bond markets aren't so sure although yield inversions are either easing back or not getting worse. But long-term rates are rising slightly.

Last week's new American jobless claims fell back unexpectedly to +216,000 and there are now 1.6 mln people on these benefits. Analysts had expected higher levels, not lower levels. The strength of the US labour market is not done yet it seems. Markets noticed, thinking this will give room for another Fed rate hike at their June 15 (NZT) meeting.

The next regional Fed factory survey, this one from the manufacturing heartland by the Philadelphia Fed was far less negative than the New York one. It improved in May sharply from its April low although to be fair it is still not 'positive'. The indicators for current activity, new orders, and shipments rose, but all three remained in negative territory. The firms surveyed continue to indicate overall increases in prices paid and decreases for prices received. The survey’s future indexes still suggest "tempered expectations" for growth over the next six months.

Meanwhile, existing-home sales faded -3.4% in April to an annual rate of 4.28 mln. That is their largest drop in more than a decade. Sales fell more than -23% from one year ago. Unsold inventories rose.

Leading indicators for the US economy remain mildly weak, but little-changed.

In the period leading up to round one of the Turkish election, investors voted with their feet, betting Erdogan would not concede and would remain. The country's foreign currency and gold reserves fell another -US$17 bln. The run-off round of voting there is on May 28, 2023

In Australia, their jobless rate rose to 3.7% in April from 3.5% in March. It was a rise that wasn't expected. At the same time, employment -4,300 when a +25,000 rise was expected. Full-time jobs fell -27,100 while part-time jobs rose +22,800.

And staying in Australia, Westpac has banned customers from transacting with Binance. And Binance was stripped of its ability to accept PayID funds transfers from Australian clients. The global crypto firm is fighting to retain banking services in Australia. It is a firm accused of knowingly facilitating money laundering in other jurisdictions, especially the US, and no-one wants to get caught up in that.

The latest global container freight cost eased yet again last week and is now -83% below the peak reached in September 2021. It is also -36% lower than the 10-year average which of course includes that peak. However it remains more than +20% higher than average 2019 pre-pandemic rates. The current weakness is spreading to more than just the outbound rates from China. Bulk cargo freight rates eased but are still in their recent general range.

But air passenger travel is ramping up, anticipating a surge in demand. That translates to thousands more aircraft and new pilots. Boeing estimates that the world will need more than 600,000 new pilots between 2022 and 2041, and the biggest requirement is in Asia. Pilot training is a huge new growth industry, it seems. Aircraft manufacturers are salivating.

The UST 10yr yield starts today at 3.66%, and up another +8 bps from this time yesterday and a two month high. 

The price of gold will start today at US$1957/oz and down -US$24 in a day.

And oil prices are down -US$1.50 from yesterday to be just under US$71.50/bbl in the US. The international Brent price is now under US$75.50/bbl.

The Kiwi dollar is a -½c lower against the USD from yesterday and now just on 62.1 USc. Against the Aussie we are little-changed at just under 94 AUc. Against the euro we are also little-changed at 57.7 euro cents. That means the TWI-5 is now under 70.8 and down -20 bps from this time yesterday.

The bitcoin price is lower today, now at US$26,477 and down -2.2% from this time yesterday. Volatility over the past 24 hours has remained modest at just on +/- 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 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 today is Budget Day in New Zealand and we will have full coverage this afternoon.

But first in the US, the good rise in mortgage applications we noted last week have been reversed in the latest report and they were down a sharpish -5.7% to be -26% lower than year-ago levels. The benchmark 30 year fixed mortgage rate was little-changed.

American housing starts unexpectedly rose in April from March, advancing +2.2% to an annualised rate to above 1.4 mln. But data for March was revised lower. And building permits fell although they are still sitting at a higher level than completions.

This American data may not be stellar, but fears of a debt default seem to be easing with both sides saying a deal can be done. And we should note that stresses in the US regional banking markets seem to be easing - and you can see that as share prices for those thought most at risk, recovering.

In China, house prices were little-changed in April - for new builds at least. But the declines for existing resales continue with 34 of 70 housing markets recording falling 'second-hand' house prices in the month and 61 or the 70 recorded falling house prices year-on-year.

Foreign direct investment into China was also weak in April, continuing the 2023 trend. It rose just +2.2% from a year ago and far below what they are used to.

In China, official April data put their jobless rate at 5.2% and for those 16-24 their unemployment rate was 20.4%. (For perspective, the March New Zealand jobless rate was 3.4% and the 16-24 jobless rate here was 10.4%.) That youth unemployment rate in China is a massive problem for them. And some in Beijing are suggesting graduates that can't find work should be sent to the countryside to work as farm labourers.

Japan's economy expanded more than expected in Q1-2023. However, it only grew by +0.4% over Q4-2022. That is a +1.6% expansion (real) over the past year and was the fastest pace since Q2-2022.

In Australia, wages rose +3.7% over the 12 months to March, and growth at this rate is approaching levels the RBA will find uncomfortable without higher productivity. But growth at this rate is much more modest than expected and far lower than their 7.0% inflation rate in the same period. (For perspective, New Zealand total hourly earnings rose +7.6% in the year to March while inflation ran at +6.7% in the same period.)

The UST 10yr yield starts today at 3.58%, and up another +3 bps from this time yesterday. 

Wall Street has opened its Wednesday session with a solid +1.2% gain on the S&P500. 

The price of gold will start today at US$1981/oz and down -US$8 in a day.

And oil prices are up +US$2 from yesterday to be just under US$73/bbl in the US. The international Brent price is now under US$77/bbl.

The Kiwi dollar is a +¼c firmer against the USD from yesterday and now just over 62.6 USc. Against the Aussie we are up +¼c at 93.9 AUc. Against the euro we are up +½c at 57.8 euro cents. That means the TWI-5 is now under 71 and up +50 bps from this time yesterday. We should also note that the Chinese yuan keeps sliding now past 7 to the USD, a point it hasn't been at in 18 months.

The bitcoin price is very little-changed today, now at US$27,084 and up a mere +0.1% from this time yesterday. Volatility over the past 24 hours has remained modest at just on +/- 1.2%. In Britain, a parliamentary select committee has urged their government to treat retail investment in cryptocurrencies such as Bitcoin as a form of gambling and be regulated as such.

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 there is still no sign yet that the Chinese economy is back driving international trade.

There was another dairy auction this morning and it was a dull affair. Volumes sold were lowish, and the key WMP price was little-changed. Overall prices slipped -0.9% in USD terms and -1.3% in NZD terms. Butter rose -2.2%, but cheese fell -3.4% and SMP fell -1.6%. Perhaps the only implication that can be drawn from this late-season event is that there seems resurgence Chinese demand based on their foodservice sector is still quite absent.

American retail sales disappointed for April. A good rebound from the weak March -0.7% slip was expected, and while they did advance, it was by only half the anticipated level. Still the annualised rate of increase from March to April was solid and better than it has been. But for year on year, there has been virtually no increase, so this sector is failing to keep pace with inflation over the longer run at an increasingly worrying rate. And this weakness is confirmed by the weekly same-story monitoring. Last week was only +1.6% ahead of the same week a year ago, again nowhere near enough to account for inflation.

If there is a bright spot, it is car sales, and these are expected to stay healthy for a while yet.

And that will help American industrial production which did turn in a better than expected April result. It rose +0.5% in April from March, but that is inflation adjusted. This clawed back some earlier weakness in 2023. But it was the production of business equipment that kept this elevated in April.

Even better is the turn up in confidence by American home builders. They haven't been this bullish in almost a year.

Of course the debt-default theater is still playing out in Washington with talking points hardening on both sides. The business community is imploring Congress to act soon.

Canadian inflation stayed up at 4.4% in April which was a bit of a surprise because a shift lower to 4.1% was expected. And the annualised pace between March and April rose to +7% pa. Few saw that coming.

China said its retail sales rose in April by a strong amount, up +18% above year ago levels. But remember retail sales were down more than -11% in April 2022. That is only a +5.3% gain above April 2021. In that same period, consumer price inflation rose +1.6%, so there are real gains here. This 2023 year-on-year gain underpins the good service sector expansion there.

China also reported that industrial production rose by +5.6% year-on-year in April, but this was below market forecasts of an +11% rise, so it comes with a tinge of disappointment. But it is faster than the +3.9% rise in March and it was the fastest growth in industrial production since last September. Looking behind this production, we see that electricity production was up +6.1%. Their domestic coal production was up only +4.1% but imported coal was 140 mln tonnes in April, a year-on-year increase of +89%.

And while the rumours of new stimulus have come and gone quickly this week, local analysts expect the Chinese central bank to reduce interest rates again and loosen monetary policy following the April decline in lending to households. "Something has to be done."

German economic sentiment got weaker in May. Getting the blame were the twin impacts of rising ECB interest rates and fears about what a US debt default would do to the global economy. But to be fair, the sentiment level is still much better than what it was at any time in 2022.

Fitch Ratings has affirmed Australia's Long-Term Foreign-Currency Issuer Default Rating at 'AAA' with a Stable Outlook. Currently Moody's have Australia rated , and S&P have them rated AAA too. Australia is only one of nine countries to be rated AAA by all three major credit rating agencies.

Consumer sentiment slumped in May in Australia, according to the Westpac-MI survey. It dropped by almost -8% from the prior month when only a -1.7% fall was expected. But recall it did jump more than +9% in April. Since April they have had another rate increase when none was expected, and they had a Budget that is being seen as more restrained than expected. This sentiment result highlights continuing pessimism among households, and especially low income renter households, at levels that first arrived in November and hasn't really shown any sustained improvement from then. This overall pessimism is reflected in new home sales remaining at rock bottom levels.

And staying in Australia, investment banks are getting ready to pitch be the one to sell the 18% shareholding in Auckland Airport held by Auckland Council.

The UST 10yr yield starts today at 3.55%, and up another +5 bps from this time yesterday. 

The price of gold will start today at US$1989/oz and down -US$29 in a day.

And oil prices are a bit softer from yesterday to be just und US$71/bbl in the US. The international Brent price is now under US$75/bbl.

The Kiwi dollar is little-changed against the USD from yesterday and now just over 62.3 USc. Against the Aussie we are up +½c at 93.6 AUc. Against the euro we are unchanged at 57.3 euro cents. That means the TWI-5 is now at 70.5 and up a mere +10 bps from this time yesterday.

The bitcoin price is marginally lower today, now at US$27,055 and down -1.5% from this time yesterday. Volatility over the past 24 hours has remained modest at just over +/- 1.2%.

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

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

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

Kia ora,

Welcome to 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 democracy is being tested in two autocratic states, and demographic patience is being rewarded in one that has struggled for a decade.

Elections are underway in both Thailand and Turkey and autocrat rulers are under challenge. While there are doubts about the fairness in both countries, there does seem to be a mood for change which might overwhelm the incumbents. Or, if their controls hold, it might not. We won't know for a day or two although pro-democracy parties in Thailand seem to be in a good position, a rebuke for strongman military rule. In Turkey, both parties are claiming the lead which does not bode well for the challenger.

There are elections in Greece next weekend. They won't be so notable, except that if a similar government is formed it is expected they will regain investment grade for their government debt. That will end 12 years of 'junk' status. They had to swallow tough medicine at the time, but they have come through their crisis with an economy that is now one of the better in Europe in terms of expansion, certainly in Southern Europe.

In the coming week in the US, the spotlight will be on speeches by several Fed officials and retail trade data, followed by industrial production and several housing indicators, including housing starts, building permits, and existing home sales. Elsewhere, Q2-2023 economic growth rates will be released for Japan, Thailand, the Netherlands, Poland, Israel, and Russia. Investors will also be closely following industrial production and retail sales for China, as well as inflation rates for Canada and Japan, and unemployment rates for the UK, France, and Australia.

Recently, we pointed to deflating producer prices in China as a sign that their economy is misfiring. We can also note that loan demand has weakened much more sharply than expected too, confirming the funk. In the long term it is probably a good thing that debt levels aren't rising as fast, but this recent shift is caused by stuttering activity levels. Imports are very weak, suggesting the need for inputs is weak. And Chinese banks extended less than ¥720 bln in new loans in April, less than a fifth of March's level and just over half of the amount expected by analysts. That is a massive change in just one month. Analysts had expected a fall to ¥1.4 bln so this came in at about half of what was expected. For a country as large as China, this is huge.

More than that, Chinese household bank deposits dropped sharply in April too, by nearly -¥1.2 tln (-NZ$280 bln), according to the same data release. That too is a massive one-month change.

India's industrial production growth unexpectedly slowed sharply in March, rising just +1.1% from year-ago levels which was quite unexpected given the strong rises in the prior four months.

Indian inflation also slowed sharply to 4.7% in April, the lowest since October 2021. That is a full percentage point drop from 5.7% in March (and 7.8% a year ago). Food inflation came in at 3.8% and the lowest since November 2021. Climate isn't hampering Indian food production.

And Singapore is currently suffering under record-high heat at 37oC. Their records go back 84 years. While their population can stay inside and air-conditioned, it isn't a sustainable solution even for them - and the likelihood is that temperatures will rise from here over time. And they are not the first to suffer under brutal heat this year, and these record highs are coming ahead of the region's summer season that may peak in August. It is a grim prospect many are facing.

In the US, weaker consumer sentiment is took the wind out of Wall Street on Saturday, but it is also helping the Fed lower inflation expectations. The widely-watched University of Michigan consumer sentiment survey for May came in much lower than expected - in fact no change was expected, but it actually dipped to a six month low. Congress's debt limit crisis got a specific mention as a key reason for the sudden shift in attitudes.

As the days get closer to a June debt-limit crisis (which could come very early in the month), the US Treasury Secretary noted some American debt will inevitably be defaulted on if Congress doesn't act very soon. Short-term costs for insuring American bonds are skyrocketing, and the long-term effects of repeated flirtations with debt default are already a financial burden. These are costs that are spreading worldwide and even impacting our wholesale rates.

In Canada, their quarterly senior loan officer survey showed mortgage lending conditions tightened sharply in the March quarter. Other business lending showed tightening too, but not to the extent of mortgage lending. In fact mortgage lending was its tightest since their survey began in 2017.

It was reported in China that their foreign minister will be visiting Australia in July, in what they say is "improving ties" between the two.

The UST 10yr yield starts today at 3.46%, and unchanged from Saturday. 

The price of gold will start today at US$2011/oz, unchanged from Saturday but down -US$20 from this time Friday.

And oil prices are unchanged from Saturday to be just on US$70/bbl in the US. The international Brent price is just on US$74/bbl. These are very low levels, back to 2021 when they were down here last, and we first say these levels in 2007, sixteen years ago.

The Kiwi dollar is -1c weaker against the USD from Friday but unchanged from Saturday, and now just under 61.9 USc. Against the Aussie we are also -1c lower at 93.3 AUc. Against the euro we are -¾c lower at 57.1 euro cents. That means the TWI-5 is now at 70.1 and -80 bps lower than this time Friday although unchanged from this time Saturday.

The bitcoin price is firmer today, now at US$26,943 and up +2.2% from this time Saturday. Volatility over the past 24 hours has been modest at just over +/- 1.1%. And Binance, the world’s biggest crypto exchange, said it will close down in Canada after the country moved to impose new regulations on digital-currency trading platforms.

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.

Another round of political brinkmanship is playing out in Washington DC over the United States government's debt ceiling.

There are predictions of global financial chaos if Democrats and Republicans can't agree on a deal to raise or suspend the debt ceiling, currently at US$31.4 trillion, soon. Treasury Secretary Janet Yellen says if something's not done the US government won't be able to meet its financial obligations as soon as June 1. That includes salaries for government employees and the military, pensions and making interest payments on government debt.

President Joe Biden says if the US defaults on its debt "the whole world is in trouble."

There is, however, a silly sounding yet simple and constitutional solution available. It involves minting a very high value platinum coin. 

In the latest episode of interest.co.nz's Of Interest podcast I spoke with Rohan Grey, Assistant Professor of Law at Willamette University's College of Law in Oregon, about the debt ceiling, the platinum coin and more.

Grey explains how and why the US federal government came to have a debt ceiling, when the debt ceiling become a political football, what the idea of minting a US$1 trillion platinum coin is all about, and where it comes from.

"It sounds ridiculous, it almost shocks the conscious, but it is legal," Grey says, adding that the US government actually minting the coin would be "a public education moment."

"If there's one thing that the president and the Treasury Secretary are not allowed to do it's default. There's no constitutional authority to default. The 14th Amendment says you cannot do it, the existing laws say you cannot do it, Congress did not give them an option to default. They gave them multiple pathways to finance spending and they told them they had to spend. So at the end of the day even if Biden really hates it, even if it really makes him feel stupid and silly, the coin isn't a choice. It is the last option before an unthinkable, prohibited option," says Grey.

"What a coin represents in my opinion, is the bringing back of the budget to a level that the public can understand. No complicated bond markets, no complicated debt instruments, it's something that you can talk to your seven year-old about. And to me it's only silly to people who think sounding very serious is being very serious."

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 weakish Chinese data is hurting commodity prices.

But first up today, American initial jobless claims rose last week and by more than expected. They rose +234,000 so there are now 1.67 mln people on these programs. Seasonal factors should have seen these initial claims fall, so the rise is probably the long awaited start of the softening of their tight labour market.

Meanwhile, American producer prices rose at a reduced rate. There were up only +2.3% from year-ago levels in April which is lower than the +2.7% rise in March. Even the annualised rate from March to April was only +2.4%, so cost pressure is evaporating quite quickly now. Without a slightly higher rise from services, the goods price pressures are even lower. This easing feeds into the expectations the giant American economy is slowing.

In Los Angeles, shares in another regional bank, PacWest, dropped by more than -20% today, compounding earlier falls. Today's fall came after they said its deposits declined and that it had posted more collateral to the US Federal Reserve to boost its liquidity.

Of course, the regional bank woes, annoying as they are, are minor compared to the threat their Federal debt-ceiling standoff poses.

It is easy to dwell on the negatives. There are plenty to choose from. But there are positives. American worker job satisfaction is now at an all-time high. And recent changes show a fast improvement. Crowded out by the 'bad news' there is clearly a lot of positive stuff going on that doesn't make the headlines.

In China, they don't have an inflation problem. But they might be facing a deflation problem. In April, consumer prices were only +0.1% higher than a year ago, much lower than the minor +0.7% in March and also below the expected +0.4%. That is at a two year low, down to pandemic levels. The annualised rate between March and April was a deflationary -1.2% pa (although that is not a seasonally-adjusted result). Lamb and beef prices are falling but milk prices are rising. However none of these changes are large.

And staying in China, their producer prices are definitely deflating. They were down -3.6% in April from a year ago and falling at an annualised -6.0% rate in April from March. No hiding deflation there.

There are elections in Turkey this weekend. Overnight, a third-party candidate withdrew from the contest so as not to split the anti-Erdogan vote in what was seen as a tight race before the withdrawal. Now all depends on whether the vote will be manipulated by the incumbent. The Turkish stock market rose sharply on the withdrawal.

As expected, the Bank of England raised its policy rate again, and again by +25 bps to 4.5%, the 12th consecutive rate hike. That makes it their highest since 2008 and because inflation there is still over 10%, their battle will continue.

In Australia, their inflation expectations ticked up slightly to 5.0% in May from 4.6% in April. It is not something the RBA will be pleased about. Some think the federal Budget will be inflationary too, so the tide is challenging the RBA.

Global container freight costs fell yet again last week, down another -1% to be -35% lower than the ten year average, a period that included the pandemic spikes. They fell in all major markets. But freight costs for bulk cargoes are not showing the same retreat.

The UST 10yr yield starts today at 3.40%, and down another -5 bps from yesterday. That puts it back to week-ago levels. 

The price of gold will start today at US$2011/oz and down -US$20 from this time yesterday.

And oil prices have fallen another -US$1.50 from yesterday to be just under US$71/bbl in the US. The international Brent price is just under US$75/bbl. Downward pressure is strong today.

The Kiwi dollar is -½c weaker against the USD and now just under 63 USc. Against the Aussie we are a touch firmer at 94.1 AUc. Against the euro we are marginally softer at 57.7 euro cents. That means the TWI-5 is now at 70.9 and -30 bps lower than this time yesterday.

The bitcoin price is lower again today, now at US$26,872 and down another -1.7% from this time yesterday. Volatility over the past 24 hours has been moderate at just over +/- 2.3%.

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 that stresses are building in China and so far they aren't doing much to effectively turn them around.

But first, aided by sharply retreating energy costs, annual inflation ran at 4.9% in April in the US, lower than the 5.0% in March and the 5.0% rate expected. And very much lower than the 8.3% rate a year ago. That is the first time in two years it has been below 5%. Progress in taming inflation might seem slow, but actually they are making steady progress. However, the March to April annualised rate is 6.1% unadjusted for seasonal effects, or 4.8% adjusted for seasonal effects. So they might find it tricky to make progress from here. The next stage will require inflation expectations to recede. There are signs of that, but these signs are not solid yet.

Because the data is broadly in line with what analysts had expected, there has been only muted market reaction - it has been priced in. But that assumes the Fed is less likely to go hard on its rate increase track. The 5.25% policy rate is now not expected to rise from here. Maybe a brave market expectation, but that is what is priced in.

American mortgage applications jumped 6.3% in the first week of May, the biggest rise in nearly two months and rebounding from a -1.2% fall in the prior week. But that is now three of the last six weeks recording notable rises, seven of the last twelve weeks. Helping is a slow retreat in benchmark mortgage rates. The declines are tiny, but sentiment is helped when they don't go up.

US monthly Budget Statement revealed a smaller surplus in April that the prior year. April is just one of the two months in the year when receipts traditionally exceed payments. But this year their deficit is rising compared to the prior year, up to -$1.9 tln over the past twelve months. But this is not because spending is rising. In fact Federal expenditures are -16.8% lower in April that the same month a year ago. It is the severe clamp on tax receipts that is swelling this deficit. They were -26.0% lower than a year ago. Republican intransigence is killing any current chance of sorting this out. These are huge inhibitions; that -26% April reduction in tax receipts is a -US$225 bln shortfall, in just one month. Even the US can't sustain that.

In China, they are trying to stop the relentless decline in domestic food production. Their way is to bring new land back into production, and force farmers to grow strategic crops, rather than economically sustainable ones on that land. It is an aggressive national priority, driven by Beijing directives. It has all the hallmarks of being successful i=only in the short-term and disastrous long-term as soils exhaust themselves.

Meanwhile, China's monetary policies are reaching their limits and they show signs of turning conservative. Debt is still rising from what are already extreme levels, and when matched with their current tepid consumption, they have some serious pressures and concerns ahead.

In Turkey, we are watching their presidential election campaign and the vote this weekend. It could be close if it remains a fair contest.

Germany also released inflation data overnight coming in at 7.2%. But this is really just a confirmation of their earlier 'flash' result for April, not fresh data.

At the lates G7 Finance Ministers meeting, they called for tightening oversight of cryptocurrency transactions between individuals, in a bid to close loopholes for money laundering and sanctions evasion. These rules are controlled by the international Financial Action Task Force and the G7 wants regulatory standards to curb money laundering and terrorist financing using cryptocurrencies which they claim is rife.

The UST 10yr yield starts today at 3.45%, and down -7 bps from yesterday. 

The price of gold will start today at US$2031/oz and down -US$4 from this time yesterday.

And oil prices have fallen -US$1 from yesterday to be just over US$72.50/bbl in the US. The international Brent price is just under US$76/bbl. These are their lowest levels since December 2021.

The Kiwi dollar is firmer against the USD and now at 63.5 USc. That is a +3.5% appreciation in just two weeks. Against the Aussie we are up over 94 AUc. Against the euro we are marginally firmer at 57.9 euro cents. That means the TWI-5 is now at 71.2 and a one month high. We should also note that the Chinese yuan is weakening, now at a three month low against the USD which is also a bit weaker. Against the NZD the yuan is at a six month low.

The bitcoin price is lower today, now at US$27,330 and down -1.1% from this time yesterday. At one point however it was down -3.0%. Volatility over the past 24 hours has been moderate at just over +/- 2.7%.

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

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

Kia ora. I'm David Chaston. And we will do this again 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 about Australia's 'cost of living' Budget.

But first, in the US last week's retail data wasn't flash again, coming in with a gain well below the inflation level. The expanded payrolls don't seem to be helping this sector.

And a couple of second-tier American confidence surveys, for SME business and investors, were both negative. Both think a recession is due.

Maybe a big order received by Boeing overnight from a European airline will help.

They need to get their debt ceiling issue behind them because it is a growing drag on sentiment. But that will be tough because hard-line Republicans have weaponised the issue.

And the US Fed's Financial Stability Report released late yesterday has them watching office building loans and other commercial real estate borrowing as the next big economic threat.

In China, exports rose strongly for a second straight month in April (up +8.5%) confirming international demand remains healthy. (Taiwan reported similar growth.) But China's imports shrank (-7.9%) which enabled them to post a larger trade surplus.

But despite that, China's SME confidence index is retreating too.

In Australia, lower March retail sales means that retail sales volumes fell -0.6% in the March quarter 2023, according to official data released yesterday. The fall in the March quarter follows a -0.3% fall in the December 2022 quarter. Nominal sales increases are less than retail inflation.

Accounting firm PwC is embroiled in a growing scandal about how it exploited its insider knowledge as a confidential contractor to the Federal Government on tax policy issues, leveraging this knowledge for the benefit of its wider high-income client base.

On the policy front in Australia, with household incomes are under intense pressure from higher prices, rising debt servicing costs and additional taxation payments, their Federal Budget was released overnight. That shows an economic windfall from stronger employment and incomes, some of which the Government is using to provide cost of living relief for the most vulnerable households. But their outlook is challenging, with economic output growth set to slow as higher interest rates bite.

The key household relief measures are a AU$15 bln package of welfare increases, bulk-billing incentives and energy bill discounts. On the other side, they are going after tax dodgers, and the wealthy who have superannuation balances greater than AU$3 mln which will be taxed at 30% from July 2025, up from the current concessional tax rate of 15%.

Their budget deficit profile has been revised lower reflecting the windfall from those stronger incomes (higher inflation and higher commodity prices) and the ongoing labour market strength. The cumulative deficit for the four years 2022/23 to 2025/26 is reduced to -AU$81 bln, down from -AU$182 bln in their October Budget, an improvement of AU$100 bln.

For 2022/23, the budget position has improved by AU$41 bln to be a wafer-thin surplus of +AU$4.2 bln or +0.2% of GDP. The last time the budget was broadly in balance was immediately before the pandemic, in 2018/19. But this surplus is a one–off, with the budget returning to deficit in 2023/24, a forecast -AU$14 bln deficit. It then widens to -AU$35 bln in 2024/25 and to -AU$37 bln the year following, or -1.3% of GDP in both those years.

The UST 10yr yield starts today at 3.52%, and unchanged from yesterday. 

The price of gold will start today at US$2035/oz and up +US$12 from this time yesterday.

And oil prices have risen +50 USc from yesterday to be just over US$73.50/bbl in the US. The international Brent price is just over US$77/bbl.

The Kiwi dollar is little-changed against the USD and now at 63.3 USc. Against the Aussie we are still at 93.7 AUc. Against the euro we are marginally firmer at 57.8 euro cents. That means the TWI-5 is now at 71 and basically unchanged from this time yesterday.

The bitcoin price is also little-changed today, now at US$27,629 and down just -0.7% from this time 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 markets seem to be ignoring American debt default risks.

But first in the US, inflation expectations slipped lower to 4.4% at the one-year-ahead horizon but increased slightly to 2.9% and 2.6% respectively, at the three- and five-year-ahead horizons, according to the New York Fed's April Survey of Consumer Expectations. The one-year-ahead result was 4.7% in the March survey, so that is a meaningful easing. The Fed seem to be making progress with its messaging and policy settings that inflation will be beaten back to its target range. Remember, about a year ago, these inflation expectations peaked at 6.8% for one-year-ahead. We are now that year on and the picture is very much different. The April CPI data will be released on Thursday, and analysts are picking an unchanged 5.0% rate.

The Fed's senior loan officer survey reported tighter standards and weaker demand for business lending and for households it was the same tighter standards and weaker demand for both housing and consumer debt applications. Access to business funding for SMEs may become an issue. This will become a very major issue if the House Republicans continue to block a resolution to their debt-limit standoff. You can measure market nervousness by the spike in the short-long yield curves. This intransigence could go horribly wrong, although we have been here many times before, and the [artificial] limit always seems to get raised. It just that this time there are more isolationists in Congress who don't care if the financial system gets shut down.

American wholesale inventories were virtually unchanged in March from February but that masks a +8.6% rise from year-ago levels. And the inventory-to-sales ratio rose rather sharply in March after a decline in February. That rise was enough to put it at its highest since the pandemic and a ten-year high if you ignore tha pandemic spike. There is now an inventory-overhang problem at the wholesale level, one being caused by weakening demand.

In China's east, nearly 500,000 people across 43 counties in Jiangxi province have been hit by torrential rains that triggered floods and forced thousands to evacuate.

Taiwanese exports actually rose for a third month in April, and taking them back to November 2022 levels, although still well below year-ago levels. But at least they are on the move up, an encouraging sign for them that the Mainland grip isn't suffocating them.

The Japanese service sector is expanding at a good solid pace, and their best since this survey began in 2007. The growing expansion is underpinned by rising new orders.

Australia's business confidence improved marginally in April from March but remains well below its long term average. Despite that improvement, the economists behind the survey expect things to weaken as 2023 progresses. They see 'conditions' as resilient but the business community without conviction that will continue, which is why they are downbeat looking ahead. 

In Australia, the first quarter of 2023 saw the lowest number of building approvals since 2012, just as their population growth reaches a record high. Workers there are going to need all their extra pay increases just for rent and mortgages. Higher pay across the ditch (than here) isn't everything for everyone.

It is Budget Day in Australia, and details will be released late in the day NZT. A strong labour market is expected to return their long-run deficits into a rare surplus.

We have noted this before, but it is worth repeating. The price of lithium has slumped from its November 2022 peak and now down -70% from then. The high price juiced up supply, and it made battery manufacturers look for alternatives.

The UST 10yr yield starts today at 3.52%, and up +8 bps from yesterday. 

The price of gold will start today at US$2023/oz and up +US$5 from this time yesterday.

And oil prices have risen +US$2 from yesterday to be just over US$73/bbl in the US. The international Brent price is just under US$77/bbl.

The Kiwi dollar is up against all-comers. Against the USD we are now at 63.5 USc with more than a +½c rise. Against the Aussie we are up +¼c at 93.6 AUc. Against the euro we are firmer at 57.6 euro cents. That means the TWI-5 is now at 71.1 and up +50 bps from this time yesterday.

The bitcoin price is lower today, now at US$27,812 and down another -3.9% from this time yesterday. Binance halting withdrawals for a time yesterday isn't helping sentiment. Volatility over the past 24 hours has been moderate at +/- 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.