Economy Watch

Excess profits are unlikely to be a significant driver of inflation as business profitability has been declining as inflation has risen, an economist says. 

Speaking on the Of Interest podcast, principal economist at the New Zealand Institute of Economic Research, Christina Leung, said businesses have reported cost pressure becoming more intense as inflation has surged.  

Earlier, the unprecedented amount of economic stimulus propped up demand and allowed some businesses to pass on higher costs to customers. But as the Reserve Bank has withdrawn that support, it has become much more difficult to pass on costs. 

“The fact that with that softening in demand, businesses are at reduced pricing power, but with cost pressures still not moderating enough for them to recoup margin, you are in this environment where operating margins are still quite crunched in.”

According to Reuters, data presented to policymakers at an European Central Bank's (ECB) retreat in Finland showed that companies in the euro zone were increasing profit margins in the face of sharp input cost increases. 

The Reserve Bank has said increases in both real profits and wages have contributed to inflation, although the data on wages was much more comprehensive than on profits. 

Leung said there may be examples of businesses that have been able to “take advantage, increase prices and bolster their margins”. However, NZIER’s quarterly survey showed profitability has been declining in aggregate. 

Most industries are fairly competitive and businesses in those sectors have been eating their margins, rather than risk losing customers. 

“If there was a lack of healthy competition within certain industries, then you would tend to see probably more opportunistic pricing behavior take place.”

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

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 world's economies are being bolstered by expanding service sector activity.

In the US, there were two services PMIs out overnight, both signaling a modest expansion. The ISM services version fell in March from the prior month and to well below forecasts. They now have their slowest growth in the services sector in three months. Demand and employment cooled while capacity and logistics improved, and price pressures eased to their lowest since September 2020. The internationally benchmarked Markit version actually rose in March, but to the same level as the ISM one. It didn't show the strong expansion in February.

US mortgage applications fell rather sharply last week, down -4.1% from the prior week and are now running -35% lower than a year ago. Spring may have arrived in the US, but the housing market is missing the customary burst in listings and purchase activity. There was virtually no change in the average mortgage interest rate last week to affect these results

The precursorADP employment report ahead of Saturday's official non-farm payrolls report shows private businesses created +145,000 additional jobs in March, below an upwardly revised +261,000 in February and analysts forecasts of +200,000. Analysts' forecasts for the non-farm payrolls gain are currently sitting at +240,000.

The American trade deficit for both goods and services was little-changed in February and still well below year-ago levels, in fact back to two-year-ago levels. US exports contracted -2.7% while imports were lower too.

Following strong increases in January, Canadian goods exports and imports decreased in February. Exports were down -2.4%, while imports decreased -1.3%. As a result, Canada's merchandise trade surplus narrowed.

In Japan, their services PMI was revised higher in March from February. This was the seventh successive month of rise in services activity and the strongest pace since October 2013.

For India, their services sector is still expanding at a healthy rate.

In Germany, factory orders grew much more than expected in February from January with their best rise in 20 months. But that still leaves them -5.7% lower than year-ago levels.

The UST 10yr yield starts today at 3.29%, and down another -5 bps from yesterday. 

Following yesterday's surprise +50 bps OCR rate hike by the Reserve Bank of New Zealand, markets are unsure there will be one at the next MPS meeting on May 24. But by July 12 they seem certain there will be at least another +25 bps on the way with the OCR topping out then at 5.50%.

The price of gold will open today at US$2020 and holding yesterday's level.

And oil prices also unchanged at just on US$80.50/bbl in the US. The international Brent price is now just under US$85/bbl.

The Kiwi dollar is a little firmer against the USD and now at 63.1 USc. Against the Aussie we are +½c higher at 94 AUc. Against the euro we are also almost +½c higher at 57.9 euro cents. That means the TWI-5 is now at 70.9 and +30 bps higher than this time yesterday.

The bitcoin price is little-changed again today, now at US$28,052 and down a minor -0.4% from yesterday. Volatility over the past 24 hours has been modest at +/-1.7%.

Please note that New Zealand is on holiday this weekend (Easter), and that includes Friday and Monday.

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 Tuesday.

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 are signs of weaker economic activity everywhere.

But today we start with tough local news. The overnight dairy auction saw prices fall -4.7% in USD terms, down -6.6% in NZD terms as the value of our currency rose. The key WMP price was down -5.2%, although the foodservice ingredients fared a bit better mainly with lower reductions. After the recent Fonterra cut to farm gate milk prices, analysts will be wondering whether another trimming will be in the works - and it will throw into question next season's pay out level.

In the US, retail sales inched up +3.7% last week from year-ago levels on a same-store basis, but that is still far from covering inflation. So they fell in real terms, just not as much as they have done in recent weeks.

The number of job openings in the US in February slipped below 10 mln and that was far weaker than what markets were expecting. This is near a two-year low. It is being taken as a sign that their labour market slowdown is arriving. We will get the March non-farm payrolls data on Saturday (NZT) and that is still expected to deliver a +240,000 jobs gain, but perhaps some analysts will be rethinking this after the JOLTS miss.

February factory orders in the US stayed in negative territory, slipping -0.7% from January after the -2.1% slip the month before. That puts them only +1.7% higher than year-ago levels and far less than accounts for inflation.

Meanwhile the US Logistics Manager’s Index (LMI) fell to a record low of 51.1 in March, pointing to the weakest growth in the logistics sector since records began in 2016. 

Bucking the negative trends, Canadian building consents rose sharply and unexpectedly in February, up +8.6% from January. But as welcome as that is, it is still -17% lower than year-ago levels.

Things are not better in China. The end of their pandemic restrictions in January has made only a small dent in the country's tough job market, a quarterly survey by the People's Bank of China suggests. And conditions are much tougher for young workers, for whom the unemployment rate jumped 2.8 points to 18.1% in February. Overall households are prioritising saving over spending, although travel is an exception.

European producer prices fell at a sharp rate in February, down at an annualised -6%. That dragged their year-on-year change to +13.2% with most of that happening late last year.

As expected, the RBA kept its cash rate target unchanged at 3.60% rate. They see the US and Swiss banking problems will lead to tighter financial conditions, which would be an additional headwind for the global economy. But they are also battling very high local inflation, especially services inflation and the risks of cost-plus inflation remain high there. So they say they expect that some further tightening of monetary policy may well be needed to ensure that inflation returns to target.

International air cargo volumes fell in February from a year ago, even if they remained slightly higher than pre-pandemic levels. The fall was more evidence the global trade in goods is weakening, down -8.3% globally and down -7.4% in the Asia/Pacific region.

But international 'revenge' travel is up sharply from a year ago, up +90% with the surge largely accounted for by the Chinese. Still, overall this industry is nowhere near back to pre-pandemic levels, still lagging on that basis by -23%.

The UST 10yr yield starts today at 3.34%, and down another -9 bps from yesterday. 

The price of gold will open today at US$2021 and up +US$37 from yesterday or +1.9%. This is its highest since February 2022.

And oil prices up +50 USc at just over US$80.50/bbl in the US. The international Brent price is now just under US$85/bbl. It remains surprising that these prices have not kicked on higher given the supply moves by OPEC.

The Kiwi dollar is a little firmer against the USD and now at 63 USc. Against the Aussie we are +¾c higher at 93.4 AUc. Against the euro we are softish at 57.5 euro cents. That means the TWI-5 is now at 70.6 and only +10 bps firmer than this time yesterday.

The bitcoin price is little-changed again today, now at US$28,176 and up a minor +0.7% from yesterday. Volatility over the past 24 hours has been moderate at +/-2.1%.

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’ll 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 central bank interest rates decisions, which are upon us this week, have a new challenge.

OPEC's unexpected decision to cut supply has changed the calculus on how to deal with inflation, which has been on a downward trend as central-bank-induced slower growth has eased price pressures despite the war by Russia. But this supply cut is again raising oil prices. It looks like we will generally keep the lower growth but the benefit of lower inflation has been pushed away.

Globally, there were many manufacturing PMI's out overnight and they paid a picture of a sector that is nether expanding nor contracting. Output is rising as new order intakes are still weakish but show signs of stabilising. Supply chain pressures ease as does inflationary pressure with both input cost and selling price inflation both pulling back. But all this was before the OPEC announcement.

In the US, there were two PMI reports out overnight and both recorded contractions and greater than the overall global rate. The widely-watched local ISM one reported a fifth consecutive monthly decline, although only marginally more than for February. New orders and production are contracting. Prices are now decreasing and export demand is lower. The internationally benchmarked Markit one is less negative seeing a small uptick in new orders and cost burdens easing noticeably.

Canada's factories slipped back into contraction in March, to about the same level as its southern neighbour,

The Bank of Canada's business outlook survey has found weakening business conditions ahead of next week’s rate decision. Price pressures are easing but most firms think it will stay well above 2% until at least 2025.

In China in a telling release, the private Caixin PMI for March revealed that the February factory expansion wasn't sustained into March. And it does call into question the official factory PMI released late last week which was quite upbeat. We don't get the Caixin services PMI until the end of this week. The official survey painted a picture of a booming economy.

India reported a good expansion in their manufacturing sector. They posted growth of factory orders and production quickening to the strongest in three months. With pressure on supply chains subsiding and raw material availability improving, input cost inflation retreated to its second-lowest mark in two-and-a-half years.

The EU PMI is still contracting but factory output rose slightly and input prices fell in March amid a survey-record improvement in suppliers’ delivery times. But there are shrinking manufacturing order books across the bloc with the volume of incoming new work falling for an eleventh month running. Greece, Italy and Spain led as the countries with expansions, but it was Germany, the Netherlands, and France who weighed on the overall result.

Later today the RBA will review its official policy rate, currently at 3.60%. Australian inflation is running at 6.8% but falling. Until the end of last week, mots analysts were expecting another +25 bps rate hike even if it was to be the last in this cycle. But those analysts havde flipped this week and most now expect no-change. Of course, the RBNZ will review our OCR tomorrow, and most analysts still expect a +25 bps hike here taking our rate to 5%.

The UST 10yr yield starts today at 3.43%, and down -4 bps from yesterday.

The price of gold will open today at US$1984/oz and up +US$14 from yesterday.

And oil prices up +US$4.50 at just over US$80/bbl in the US. The international Brent price is now just under US$84.50/bbl. These rises flow from the OPEC supply squeeze coming.

The Kiwi dollar is firmer against the USD and now at 62.8 USc. Against the Aussie we are a full -1c lower at 92.7 AUc. Against the euro we are unchanged at 57.7 euro cents. That means the TWI-5 is now at 70.5 and only -10 bps lower than this time yesterday.

The bitcoin price is little-changed again today, now at US$27,987 and down a minor -0.8% from yesterday. Volatility over the past 24 hours has remained modest at +/-1.7%.

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’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 central bankers will be waking up today with a new inflation threat.

More generally though, it will be a busy week in the US with non-farm payrolls, JOLTS job openings, ISM services and manufacturing PMI, and external trade data all due to be released. Elsewhere, inflation rates will be released for South Korea, Switzerland, Mexico, Philippines, Indonesia, and Turkey. Then the central banks chime in. India, Australia, and of course New Zealand are among those that will review their monetary policy settings. Finally, more PMI figures are set to show the state of the manufacturing sector in China, India, Russia, South Korea, Canada, and some of the larger EU countries.

But first up today we have a sharp oil supply cut announced by OPEC earlier today. They are reducing supply by -1 mln/bbl/day. Markets weren't expecting this, and OPEC clearly want a higher price. Saudi Arabia led the cartel by pledging its own -500,000 barrel-a-day supply reduction. They were followed by Kuwait, the United Arab Emirates and Algeria. Russia said the production cut it was implementing from March to June would continue until the end of the 2023. The move is likely to complicate central bank efforts to rein in inflation.

In other news, we can report that Taiwan's factories held all their February recovery in March but couldn't quite break back to an expansion mode. The downturn in production continued to ease, while firms signaled only marginal drops in new orders and employment in the latest PMI update.

Last week we noted that China's recovering car industry is doing so because of steep discounts rolled out by manufacturers, and at a level that is unsustainable. Now we can note that China's airlines are recording higher passenger traffic but also booking huge losses at the same time. Neither industries seem to have a sustainable business plan. So that will be why earlier last week we reported a sharp deterioration in Chinese business profits.

And staying in China, their factory expansion extended to a third straight month, even if it didn't quite rise to the expected level. But according to the official data, their service sector is positively booming. But before accepting those conclusions it is probably best to await the private survey results which are due out later today.

Japan's stats are a different story, accepted as unvarnished. They reported a surprise rise in industrial production in February, far stronger than anticipated. And they reported far better retail sales for February than expected as well. If they keep this up, the world's third largest economy may become a driver of international trends.

But there is huge uncertainty hanging over Japan at present. They have finally got inflation up consistently above 2%. And they have a new central bank governor who seems committed to unwinding their ultra-loose monetary policy. What has to be achieved on that front is huge. And the implications for other economies could be massive. For example, Japan's loose policies shifted vast amounts of investment overseas - they own 8% of New Zealand's debt securities, 10% of Australia's. The total is so large it exceeds the UK's annual GDP by +26%. Decisions to be made in Tokyo in coming months will determine the speed of the unwinding, a disinvestment offshore that could easily roil financial markets.

In the US, data out over the weekend showed personal incomes rose at a +6% rate in February from January, and their personal spending rose at a +2.5% rate. This is not a sign of growing household stress. The inflation measure in this latest data shows it receding, running at an annualised 3.6% in February from January, and +5.0% higher than year-ago levels. That is actually its lowest rate since August 2022 when it was on its steep rise.

Meanwhile the Chicago PMI remained very negative in March but unchanged from February, in this barometer of the American industrial heartland.

And the University of Michigan sentiment index slipped in March, but driven mainly by those who self-identify as 'Republican'.

But those ho-hum data don't seem to be indicators of financial stress. Even in a long perspective the share market VIX index of stress isn't currently elevated. And the broader financial stress index maintained by the St Louis Fed isn't either, quickly retreating after a brief and relatively minor spike last week. Even the Fear & Greed index is currently running at Neutral, after running in Fear territory a week ago, and Greed territory a month ago.

Although the battle isn't anywhere near over and the Fed still signals inflation is their top concern, markets are saying they like the PCE track.

In Europe, German retail sales came in unexpectedly weaker for February.

French inflation eased in March to 5.6% and Italian inflation eased to 7.7%. Along with easing German inflation that we have previously reported, the EU says its overall bloc inflation was 6.9% in March, lower than the 7.1% expected and very much lower than February's 8.5% rate. They will count these declines as 'wins'. Falling energy prices are behind all these improvements, aided by the price caps imposed in Russian energy.

In Australia, CoreLogic's March house price report shows a +0.8% rise from February, gaining back some of the -8.7% fall for the year. That is actually its first rise in 11 months. For Sydney, they had a better-than-average monthly rise of +1.4% but remain -12% lower in a year. For Melbourne, the gain from February was +0.6% to be -9% lower in a year.

The UST 10yr yield starts today at 3.47%, and down -7 bps from Saturday. 

The price of gold will open today at US$1970/oz and retreating -US$2 from Saturday.

And oil prices were little-changed on Saturday at just over US$75.50/bbl in the US. The international Brent price is now just under US$80/bbl. A week ago these prices were US$69 and US$74.50/bbl respectively. But following today's supply cuts, these prices are sure to rise.

The Kiwi dollar is little-changed against the USD and now at 62.5 USc. Against the Aussie we are firmish at 93.6 AUc. Against the euro we are firm at 57.7 euro cents. That means the TWI-5 is now at 70.6. But it is up +40 bps from a week ago, and up +30 bps from the start of March.

The bitcoin price is very little-changed again today, now at US$28,211 and down a very minor -0.4% from Saturday. Volatility over the past 24 hours has remained modest at +/-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’ll do this again tomorrow.

If things go well in four key areas where work is underway to tackle methane emissions from farm animals they could "make a big hole" in New Zealand's agricultural greenhouse gas emissions, according to Mark Aspin, consortium manager at the Pastoral Greenhouse Gas Consortium.

The Pastoral Greenhouse Gas Consortium is a public-private partnership that has been working for 20 years to reduce agriculture greenhouse gas emissions. Speaking in interest.co.nz's Of Interest podcast, Aspin discusses the lessons and progress along the way.

With the agriculture sector contributing half NZ's emissions, according to the Ministry for the Environment's greenhouse gas inventory, and methane 44% largely due to the digestive process of ruminant animals such as cows and sheep, Aspin talks in detail about the four key methane mitigation tools being worked on.

These are methane inhibitors, genetic selection to breed low-emission cows and sheep, low-emission feed and forage, and a vaccine that could stimulate the animal's immune system to generate antibodies in saliva that target proteins on methane-producing microbes, or methanogens, in the rumen area of the stomach restricting their growth and ability to produce methane.

The Government has a target of reducing biogenic methane emissions from 2017 levels by between 24% and 47% by 2050. Aspin says the four key areas of work have the potential to make a big dent in NZ agriculture's methane emissions.

"In a perfect world yes, we could probably make a big hole in the agricultural emissions if we could get them all to work," says Aspin.

He acknowledges that the vaccine is "proving very tough," but continues to believe it could work.

In the podcast he also talks about the challenges of being a livestock grazing nation, intellectual property related to this technology, regulatory requirements, what's going on overseas, NZ's international climate change commitments, and the position of NZ and its agriculture sector in the context of global greenhouse gas emissions.

a moderation vibe is settling over the global economy, heralding a lackluster period ahead.

US jobless claims rose last week by +224,000 which was higher than expected and perhaps the start of the long-awaited labour market slowdown. There are now 1.9 mln people on these programs which is still low however, an insured unemployment rate of 1.3%. (NZ Jobseeker-to-labour force rate is 3.4%.)

In its final estimate for Q4-2022 GDP, the US reported that their economy expanded an annualised +2.6%, slightly less than initial estimates of a +2.7% rise. Consumer spending rose +1% and below the +1.4% in the second estimate, as spending on services advanced much less than initially assumed.

The Boston Fed President says she expects only one more +25 bps rate hike from the Fed in this cycle. In her view, inflation will continue to moderate, and there won't be a hard landing.

In Germany, their inflation rate is pulling back now too and as expected. It eased further to 7.4% from a year ago in March, down from 8.7% in the previous two months. Analysts were expecting a March rate of 7.3%. The actual rate was its lowest since August 2022. It peaked at 8.8% in October 2022. There is a downside however, the February to March increase ran at an annualisted rate just below +10%.

EU sentiment eased marginally in March to remain well below its long run average. It is consumers more than businesses that keep this measure low.

In Australia, job vacancies are slipping although are still at a relatively high level. However, this is the first quarterly decline since August 2021, so perhaps this data is telling us something.

The cost of containerised shipping freight fell another -2% last week to now be -36% lower than its ten year average, but still +21% above its pre-pandemic level. China-US rates fell the most, but there was a small uptick in China-EU rates which we haven't seen in a while. Freight rates for bulk cargoes were little-changed last week.

The UST 10yr yield starts today at 3.56%, unchanged from yesterday. The UST 2-10 rate curve is marginally more inverted at -55 bps. Their 1-5 curve inversion is greater at -95 bps. And their 30 day-10yr curve is very much more inverted at -92 bps. The Australian ten year bond is up +3 bps at 3.36%. The China Govt ten year bond is unchanged at 2.88%. And the New Zealand Govt ten year is starting today up at 4.25%. That is another +6 bps rise.

Wall Street is still on the up, with the S&P500 tracking a +0.3% rise in late Thursday trade. Overnight, European markets were all positive and up +1.2% except London which gained +0.7%. Yesterday Tokyo ended its Thursday session down -0.4%. But Hong Kong was up +0.6%, and Shanghai ended up +0.7%. The ASX200 ended up a +1.0%, and the NZX50 rose +1.7% in its Thursday trade with a final burst higher across most sectors.

The price of gold will open today at US$1983/oz and up +US$18 from this time yesterday.

And oil prices start today up +50 USc from yesterday at just on US$74/bbl in the US. The international Brent price is now just under US$78.50/bbl.

The Kiwi dollar is up nearly +½c against the USD and now at 62.6 USc. Against the Aussie we are firmish at 93.3 AUc. Against the euro we are little-changed at 57.4 euro cents. That means the TWI-5 is now at 70.4 with a +20 bps daily rise.

The bitcoin price is very little-changed today, now at US$28,257 and up less than +0.1% from this time yesterday. Volatility over the past 24 hours has been moderate however at +/-2.0%.

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 as global price pressures ease, we may be starting to see a wage-price surge locally.

But first, the American housing market is continuing its measured rise with a surprise rise in February pending home sales. You may recall they rose more than +8% year-on-year in January, and analysts thought February would give back about -2.3% of that. But in fact they rose again, by +0.8%, and locking in the gains. It is the Northeast where the big gains are coming from; the West remains weak. It's a recovery of transaction volume at this stage, not in prices, where the median remained at US$363,000 (NZ$583,000).

This gain in real estate volume may well have carried on into March. Mortgage applications rose +2.9% last week, a fourth consecutive week of increases, and the longest winning streak in four years. Mortgage interest rates were little-changed with the benchmark 30yr fixed rate at 6.45% plus points, but that is a one-month low.

Singapore reported that their producer prices are deflating fast now, down -4.7% in February on top of a -1.5% drop in January from the same month a year ago.

In Thailand, their central bank raised its policy rate by +25 bps to 1.75%. They are reporting a good recovery and a growing economy. Their rate increase is part of their 'normalisation' program.

Yet another survey reported that German consumer sentiment is improving, extending the trend to six consecutive months.

But in Russia, retail sales are sharply lower (-7.8%), as is industrial production (-1.7%). Both sets of data are worse in February than January.

Although it is not expected to have much impact on trade flows, the CPTPP eleven nation trade group is expected to agree that the UK can join. You may recall that both Taiwan and China have also applied, but they will be caught up in the global political rivalry. The CPTPP is the high-standard trade bloc promoted by the US Obama Administration, but was abandoned by the Trump Administration. However, even without the US it is doing an effective job raising trade deal standards especially labour and environmental standards. Even China's preferred RCEP looks up to the CPTPP.

In Australia, their inflation rate is moderating, although it remains very high. Their CPI rose 6.8% in the year to February, easing from a 7.4% gain in the year to January. This was less than the 7.1% expected and was the second straight month of lower annual inflation and the softest pace since last June. The easing is largely due to slower rises in prices of housing, food, and transport. Financial markets were pricing virtually no change to the RBA cash rate at next week's review, and may be vindicated by this CPI update. But ANZ says it thinks the RBA will hike by +25 bps again next week because inflation is "still too high". New Zealand won't get its March CPI update until April 20.

But whether Aussie inflation continues to moderate is still up in the air. Their unions seem ready to push for big +7% wage claims in cost-of-living campaigns at both state and national levels, and in both the public and private sectors.

Tallies of funding activity in international financial markets shows that Australian banks are having no problems raising money. All recent issues (especially by ANZ, CBA and NAB) have been heavily over-subscribed, enabling them to have raised most of their 2023 requirements already. International investors seem to prize Aussie banks for their "unquestionably strong" capital benchmarks.

The UST 10yr yield starts today at 3.56%, up +2 bps from yesterday. 

The price of gold will open today at US$1965/oz and down -US$5 from this time yesterday.

And oil prices start today unchanged from yesterday at just over US$73.50/bbl in the US. The international Brent price is now just on US$78/bbl. 

The Kiwi dollar is down -¼c against the USD and now at 62.2 USc. Against the Aussie we are little-changed at 93.1 AUc. Against the euro we are also little-changed at 57.5 euro cents. That means the TWI-5 is now up at 70.2 with a minor -10 bps daily dip.

The bitcoin price is much higher today, now at US$28,246 and up +5.0% from this time yesterday. Volatility over the past 24 hours has been high too at +/-3.5%. 

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’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 that the run to the end of the quarter is proving to be a subdued affair.

First up today, the American retail impulse is not in great shape. Compared with a year ago, retail sales were up only +2.8% last week on a same-store basis. This isn't anywhere near strong enough to cover inflation, so retail sales volumes are shrinking - and probably have done for the past month.

However, on an actual basis, the American merchandise trade deficit shrank in February, coming in at -US$71.5 bln for the month and down from the year-ago level of -US$84 bln. That is because their exports rose +5.4% year-on-year and imports fell -1.9% on the same basis.

The Richmond Fed's factory survey in the mid-Atlantic states recorded improvements in March in both employment and new orders, and an overall modest improvement in business conditions. Although still elevated, the costs component fell sharply in March. Overall, this is an interesting contrast to the weak Texas survey we noted yesterday.

The latest survey of American consumer confidence is the widely-watched one from the Conference Board, and that shows a modest rise in March. But there is no sign in here that inflationary expectations are receding.

In China, a high-ranking trade official has been charged with taking bribes. She pleaded guilty when charged.

But Chinese exports of construction equipment are still going strong, in fact now exceeding domestic sales. Exports were up +34% in February from a year ago.

In France, financial prosecutors raided several of France’s biggest banks, including Société Générale, BNP Paribas, HSBC and Natixis, as part of a investigation into what authorities say is one of Europe’s biggest tax thefts involving taxes on dividend payments. German authorities were also involved. Although it is a scheme devised by their clients, the accusation is that banks also profited because they handled the transactions.

In Australia, retail sales were up in a marginal way in February, barely beating the very lame expectations analysts had. Clearly this sector is cooling now.

The UST 10yr yield starts today at 3.54%, up +2 bps from yesterday. 

The price of gold will open today at US$1970/oz and up +US$14 from this time yesterday.

And oil prices start today up nearly +US$1.50 from yesterday at just over US$73.50/bbl in the US. The international Brent price is now just over US$78.50/bbl. 

The Kiwi dollar is up +½c against the USD and now at 62.5 USc. Against the Aussie we are little-changed at 93.2 AUc. Against the euro we are firm at 57.6 euro cents. That means the TWI-5 is now up at 70.3 with a +30 bps daily rise.

The bitcoin price is lower again today, now at US$26,886 and down another -0.9% from this time yesterday. Volatility over the past 24 hours has been modest at +/-1.0%. The US charged Bankman-Fried overnight with bribing Chinese officials.

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 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 that American regulators have been active overnight.

First today, we should note that the regional First Citizen's Bank (assets: US$109 bln and #36) has taken over large parts of failed Silicon Valley Bank's business (assets US$72 bln being acquired). The takeover comes with SVB's balance sheet sanitised by regulators. The combination will make a bank that ranks #26 in asset size among all US banks. The remaining assets of SVB are being held by the FDIC for disposal.

Meanwhile, the closer the Fed regulators looks under the hood at SVB, the worse it looks. Charges against SVB management seem likely.

None of this news encourages investors to step up and fund new business start-ups in the way SVB did; that sector is now in the pits.

Secondly, regulator the Commodity Futures Trading Commission is suing Binance over some alleged serious regulatory failures, and alleged dishonesty by its CEO. They are being charged with willful evasion in an action that comes as no surprise to crypto and money-laundering watchers. The bitcoin price fell.

Elsewhere in the US, the Dallas Fed's factory survey for Texas was another poor one for their oil patch. It has now been consistently negative for more than a year now, the weakest region in the US. New orders were weaker, but the jobs component remained strong even if pay pressures eased. The outlook wasn't flash however.

Across the Pacific, in a grim start to 2023, China has reported that is industrial profits suffered a sharp retreat on their reopening in February, down more than -22% year-on-year. A damaging price-war in the Chinese car industry isn't helping as firms struggle for growth in demand. This official industrial profits report hurt both the Hong Kong and Shanghai equity markets because is was so unexpected.

Meanwhile in a bit of a surprise the other way, Taiwanese consumer sentiment improved in March. It was their highest reading since May 2022 as the economy recovered from pandemic disruptions and households' sentiment strengthened across the board. This is not to suggest sentiment is high again; it is not. But the improvement was unexpected.

In Germany, another business sentiment survey showed the continuing improvements of other similar surveys. In fact this was their fifth consecutive improvement, and its highest since February 2022 - and all this comes after the banking turmoil news.

But of course this may change with strikes spreading in Germany. Inflation is stoking wage demands there.

The World Bank is warning of a long-term global downturn. Average potential global economic growth will slump to a three-decade low of just +2.2% per year through 2030, ushering in a "lost decade" for the world's economy unless policymakers adopt ambitious initiatives to boost labour supply, productivity and investment, they say.

The UST 10yr yield starts today at 3.52%, up +15 bps from yesterday.

The price of gold will open today at US$1956/oz and down -US$22 from this time yesterday.

And oil prices start today up nearly +US$3 from yesterday at just under US$72/bbl in the US. The international Brent price is now just under US$77/bbl. 

The Kiwi dollar is little-changed against the USD and now at 61.9 USc. Against the Aussie we are also little-changed at 93.2 AUc. Against the euro we are down -¼c at 57.4 euro cents. That keeps the TWI-5 down at 70 and down very marginally.

The bitcoin price is lower today, now at US$27,138 and down -2.1% from this time yesterday. Volatility over the past 24 hours has been high at +/-3.0%.

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’ll do this again tomorrow.