Economy Watch

Kia ora,

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

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

And today we lead with news of a lot of second-tier data and some of it isn't very good.

But first, US jobless claims were in fact little-changed from the prior week, although seasonal adjustment generated a higher number. There are now just under 1.8 mln people on these benefits but that is up from 1.5 mln a year ago. Despite the headline seasonally-adjusted rise, the actual data isn't really showing any increase in new claims.

But they may be on their way. The Philly Fed factory survey dived to its lowest level since the pandemic and its eighth consecutive negative reading. This survey covers the Pennsylvania manufacturing rust-belt heartland and is quite a negative signal.

US existing home sales in March dipped from February to an annual rate of 4.44 mln when a 4.5 mln rate was expected.

Chinese foreign direct investment is falling and quite quickly now. It hardly changed from February to March and is now only +4.9% ahead in nominal terms from a year ago. In February it was +6.1% ahead. In the 30 years of this data, we have never seen such a month where there was virtually none. This is very unusual and no doubt is ringing alarm bells in Beijing.

Meanwhile, China's central bank kept lending rates unchanged yesterday, adding to signs that it has put monetary stimulus on hold while it watches the progress of what they hope will be a consumer-driven economic recovery. The PBoC's one-year loan prime rate, a reference for lending to companies, stayed at 3.65%. The five-year rate, a benchmark for mortgage interest rates, remained 4.3%. Both have been unchanged for eight months.

From a very low base, Chinese mortgage lending rose +50% in the March quarter from the same period a year ago as homebuyers took advantage of lower interest rates. It is a signal that policies to bolster the property market are kicking in.

Taiwan export orders rose in March from February but were still -25% lower than year-ago levels, a consequence of the vice China has on the island nation.

Consumer confidence in the EU edged up in April, according to the latest 'flash' survey. It was a faster improvement than was anticipated.

German producer prices rose in March to be +7.5% higher than year ago levels. But in February they were more than +15% higher, so we are witnessing a very fast correction there recently. In fact, from February to March prices fell at a much faster than expected rate, a very sharp -2.5% in just one month.

Last week freight rates for containerised shipping actually rose. It was a tiny move up, but was the first we have seen in a very long time. It was primarily driven by the Shanghai to Los Angeles route which rose +11% in a week. The Shanghai to New York route rose +12%. But apart from these two major trades, most other rates are still falling. Bulk cargo freight rates were little-changed last week, still running at their long term average levels, levels we first saw in 1988!

The UST 10yr yield starts today at 3.55%, and down -5 bps from this time yesterday.

The price of gold is at US$2005/oz and back up +US$11 from this time yesterday.

And oil prices are down another -US$2.50 and just over US$77/bbl in the US. The international Brent price is just under US$81/bbl.

The Kiwi dollar is softer against the USD and now at 61.9 USc. Against the Aussie we are much weaker at 91.6 AUc and more than -¾c lower. Against the euro we are down -¼c at 56.4 euro cents. That means the TWI-5 is at 69.5, down -40 bps.

The bitcoin price is lower today, now back down to US$28,475 with another -2.7% fall from this time yesterday. Volatility over the past 24 hours has stayed modest at +/- 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.

This podcast will be taking a week off, so we will see you again on Monday week.

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 price pressures seem to be easing in most economies - will they in New Zealand?

But first today, American mortgage applications, which had been rising in recent weeks, fell back sharply last week in an unexpected reversal. It seems the recent rises did not indicate a recovery. They were down -9% from the prior week and down -36% from the same week a year ago. There was a minor rise in the benchmark 30 year fixed mortgage rate to 6.43% plus points, but it seems hard to assign the reason to that. But with rates well above year-ago levels and with most on very long contracts, there is little refinance incentive in this market.

The US Fed's April Beige Book reviews describe an economy that is just chugging along at a moderate pace, nothing spectacular but now really slowing either. Consumer spending was flat, car sales steady, but lending volumes and loan demand were noted as lower. Their labour market showed a softer pace of growth and layoffs were concentrated in just a few industries they observed. Price increases "appeared to be slowing" the report noted. This has all the hallmarks of describing a 'soft landing'.

Wall Street is awash in earnings reports that don't suggest their economy is failing. But ratings agencies are on track to cut the most US corporate bonds to junk since the early part of the pandemic, boosting funding costs for some companies just as economic growth is slowing. Apart from the pandemic jolt, 2023 is on track to be the toughest on bond rating downgrades since 2016, possibly even 2009.

Canadian producer prices didn't bounce in the way expected. In fact they were -1.8% lower in March than year-ago levels after February was +1.6% higher on the same basis. The price pressure is noticeably off for Canadian businesses.

Canada housing starts however fell sharply to just a 214,000 annual rate in March. Almost 240,000 were expected, the same level as February.

And more than 155,000 federal workers in Canada went on strike after wage talks with the Ottawa government failed.

In China, the way provincial institutions hide bad debts from property companies is getting some transparency. The financial engineering pushed the losses deeper away from view, but they are still there and building. Analysts are concerned they are now so concentrated and so large that their capacity to hide them is running out, and a financial earthquake is much closer for these zombie companies and assets.

And one of China's largest EV markets, Europe, is insisting EV batteries meet their broad carbon targets - and that is a major problem for Chinese battery makers. They can't at present. EV sales were a stunning bright-spot in China's March exports. It may be brief.

And we perhaps should also note that Tesla has again cut prices. This is the third time it has made major price reductions, and in the prior cases it resulted in sharply rising demand. It is a move that puts a hard squeeze on other EV makers.

British inflation stayed above +10% when a fall lower was expected. However it was a fall from February, back to January's level. Food prices are the culprit there. It has now been more than two years that British consumer prices have been rising at an above +10% rate. The March result compares with EU inflation that is running at +5.7% annual rate now.

In Australia , the Westpac-Melbourne Institute Leading Economic Index was almost flat from the prior month in March 2023. This isn't a good sign according to Westpac. "The index for March is now consistent with below-trend growth extending throughout the remainder of this year," said Westpac chief economist Bill Evans. "While we see the household sector at the center of this, slowdown in the components of the index is also highlighting the drag from dwelling construction and the slowdown in the world economy.”

Join us at 10:45am this morning where we will have full coverage of the local March CPI. Markets expect an annual rate of +7.1% and an annualised Q4-2022 to Q1-2023 rate of +6.8%. Variation from these levels will certainly have financial market implications.

The UST 10yr yield starts today at 3.60%, and up +2 bps from this time yesterday. 

The price of gold is at US$1994/oz and down -US$11 from this time yesterday.

And oil prices are down -US$1.50 and just over US$79.50/bbl in the US. The international Brent price is just under US$83.50/bbl.

The Kiwi dollar is unchanged against the USD and now at 62.1 USc. Against the Aussie we are slightly firmer at 92.4 AUc. Against the euro we are little-changed at 56.7 euro cents. That means the TWI-5 is at 69.9, up +20 bps.

The bitcoin price is softer today, now back down to US$29,255 with a -3.1% fall from this time yesterday. Volatility over the past 24 hours has stayed 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’ll 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 US workers are back with incomes rising faster than inflation, and China is back with notable growth.

But first up today there was another dairy auction overnight and that brought a surprise lift in prices - not major, but unexpected. Prices rose +3.2% in USD terms and were up +4.9% in NZD terms. This comes after a series of disappointing results, interrupted by the occasional rise. It is hard to know whether this pattern is repeating or this marks a turning point up. Today's rise was the most since September 2022, but was on low offered volumes, the least since June 2022. The core WMP price only moved up +1.0% but butter was up +4.9% from the prior event, cheddar cheese up +5.7% and SMP was up 7.0%. Rising demand for foodservice uses in China was probably behind these shifts.

Meanwhile American retail is still weakening, up a mere +1.1% last week from the same week a year ago, nowhere near enough of a gain to account for inflation. Excluding the pandemic period, that is a weak expansion matching the 2016 period.

Perhaps Americans are becoming more thrifty? Median weekly earnings of full-time wage and salary workers were +6.1% higher in the first quarter of 2023 compared to the same period a year earlier, according to official US data. Inflation during that time ran at +5.8%. The inflation story is almost always about workers falling behind, but not so in the US it seems, and that is pretty notable. Actually, in the US, this positive relationship was pretty normal in the years 2013 to 2021. It was only when inflation got out of control that the tables were turned.

March housing starts in the US were little-changed from February and essentially maintaining their recent uptick even if they are lower than year-ago levels. New residential building consents were at a similar level although they seem to be tailing off in 2023.

Canada didn't surprise with its March CPI inflation number, coming in at the expected +4.3% level from a year ago. But that is its lowest there since mid-2021. Petrol prices fell, food price rises slowed.

China's bounce out of its pandemic lockdown raised their GDP by +2.2% in Q1-2023 from Q4-2022. This was the rise analysts expected. However from a year ago, their GDP is up +4.5% which was more than the +4.0% expected. This was all driven by retail sales which were up +10.6% with widespread revenge spending. Electricity production was up +5.1% with coal production up +5.5% and imported coal flooding back in. Industrial production rose +3.9% when +4% was expected. If you think about these relative changes, they don't actually suggest a very stable situation but that may just be their systems stuttering to reopen.

The Indonesian central bank reviewed its policy rate and monetary settings overnight and left that key rate unchanged at 5.75%.

The recent improvement in economic sentiment in Germany is still there but it is less in the latest ZEW survey. This is despite an improvement in the view for current conditions.

The latest RBA minutes show they are prepared to raise rates again, despite their recent pause, because they fear strong population growth and big public sector wage rises will push up inflation again. The pause was nervously agreed, these minutes show. Inflation is currently running at 7.8%. The policy rate is still only 3.6%

And staying in Australia, their tax authorities are about to audit up to 1.7 million mortgage holders this financial year as it clamps down on tax-rorting by residential property investors. Almost 20 financial institutions, including the big four banks, will be required to share loan data with the ATO as part of a new data-matching program, which the tax office says shows nine in 10 landlords are getting their tax returns wrong - not declaring rental income and/or over-claiming expenses. Billions are involved.

The UST 10yr yield starts today at 3.58%, and little-changed from this time yesterday. 

The price of gold is at US$2005/oz and up +US$10 from this time yesterday.

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

The Kiwi dollar has moved up slightly against the USD and now at 62.1 USc and a +30 bps firming. Against the Aussie we are unchanged 92.2 AUc. Against the euro we are little-changed at 56.6 euro cents. That means the TWI-5 is at 69.7, up +20 bps.

The bitcoin price is firmer today, now back at US$30,178 and up +2.3% from this time yesterday. Volatility over the past 24 hours has been moderate at +/- 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’ll do this again tomorrow.

New Zealand Debt Management, the Treasury unit responsible for managing the Government's debt, isn't seeing any notable increase in demand for its inflation-indexed bonds despite high inflation both in New Zealand and overseas.

Speaking in interest.co.nz's Of Interest podcast, Kim Martin, Director of New Zealand Debt Management (NZDM), says you might expect more interest in inflation-indexed bonds when inflation is high. Statistics NZ releases its Consumers Price Index for the March quarter on Thursday, which is expected to show inflation above 7% for the fourth consecutive quarter, at a time when there has also been high inflation overseas.

"Inflation indexed bonds have a coupon that is indexed to inflation so the value of your regular coupon is protected against that high inflation period...We have seen our inflation indexed bonds outperform their generic equivalents over the past couple of years, but we haven't seen any significant change in demand," Martin says.

"We've heard a few rumours about retail demand for inflation protection products, but we really haven't seen anything that's of particular note, which is quite interesting when you think about how topical inflation has become in recent times."

In the podcast Martin also talks about the impact of the Reserve Bank's quantitative easing, through which it bought around $50 billion worth of NZ government bonds, on the bond market and what might've happened without it.

She also talks about how NZDM borrows and repays money, what options it offers for retail investors, how borrowing decisions are made, whether you can trace proceeds from individual bond issues to government expenditure, what currencies NZDM borrows in, who it competes with for investor interest, the importance of registered tender counterparties, the value of strong sovereign credit ratings, and the key risks for NZDM.

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

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 seems to be emerging from its doldrums.

But first up today, and to the surprise of many, the local Fed's factory survey for New York State reported a sharp improvement - and it was across the board. New order inflows were at a one year high, and activity perked right up. But cost pressures remain unchanged. However, firms expect business conditions to improve over the next six months, with measures of capital expenditures and employment also rising. This survey hasn't been very positive for a few months now, so this is a 'welcome' improvement locally.

Also improving is American home builder sentiment. It rose for a fourth month in April, a fresh high since September and came in better than expected.

And the Wall Street earnings reports for Q1 are off to surprisingly good start. Of the 30 S&P 500 companies comprising 10% of the index that have reported results so far, 90% have easily earnings-per-share estimates while three quarters of them have topped sales forecasts.

For some regional banks reporting, it is exposing the size of deposit flight. Regulators will be nervous.

Despite all this, the US Congress's debt ceiling game of chicken is nearing a flash point with Republicans pushing to gut most social programs - except Medicare, Medicaid and Obamacare. It is a brinkmanship game that is raising US bond yields, mainly because the negotiators are taking extreme positions.

Also potentially inflationary, there is a rising threat of strike action at US West Coast ports in coming weeks.

Separately, IMF data shows that China will be the top source of economic growth in the next five years, followed by India and the US. More than 20% of that growth will come from China's expansion, with more than 10% from each of the other two. Indonesia is the next largest, followed by Germany, Turkey and Japan.

Singaporean exports rose in March from February and by much more than expected. A small rise was anticipated after a weak February. But in fact the rise was substantial, paring back a long series of declines so that year-on-year their non-oil exports are down 'only' -8.3%, half the drop in February.

Meanwhile, its ruling party said the City-State will push through increases to GST (from 7% to 9%), but it has no plans to go down the path of welfarism - it is ruling out becoming like a Nordic state.

In Australia, banks both large and small are 'slashing' their fixed rate offers. CBA today cut its advertised 3 year fixed rate by -40 bps to 5.59%. (Their new 'comparison rate’ which loads in the myriad costs Aussie banks also charge - which NZ banks don't - takes that rate to 7.20%. For perspective, ASB, CBA's New Zealand subsidiary offers a 3 year fixed rate at 6.59%).

The UST 10yr yield starts today at 3.59%, and up +7 bps from this time yesterday. 

The price of gold is at US$1995/oz and down -US$9 from this time yesterday.

And oil prices are at down -US$1.50 and just under US$81/bbl in the US. The international Brent price is just under US$84.50/bbl.

The Kiwi dollar has moved down further against the USD and now at 61.7 USc and a -½c fall. Against the Aussie we are have fallen -40 bps to 92.2 AUc. Against the euro we are unchanged at 56.5 euro cents. That means the TWI-5 is at 69.5, down -30 bps and still its lowest in almost six months.

The bitcoin price is lower today, now at US$29,502 and down -2.7% from this time yesterday. Volatility over the past 24 hours has been moderate at +/- 2.2%.

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’ll 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 is a week where we get a fuller set of global inflation data, including from the UK, Japan, Canada, South Africa, Malaysia, and New Zealand on Thursday. We will also get Chinese GDP growth data for Q1-2023, industrial production and retail sales for March on Tuesday. And there is a dairy auction due on Wednesday.

But first up today, China's new home prices rose in March from February at the fastest pace in 21 months, official data showed on Saturday, suggesting the market is out of the doldrums amid a flurry of support policies, but there is uncertainty on the strength of the momentum. New home prices in March edged up +0.5% month-on-month after a +0.3% rise in February, marking the fastest pace since June 2021 and the third consecutive monthly rise. But they are still lower on a year-on-year basis although only by -0.8%.

Internationally, it is becoming clear that China's Belt & Road Initiative - a giant infrastructure system tying global facilities to China - is in deep trouble. Chinese lending to these projects has been slashed and it has become “a road and belt to nowhere.” Over 60 developing countries today face a debt crisis brought on by overborrowing for these Chinese-promoted projects during the heady 2010s. In 2022, 60% of Chinese overseas loans went to distressed borrowers, up from 5% in 2010. Many cannot repay.

Separately late Friday, Singapore surprised analysts with an unexpectedly weak Q1-2023 GDP result, down -0.7% from the prior quarter. Actually the Q4-2022 result showed virtually no growth, so they are knocking on the door of 'recession'. Their year-on-year +2.1% rise in 2022 crashed to just +0.1% in Q1-2023 from Q1-2022.

Meanwhile, the central bank of Singapore has been reported as asking financial institutions to keep quiet the flood of money coming in from wealthy Chinese.

But the biggest weekend news is that American retail sales fell in March from February to be just +2.9% higher than year ago levels and far less than inflation's bite. It was a result that surprised analysts who expected a -0.4% month-on-month fall when they got -1.0%.

However other American indicators weren't so negative. Industrial production rose +0.4% in March from February to be +0.5% higher than year ago levels. This data is 'real' without inflation.

And consumer sentiment, as measured in the widely-watched University of Michigan survey rose too. That shift wasn't expected, but it was in both views of current conditions and expected future conditions. However, Americans apparently think inflation will rise (contrary to most other data that shows it falling).

Meanwhile, the leakage from deposits at US bank accounts, which fell sharply from the start of March (-US$400 bln or -2.3%) are stabilising in the April updates. But that masks big shifts from smaller banks to the majors, who are now reporting bumper profits. And too, big funds like Blackrock. During this time the Federal Reserve stepped in with more market support, suspending its tightening. Although over this past week, it has resumed the drawdown. One consequence of the banking turmoil is that regional American banks are now offering much higher interest rates to attract back depositors.

In Canada, their real estate industry is talking 'green shoots' as they enter their Spring selling season. After declining for 12 consecutive months, their national home price index rose +0.2% to C$709,000 (NZ$855,000) from February to March. Their market suffers from an unusually low number of listings available. But their much higher interest rates will make it challenging to build any sort of meaningful recovery.

The OECD is pointing out that that global labour markets remain very tight in developed countries. In February, the unemployment rate remained at its record low in the OECD (4.8%) and this is despite the Euro area still much higher (6.6%). The unemployment rate was stable or decreased in more than 70% of OECD countries, but close to its lowest level in only seven countries, including Canada, France, Germany, Japan, Australia and New Zealand. 

The UST 10yr yield starts today at 3.52%, and very little change. 

The price of gold is at US$2004/oz and down -US$1 from Saturday. A week ago it was at US$2008/oz, so actually very little net change.

And oil prices are at up +50 USc and just over US$82.50/bbl in the US. The international Brent price is just over US$86/bbl. But a week ago these prices were US$2 lower so the net move up since then has been +2.5%.

The Kiwi dollar has stayed down against the USD and still at 62.1 USc. Against the Aussie we are have remained to 92.6 AUc. Against the euro we are still at 56.5 euro cents. That means the TWI-5 is at 69.8, unchanged since Saturday and still its lowest in almost six months.

The bitcoin price is again little-changed, still at US$30,331 and that's six straight days at this level. But a week ago it was at US$27,924 so it has been a major +8.6% move up from then. Volatility over the past 24 hours has remained very low at +/- 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’ll do this again tomorrow.

Kia ora,

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

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

And today we lead with news the long-anticipated weaknesses in the American labour market may now be starting to show. But the signals are still faint.

US jobless claims rose last week by +235,000 which a notably higher than we have seen in a while. There are now 1.8 mln people on these benefits, and while that is little-changed, it is the 'shift on' that we should track because these benefits only last a limited amount of time and there are always claimants who max out and are no longer qualified.

American producer prices rose +2.7% in the year to March, a sharpish drop from the February +4.9% on the same basis. It was also lower than the +3% expected. More interestingly, the annualised rate of change between February and March was a deflationary -6.0%, a twist no-one saw coming. Core PPI didn't shift as sharply, but it did still record a small deflation of about -1%. These were the biggest month-on-month falls since the pandemic. Maybe somewhat surprisingly, it was services that recorded the biggest shift lower, not goods.

In China, overwhelming debt problems have caught up with one southern province. Things are so tight they have had to appeal to Beijing for help - in now-deleted online post. Researchers in landlocked Guizhou province (population 40 mln, so much larger than Australia) surveyed some of the province’s most indebted cities and found it ‘impossible’ to solve their debt problems at local levels. The relief valve of land sales have dried up completely leaving no revenue to service the legacy debt load. Things are unlikely to work out well for the Party boss and governor of the province.

But that might be an extreme isolated issue. China's exports unexpectedly surged in March, driven by solar products, new-energy vehicles and lithium batteries and as supply chain conditions continued to improve from their pandemic paralysis. Exports rose almost +15% year-on-year when a -7% fall was anticipated like in February. It isn't clear why analysts got this so wrong.

China's imports however did fall. And with New Zealand they are down -18.7%. Our imports from them (and that includes Teslas from the Shanghai factory and other EVs) are also down in March, but by less. The same data shows that Australian exports to China, and its imports from there, are each up more than +10% in March from a year ago. So perhaps 'being friends' with China isn't a great benefit because being in their bad books, like Australia, isn't hurting them in overall trade.

In Australia, the Melbourne Institute's inflation expectations survey shows it dipping from 5.0% in March to 4.6% in their April survey.

And Australia added +53,000 new jobs in March, with full-time roles rising +72,000 and the number of part-time roles falling -19,000 in the month. Their jobless rate stayed unchanged at 3.5%. Their participation rate was also unchanged at 66.7%. The continuing strength of their labour market puts more RBA rate rises back on the table as they may have turned dovish too soon.

International container freight rates were virtually unchanged this week, maintaining their below-average levels as world trade remains weak, especially out of China. Bulk cargo rates were little-changed as well.

The UST 10yr yield starts today at 3.45%, and up +4 bps. 

The price of gold is at US$2044/oz and up +US$31 from this time yesterday. That puts it at its highest since August 2020.

And oil prices are down -US$1 at just on US$82/bbl in the US. The international Brent price is up to just on US$86/bbl. And perhaps we should also note that natural gas prices are back to very low levels, levels we had prior in the 1990s. Suppression of Russian energy prices may have a lot to do with this.

The Kiwi dollar is almost +1c firmer against the USD and now at 63.1 USc. Against the Aussie we are have firmed slightly to 92.9 AUc. Against the euro we have risen more than +½c, now at 57.1 euro cents. That means the TWI-5 is at 70.5 and up +60 bps from this time yesterday.

The bitcoin price is again little-changed, still at US$30,452 and up a mere +0.7% from this time yesterday. Volatility over the past 24 hours has remained low at +/- 1.4%.

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’ll 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 seems to be cooling in the world's largest economies.

On Tuesday we noted the retreat of Chinese inflation, today the US is signaling a retreat as well.

The closely-watched US CPI inflation rate slowed for a ninth consecutive period to 5.0% in March from the same month a year ago, its lowest since May 2021. It was a sharpish drop from 6.0% in February on the same basis, and also came in below market forecasts of 5.2%. It was energy costs that drove the drop (-6.4%), with food prices up +8.5% from year ago levels. The core rate ran at 5.6% and little-changed from February. However if we look at the annualised rates in the recent shift from February to March, that ran at just over a +1% annualised rate overall with food showing no change. Energy costs still fell on that more recent basis and it was rent and medical care that kept the February-to-March rate from falling.

However, the minutes from the last Fed (FOMC) meeting were out saying inflation is still too high and the pressure must be kept on. They are stressing vigilence in the inflation fight. But to be fair there were some voices for a pause.

Markets liked the inflation result however, and stocks initially rose, bond yields didn't react, and the USD firmed. Perhaps they sense the transitioning to lower inflation is in place and without a hard landing? However, the S&P500 has since slipped into a small negative result with markets subsequently sensing that perhaps more rate rises are possible from the Fed.

Meanwhile, American mortgage applications rose at a good rate last week, up more than +5% from the prior week to be -31% lower than year-ago levels. The benchmark 30 year fixed rate was marginally lower at 6.26% plus points.

In Canada, they reviewed their benchmark interest rates, and as widely expected kept them at 4.5%.

In Japan, machinery orders rose +9.8% in February from a year ago in the latest data released there. That was well above the +3% expected and well above the good +4.5% rise the prior month.

Japanese producer prices were unchanged in March from February, with a fast-cooling year-on-year rise.

Indian industrial production rose at a little-changed rate in February (+5.6% from a year ago), and their consumer inflation rate slipped to 5.7% in March from +6.4% in February, and close to the top of their wide inflation target range.

The UST 10yr yield starts today at 3.41%, and down -2 bps. 

The price of gold is at US$2013/oz and up +US$8 from this time yesterday.

And oil prices are up another +US$1.50 USc at just on US$83/bbl in the US. The international Brent price is up to just over US$87/bbl.

The Kiwi dollar is firmer against the USD and now at 62.2 USc and up +¼c from this time yesterday. Against the Aussie we are have slipped to 92.8 AUc. Against the euro we have slipped -¼c, now at 56.5 euro cents. That means the TWI-5 is at 69.9 and unchanged from this time yesterday and still a one month low.

The bitcoin price is little-changed today, still at US$30,232. Volatility over the past 24 hours has been low at +/- 1.4%.

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’ll 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 latest IMF forecasts show that the global economy is 'deteriorating'.

First up, American retail sales sagged to a weak +1.5% more than year ago levels in last week's same-store trading, far less than the inflation effect.

All American eyes are on tomorrow's CPI data which is expected to come in lower at 5.2% year-on-year and at an annualised 2.5% rate from February. If that is the actual; result, it will signal good progre4ss in their fight against inflation.

In China, consumer inflation has disappeared altogether. March prices were +0.7% higher than year ago levels and an 18 month low. But they are almost -4% lower than February on an annualised rate basis. That is the second consecutive month of falls. Deflation beckons.

Deflation is already here for Chinese factories. Their producer prices fell -2.5% from year-ago levels, the sixth straight month of retreats. In fact, the March fall from February ran at a -5% annualised rate. It will be no fun making stuff in China these days. The more orders they get, the tougher it will be.

China's new yuan lending rose strongly in March from February, but only to the expected levels. The rise wasn't as much as in January, or even January 2022, but it was the largest March rise ever and by some way. But new lending is one thing. Chinese borrowers are applying savers instincts, paying of their mortgages very much faster so the year-on-year rises are actually quite tiny. Beijing's efforts to juice things up with more debt is undermined by borrowers paying it off very much faster.

Meanwhile, Taiwanese exports fell faster in March than February, and fell faster than expected. Demand from China is the main cause. This is actually quite a grim report, although we should remember than many large Taiwanese companies have capacity outside the country, including in China and the US, like TSMC and Foxconn.

EU retail sales fell in March from year-ago levels and from month-ago levels too, although not by as much as expected. But this data just accentuates the steady decline in retail sales volumes that started at the start on 2022.

In Australia, the RBA pause on its rate hiking program has generated a substantial bump in Australian consumer sentiment, according to a recent survey. The biggest jump was by those who have mortgages. But the new improved level is still low, and Westpac says 2023 will still be lackluster.

On the business front, firms report current trading conditions are good, but confidence isn't, even if it didn't move any lower in March.

As earlier signaled, the IMF today revised its global growth forecasts lower to +2.8% from +2.9% for 2023 and to +3% from +3.1% for 2024, citing tight policy stances needed to bring down inflation, the fallout from the recent deterioration in financial conditions, the ongoing war in Ukraine, and growing geo-economic fragmentation. In its April World Economic Outlook report, they also noted the uncertainty from the recent financial sector turmoil. They also said a hard landing is likely if inflation can't be beaten. They are not optimistic about New Zealand's prospects although they don't see us falling into recession. They forecast +1.1% growth this year which will fall to a meagre +0.8% next year. Australia is expected to grow +1.8% this year and +1.7% next. All these levels are half of the 2022 expansions.

The UST 10yr yield starts today at 3.43%, and up +1 bp. 

The price of gold is at US$2005/oz and up +US$17 from this time yesterday.

And oil prices are up +US$1.50 USc at just under US$81.50/bbl in the US. The international Brent price is little-changed however at just over US$85/bbl.

The Kiwi dollar is again softer against the USD and now at 61.9 USc and its lowest in a month. Against the Aussie we are have fallen -½c to 93.1 AUc. Against the euro we have fallen almost -½c too, now at 56.8 euro cents. That means the TWI-5 is at 69.9 and down -40 bps from this time yesterday and also a one month low.

The bitcoin price is higher again today, now at US$30,228 and up another +3.6% from yesterday. Volatility over the past 24 hours has been moderate at +/- 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’ll do this again tomorrow.