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 banking rescue efforts are underway in both the US and Europe.

But first up, the US labour market never stops signaling its strength. Last week's jobless claims came in way below estimates, in fact their lowest in months at +217,000. That is almost back to the low year-ago levels. There are now 1.9 mln people on these benefits

American building consents and housing starts took an unexpected jump in February, is a moderately bullish sign that few saw coming.

But the Philly Fed factory survey stayed as weak in March as it was in February, and did not get the expected improvement analysts were looking for. In fact, new order levels fell to their lowest since May 2020.

There is a private rescue underway for First Republic Bank, a regional bank based in California. Banking majors, led by JPMorgan Chase, are working to ensure it doesn't fail, separate from public regulatory oversight.

And Branson's space adventure Virgin Orbit said it will "pause operations" in an attempt to shore up its shaky finances. Almost all employees at the satellite launch company will be furloughed.

Across the Pacific, Japan's core machinery orders, which exclude those for ships and electric power companies, jumped +9.5% month-on-month in January, accelerating from a downwardly revised +0.3% rise in December and far exceeding market expectations for a +1.8% gain. Non-manufacturing orders increased by +19%, with sharpest gains in construction where orders doubled.

Japan and South Korea are making up, trying to put their fraught relationship back on a more normal basis. This is actually a big deal for the region.

In China, average new home prices in their 70 major cities dropped by -1.2% year-on-year in February, slowing from a -1.5% drop in the previous month. This was the tenth straight month of decrease in new home prices but the softest pace of decline since July 2022, as Beijing ramped up policy support for the ailing property sector. Many more cities saw small rises month-on-month for both new and existing housing units.

Separately, President Xi said global market turbulence caused by the Ukraine war has shown that agriculture is a “national security issue of extreme importance”, while making a strong call for food self-sufficiency in a newly published speech.

As widely expected and signaled, the ECB raised its policy rate +50 bps to 3.5% ignoring the stress on banks from the Credit Suisse issues and staying focused on fighting inflation. It is maintaining its tightening bias.

The crisis for Credit Suisse isn't improving. It CDS levels are ballooning (over +3100 bps) and that is despite a SwF50 bln lifeline given them by the Swiss central bank. Markets fear that just isn't enough.

In Australia, their labour market came in stronger in February than expected with +64,600 extra jobs or which +75,000 were full-time positions, and part-time roles fell more than -10,000. Their jobless rate fell to 3.5% while their participation rate was unchanged at 66.6%. (NZ is 3.4% and 71.7% respectively.)

Meanwhile inflation expectations are holding at 5%. That is similar to January and similar to February a year ago. The lack of progress shows how sticky inflation is in Australia.

Globally, freight rates for containerised cargoes slipped again last week, but by less than previously. They are now running at a third lower than their 10-year average, an average that includes the pandemic spike. Bulk cargo rates were up strongly again this week and recovering almost all of the weakness of the past six months.

The UST 10yr yield starts today at 3.57% and up +10 bps from this time yesterday. 

The price of gold will open today at US$1914/oz and back down -US$14 from this time yesterday.

And oil prices start today recovering +US$3 at just on US$67/bbl in the US. The international Brent price is now just on US$75/bbl. That's back up half of yesterday's fall.

The Kiwi dollar is little-changed against the USD, now at 61.7 USc. Against the Aussie we are softer at 92.8 AUc. Against the euro we are softer at 58.1 euro cents. That puts the TWI-5 at down to 70.1 with a -40 bps retreat.

The bitcoin price is a little firmer today, now at US$24,812 and down +2.4% from this time yesterday. And volatility over the past 24 hours has been moderate at +/-2.5%.

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

And 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 the banking crisis has shifted to Europe, and investors are betting big on the Fed not changing rates next week. Oddly, some key UST yield inversions are being wound back sharply at the same time.

But first, we start with news that American mortgage applications had another good rise last week, rising +6.5% from the prior week, the sixth rise in the past twelve weeks. Mortgage rates are unchanged.

American retail sales were expected to post a small slip in February from January and they did. Year-on-year they are up +5.4% nominal so not keeping up with inflation. It is car sales that are the drag.

Producer prices were up +4.6% in a year in February, a sharp reduction from the January rise. They fell month-on-month. Wholesale inflation is leaking away quite quickly now. The year-on-year rise hasn't been this low since early 2021. On a quarterly basis, producer prices are back to levels last seen in 2015/16.

US business inventories were essentially stable in value in January, and that allowed their inventory-to-sales ratios to retreat slightly - and for the first time in a year. The Americans don't really have an excess inventory problem.

The New York state factory survey was grim reading for Wall Street. Activity under its nose is leaking away sharply now.

China's February data came in pretty much as expected for their first full opening-up month. Retail sales rose +3.5% in a no-surprise result, good but not that strong really. Industrial production was up +2.4%, a tad less than expected. Real estate development is not falling anywhere near as fast as it did in 2022, but it is still falling.

And while we are talking about China, we should note that its youth unemployment level has surged recently, now topping 18%. A year ago it was 12%.

In Argentina their inflation has topped +100% year-on-year again. They haven't had it at this gruesome level since their ugly hyper-inflation of the early 1990s when it reached 20,000%.

Disappointingly, Indian exports were lower in February from a year ago, down almost -9%.

But Indonesia's trade surplus increased to +US$5.5 in February and much higher than the same month the previous year and beating market expectations. It was their largest trade surplus since last November, as exports rose +4.5% while imports fell -4.3%.

German producer price inflation fell to +8.9% in February, the lowest rate since April 2021. But the food component was still up +17% with milk and dairy up a staggering +25% in a year. German inflation is still being pressured by high and rising wholesale prices. But they can take comfort that they hardly changed between January and February.

In Zurich, the Credit Suisse share price fell a disastrous -24% yesterday alone, and is now down -42% for the year and down -76% in a year, down -98% since its pre-GFC peak. It's toast. But it is taking a very long time to die. The Swiss National Bank declined to comment or support what is Switzerland's second-largest bank, (UBS is the largest) even after an appeal for help from the bank, after its largest investor, the Saudi National Bank with 10%, said it could not provide Credit Suisse with more financial assistance because of regulatory constraints.

Other large European banks took a share market beating too. Deutsche Bank fell -9% yesterday to be down -12% for the year. BNP Paribas fell -10% overnight to be -5% lower for the year. And HSBC fell -5% on the day, although it is up +9% so far in 2023. Banco Santander fell -7% overnight, but is still up +13% for the year after that. UBS fell -9% yesterday.

The UST 10yr yield starts today at 3.47% and down a risk-off -14 bps from this time yesterday. (Recall, its recent peak was 4.08% on March 3, 2023.) But the UST 2-10 rate curve is very much less inverted and now at -40 bps. 

The price of gold will open today at US$1933/oz and up +US$24 from this time yesterday.

And oil prices start today down very sharply, down -US$7 at just on US$66/bbl in the US. The international Brent price is now just under US$72/bbl. For oil, these are very large daily retreats.

The Kiwi dollar has fallen away against the greenback on the risk-off sentiment, now at 61.8 USc and down almost -½c. Against the Aussie we are firmer at 93.6 AUc and a new high for the year. Against the euro we are firm too at 58.6 euro cents and up +½c. That keeps the TWI-5 at up 70.5 and little-changed from week-ago levels.

The bitcoin price is sharply lower today, now at US$24,228 and down -5.6% from this time yesterday. And volatility over the past 24 hours has been very high at +/-4.0%.

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

And 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 at face value at least, the US banking crisis appears to have passed.

American regulators are uncovering some very questionable practices at the banks they have closed or taken over. But the crisis seems to have passed. Equity markets are recovering the share price of many regional banks in the US as they deem regulator action successful over the weekend.

In the absence of the banking industry issues, today's American inflation report for February would have been a big deal. In the event, it reported CPI inflation running at 6.0%, the rate markets were expecting and down from 6.4% in January. The annualised rate between January and February fell to below 5%. This is progress of a sort, but still a long way from the Fed's 2% target. Food prices (+9.2% year-on-year) kept the rate up, and by more than expected. Petrol prices (-2.0%) was a major restraining factor. Rents (+8.1%) were another major helping keep the rate elevated and that kept their "core inflation" at 5.5%.

US retail sales had another weak week, up a mere +2.6% from year-ago levels on a same-store basis. Despite easing inflation pressures, their retail impulse can't keep up with retail inflation, so retail volumes keep sliding. This is the second straight week with this feature.

Meta/Facebook said it was laying off 10,000 employees in a major restructuring and downsizing. Another 5000 current vacancies will be left unfilled. It currently has 76,000 employees.

China is relaxing visa requirements for outbound tourism. They have added another 40 countries to its list for which group tours are allowed, bringing the total number of countries to 60. New Zealand is included. But the list still excludes Japan, South Korea, Australia and the United States.

In Australia, there were two consumer sentiment surveys out for March (here and here) and both were quite week, holding near 30 year lows. Equally concerning is that consumer inflation expectations are rising there, these survey indicate.

Not quite so negative is Australian business sentiment and monitored by the respected NAB survey. It shifted sharply lower too in February, but only to a level we last saw in November. Confidence may be fragile and volatile they report, but conditions remained "strong".

The UST 10yr yield starts today at 3.61% and recovering +8 bps from this time yesterday. (Recall, its recent peak was 4.08% on March 3, 2023.) 

The price of gold will open today at US$1909 and down -US$2 from this time yesterday but essentially holding its new higher level.

And oil prices start today down -US$2 at just under US$73/bbl in the US. The international Brent price is now just on US$78.50/bbl.

The Kiwi dollar has remained firm, still at 62.2 USc. Against the Aussie we are still at 93.4 AUc and a high for the year. Against the euro we are firm too at 58.1 euro cents. That keeps the TWI-5 at 70.6 and +50 bps higher than week-ago levels.

The bitcoin price is much higher again today and is now at US$25,668 and up another +7.0% from this time yesterday. And volatility over the past 24 hours has remained extreme at +/-5.4%.

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

And 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 the value of bank stocks are being marked down sharply today, globally.

First up today, the drama over the failure of some American banks has all the spotlight. Globally, government bond yields fell sharply as investors pared bets of higher interest rates and looked for safety. The US 10-year Treasury yield fell to a five-week low of 3.5% and the 2-year yield lost nearly -50 bps to 4.05%, marking the largest three-day slump since 1987. In Germany, their benchmark 10-year yield fell nearly -30 bps to 2.17% and the UK Gilt was down to 3.27%.

Regulators are huddling again today, with the US Fed in an unscheduled meeting. Rumours are swirling about other regional US banks, including Republic Bank, a bank based in Kentucky. Their shares are among the hardest hit today. But apart from some localised pressure points, markets are generally calm. The US President is out emphasising the overall regulator responses underway to keep it that way.

In the UK, HSBC took over the local unit of SVB for UK£1. It now has to bolster its liquidity by UK£2 bln to absorb those assets.

The main fallout so far has been the building expectation that the US Fed will pare back its rate hike program designed to restrain inflation. Financial system stability has suddenly trumped inflation fighting.

In economic data news, American consumer inflation expectations for the year ahead fell sharply to 4.2% in February, the lowest in twenty one months. In the prior two months this expectation was 5%. Aiding the steady retreat has been both food and energy costs. Expectations for inflation three years ahead are anchored well below 3%. The same survey shows that consumers expect their labour markets to "improve".

Elsewhere, Indian consumer prices rose at a 6.4% rate in the year to February, little-changed from January. But the rate between January and February was only at a +2% annualised rate, so there are expectations inflation pressures will ease there in coming months.

The UST 10yr yield starts today at 3.53% and down -17 bps from this time yesterday. (Recall, its recent peak was 4.08% on March 3, 2023.) 

In our region, the devaluation of bank stocks has been sharp, a trend that started about six weeks ago. Over that period, ANZ, Westpac and NAB have all seen their share values fall -10%. CBA has seen a larger -14% fall. The current stresses took between -1% and -2% of that out yesterday alone (although CBA was only down -0.4% yesterday).

The price of gold will open today at US$1911 and up +US$43 from this time yesterday. It was last at this level in early February.

And oil prices start today down -US$1.50 at just over US$75/bbl in the US. The international Brent price is still just under US$81/bbl.

The Kiwi dollar is firmer, now at 62.3 USc and a full +1c higher than this time yesterday. Against the Aussie we are up slightly at 93.4 AUc and a new high for the year. Against the euro we are firm too at 58 euro cents. That puts the TWI-5 at 70.6 and up +50 bps.

The bitcoin price has raced higher today and is now at US$23,987 and up a remarkable +16.3% from this time yesterday. And volatility over the past 24 hours has been extreme at +/-9.6%.

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

And 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 the global financial landscape has been changed by a large bank failure in the US.

The sudden and unexpected demise of Silicon Valley Bank (SVB) over the weekend has has drawn quick comparisons to the 2008 failure of Washington Mutual (WaMu). When WaMu failed in 2008 it had US$309 bln in assets. SVB has US$209 bln today and will be the largest US bank failure since WaMu. But WaMu's assets were 3.1% of all commercial banks at the time. SVB is 'only' 0.9% today. Still, it wasn't WaMu alone that triggered the GFC; it was the first of a cascade that included much more connected institutions like Bear Stearns, and famously Lehman Bos. In 2023, the only other bank involved so far is the dodgy crypto outlier Silverlake. On their own, they won't cause a crisis. But they will stress the whole banking system that needs depositor confidence to avoid a run. Every investor and regulator remembers the GFC banking crisis.

The FDIC has taken over SVB and is looking for a buyer. Final bids are due today.

For some perspective, in 2008 the largest American bank was JPMorgan Chase with assets of US$2.175 tln. WaMu was 14% of that. As at the end of 2022, the largest American bank is still JPMorgan Chase with assets of US$3.773 tln. Before it failed, SVB listed assets that were 7.5% of that. ANZ NZ has assets of US$120 bln (NZ$195.6 bln). Neither SVB (nor ANZ !) are globally systemically significant on their own

Prior to the GFC, US banks had total assets 10.3 times larger than their shareholder funds. In 2010, that swelled to 12.7 times. By the end of 2022 this was back to 10.7 times, having improved sharply since 2019. (In New Zealand it is 11.9 times now.)

Will these levels 'guarantee' there will be no immediate US banking crisis. Of course not, but it does seem unlikely unless there is some other trigger. SVB and Silverlake's woes should easily be contained by both State (CA) and Federal (FDIC) regulators. They know how to do that. And it isn't just the US caught up by the SVB failure. The British are working on a scheme to aid their UK clients.

This crisis has side-lined the news of the strong February labour market gains.

The US non-farm payrolls were stronger than expected, with the headline number swelling by +311,000 when +205,000 was expected, on a seasonally-adjusted basis. Their strong labour market just keeps on growing and confounding all analysts. Digging deeper into the actual data, their workforce is now touching 154 mln which is 1.1 mln more than in January. This is data from employer payrolls. If we use the household survey which takes in unincorporated sole traders as well, the employed workforce is 159.7 mln and it also expanded by just over +1 mln in February from January. Either way, the demand impetus has risen by more than +1 mln people in February, showing why the Fed's efforts to tamp things down have been insufficient so far.

Bolstering this swelling is that their participation rate is rising, as the healthy jobs market draws more people into employment. That shift is even faster than the jobs growth, and their jobless rate ticked up to 3.6%, although that is still very low.

The unexpectedly strong jobs numbers on their own were read as likely to bring a strong Fed response at their next rate review (Thursday, March 23, NZT).

But SVB might change that. And the partisan negotiations for the debt limit expansion might too. They lurk like a cancer on their political system.

Also, the US CPI data due Wednesday (NZT) should also have a big influence on the Fed's decisions.

Across the northern border, Canadian payrolls were expected to be unchanged in February after some sharp January growth, and this is what happened, although the actual result was a bit more positive than analyst estimates.

In Japan, the outgoing Bank of Japan governor Kuroda defended his monetary easing policies after his final Bank of Japan monetary policy meeting, claiming success that their economy is nearing the bank's elusive goal of sustained +2% inflation.

Producer prices in Japan increased by +8.2% in February from a year ago, slowing from a +9.5% rise in January. This was less than the expected +8.4% rise and was the lowest producer inflation since October 2021. Of some concern is that the shift in February from January was deflation at almost a -5% rate. They haven't had that in almost 30 months.

China's banks extended ¥1.81 tln in new yuan loans in February, down from a record ¥4.9 tln in the previous month but above market expectations of ¥1.5 tln. It was also the largest amount of new bank loans for a February month since at least 2004. (For reference, China's total bank debt is now 337% of China's GDP ! That compares with the equivalent US level of just 88%, and New Zealand at 209%.)

And the Party's National Congress delivered a surprise for their central bank watchers. The respected technocratic head was not replaced with a Xi loyalist as was widely signaled. Rather, he gets a slate of Xi loyalists as deputies. Extending the surprise, they also retained the current Finance minister. Elsewhere however, it is the hardline lineup expected.

Indian industrial production rose in January by +5.2% from a year ago, slightly beating the +5% rise expected. This is on top of a good +4.7% rise in December.

We should also note that the La Niña weather pattern is ending and we are moving to more normal climate patterns for the next few months. But later in the year El Niño may well return. At least, that is what the weather scientists are predicting.

And staying with natural phenomena, keep an eye on erupting Indonesian volcanoes. Like the Tonga eruption, this could have global weather implications.

Also watch out for 'eruptions' in Australia, as electricity bills are about to jump by about +20%.

The UST 10yr yield starts today at 3.70% and down -1 bps from Saturday which was a huge -22 bps dump from Friday. 

On Wall Street, the S&P500 ended its Friday session down -1.5% and a -4.8% skid for the week. Fears of the Fed's response to the jobs data was compounded by the SVB risks. Markets could well be nervous when they open on Wall Street tomorrow, but we should note that the S&P500 futures are not indicating that, currently up +1.3% from the actual Friday close.

The price of gold will open today at US$1868/oz and up +US$4 from Saturday. The gain from a week ago has been +US$21/oz.

And oil prices start today -50 USc softer at just over US$76.50/bbl in the US. The international Brent price is still just under US$82.50/bbl. These levels are a -US$3 drop in a week.

The Kiwi dollar is softer, now at 61.3 USc. Against the Aussie we are up ¼c at 93.3 AUc and our highest of the year. Against the euro we are little-changed at 57.7 euro cents. That leaves the TWI-5 little-changed at 70.1. A week ago it was at 70.8.

The bitcoin price has recovered from this time Saturday, now at US$20,619 and up +3.5%, so about half of Saturday's fall. And volatility over the past 24 hours has been low at +/-0.9%.

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

And 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 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 strength of global labour markets is still on display, especially in the US.

But first, despite mortgage interest rates back rising again, last week mortgage applications rose as well and that breaks a three week retreat.

For all the talk about how Americans are supposedly loading up on more credit card debt, the latest data on overall consumer debt (January) shows it rose a very modest +US$15 bln and far less than was anticipated.

But the key overnight news has been the release of more data that points to a 'hot' labour market, not fading yet.

We get the US non-farm payrolls report for February this weekend (NZT) and it is expected to reveal their employment rose +205,000 on top of the prior month's +517,000 unexpectedly good gain. Today, the private ADP pre-cursor report was also strong for February, showing a gain of +242,000 and well above the expected +200,000. That has changed the risks for the non-farm movement to the high side. There is some evidence that the continued expansion is due to many more women returning to their workforce.

Data for their January JOLTS report also came in better than expected. The number of job openings fell by 410,000 to 10.8 mln in January and much better than the 10.5 mln expected, and the December levels were revised higher.

American exports rose in January from December and were at a level higher than anticipated.

All this data, especially the labour market data, is keeping pressure on the Fed. A return to outsized rate hikes are more likely now starting at their next review on March 23 (NZT), a rate that has already risen to 4.50% so far. A rise to 5.00% is priced in, and markets now expect it to rise to 5.65% within the next six months.

Locally, we should also note that our own two year swap rate rose to 5.54% yesterday, its highest in 15 years.

Canadian exports also rose more than expected in January and that enabled them to report a good trade surplus for the month when a deficit was expected.

Meanwhile, the Bank of Canada has kept its policy rate unchanged at 4.5% and maintained its quantitative tightening is a well-signaled and expected decision. Inflation is running at 5.9% there but their central bank thinks it has done enough for now with rate rises. It thinks their inflation will fall from here.

In China, their housing woes are having an interesting impact on mortgage borrower sentiment. Homeowners are paying down their loans much faster. Also motivating this are cash shifts back from disappointing returns in investment funds. This overall effect is showing up in bank earnings as they miss out increasingly on the lonf flow of interest earnings.

In Germany, 'real' retail sales were lower than expected, in fact they fell in January when a small rise was anticipated. But their industrial production data went the other way, expanding much more than expected in the month. However, that still left it -1.6% lower than the same month a year ago.

In Australia and in an overnight speech, the RBA Governor went out of his way to make two points. Firstly that future rate hikes by them are uncertain and very data dependent. And secondly, they don't care where the US rates end up; they are not trying to match them. This added a very dovish overlay to what was a hawkish RBA Statement on Tuesday. Markets now have to figure out the RBA's resolve on beating inflation which is currently running at 7.8%.

And yesterday we noted that air cargo volumes are now weakening. Today, January data shows that air passenger travel is strong and growing, also a sharp turnaround in a year. Domestic travel seems to be back to pre-pandemic levels, although there is some way to go for international travel. But it is recovering fast.

The UST 10yr yield starts today at 3.99% and a net +3 bps higher from yesterday although in between it got up to over 4%. Powell's Congressional testimony is moving this around today. 

The price of gold will open today at US$1817/oz and down another -US$4 since yesterday.

And oil prices start today down -US$1.50 at just over US$76.50/bbl in the US. The international Brent price is down to just over US$82/bbl.

The Kiwi dollar is down marginally, now at 61.2 USc. Against the Aussie we are back a little at 92.6 AUc. Against the euro we are little-changed at 58 euro cents. That takes the TWI-5 to 70.1 and little-changed from yesterday.

The bitcoin price is little-changed again from this time yesterday, now at US$22,143 and a further -0.7% slip. And volatility over the past 24 hours has been modest at +/-1.1%.

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

And 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 markets have been moved by US Federal Reserve chairman Powell's testimony to Congress and it was a bit more hawkish than markets were expecting. The 2-10 US bond yield curve hit -100 bps for the first time since 1981.

But first, the overnight dairy auction was a lame affair. Overall prices were down -0.7% in USD terms but given the shift lower in our currency they were up +0.7% in NZD terms. The WMP price was confirmed from the Pulse event the prior week, but the cheddar price took a very heavy drubbing, down more than -10%. Butter was essentially unchanged. None of the components lifted in the expected way, so this event has been a disappointment. Overall, this result isn't going to change any forecasts on its own, but it does expose the early February rise as an outlier, and there have been 18 event declines in the past year (of 26 events) and prices are now a third lower than where they were a year ago.

In Washington DC, Powell told the US Congress the Fed is prepared to increase the pace of rate hikes, because the data shows a stronger American economy that has been unresponsive to the rate hikes so far. He signaled that rate hikes will probably go higher than they have previously indicated.

While he was speaking, the retail data for last week came in and it was unusually weak, up only +3% from year-ago levels on a same-store basis and far less than inflation. In fact, it was the weakest rise since late 2021.

Perhaps reflecting the lower mood, the US logistics LMI eased back a bit in February, still expanding, but not by as much.

Across the Pacific, Chinese exports fell sharply, down -6.8% from year-ago levels in February. But this was less than the January fall of -9.9% and also less than anticipated (-9.4%). But despite 'beating estimates' it is a grim reminder of the global pullback in trade. Chinese imports fell a stunning -10.2% and much more than expected or in January.

Taiwanese February exports fell -17% and imports were down -9.4%, also reflecting the grim state of world trade.

Taiwanese inflation is now turning to deflation as the drop in trade pressures their economy. Year-on-year is is down to 2.4%. But consumer inflation rose very modestly in February from January, and producer prices actually fell on the same basis.

Back in China, the National People's Congress underway in Beijing is about to put public security, financial regulation and technology, all areas now handled by the state, under direct Communist Party control. It is raising their authoritarianism to a new level, making them more like North Korea in fact. Xi's grip is tightening. International firms are moving out of China and disengaging their supply chains.

In Europe, Germany factory orders were expected to all about -1% in January from December, but in fact they rose +1% to be up almost +11% from year-ago levels. To be fair much of this will be 'inflation' but not all, so they are facing a good future prospect in factory activity there.

Australian exports rose marginally in January from December which was an improvement over the prior month's slip. But imports rose much more, which shrank their enormous trade surplus somewhat.

But the key Aussie news was the RBA's +25 bps rate hike and the hawkish commentary from them. Some interpreted the Statement to suggest they are nearing the end of these hikes, but that is a wishful interpretation.

The weakening of global trade is also evidenced by the January air cargo data. The 2022 impetus has leaked away starting 2023 in a worrying trend.

The UST 10yr yield starts today at 3.96% and a net -2 bps lower from yesterday. 

The price of gold will open today at US$1821/oz and down -US$30 since yesterday.

And oil prices start today down -US$2 at just under US$78/bbl in the US. The international Brent price is down a bit more and is now just over US$83.50/bbl.

The Kiwi dollar is down -½c again, now at 61.3 USc and dragged lower by the AUD. Against the Aussie we are up a full +1c at 92.9 AUc. Against the euro we are little-changed at 58 euro cents. That leaves the TWI-5 at 70.2 and also little-changed from yesterday.

The bitcoin price is little-changed again from this time yesterday, now at US$22,298 and a -1% slip. And volatility over the past 24 hours has been modest at +/-1.4%.

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

And 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 all eyes today are on the signals to be sent by the Reserve Bank of Australia. Inflation seems to be easing there but the central bank is widely expected to keep its foot firmly on the throat of inflation with another rate rise.

But first, American factory orders fell in January, mainly because of weak aircraft orders. This was as expected. But without that category, they rose and by a bit more than the advance reports suggested.

In Canada, the Ivey PMI series which is the most widely-watched set there fell back to only a modest expansion in February and this was not expected. It is a far steeper drop than anyone saw coming.

South Korea is making progress on the inflation front - probably at the cost of growth. Their February CPI rate fell below an annualised 4% rate and the year on year rate slipped to 4.8%. We get their Q4 GDP growth data later today.

China has released its budget and most of the focus has been on the big increase in defense spending. But it also raises its spending to increase its grain reserves in a clear self-sufficiency push amid ongoing concerns over food security.

China is also quickly expanding is 5G base station network. It currently has 2.3 mln in place and will add another 600,000 in 2023. The country currently has more than 575 million 5G mobile phone users.

EU retail sales were expected to rise +1.0% in January, recovering from a chunky December drop. But in the end the rise was only +0.3% which disappointed market analysts. However, the softness is all about lower levels of fuel and energy sales, which for them may be a good thing.

In Australia, the Melbourne Institute's Monthly Inflation Gauge showed prices eased sharply to under 5% at an annualised rate in February from January from almost 11% annualised rate in January from December. This was the sixth straight month of increase in the index, bringing the year-on-year rate to 6.3%, which was the second highest since the series began. For sure, the RBA will have noticed this data ahead of their cash rate target review later today. But another +25 bps rise is baked in now and that will be their tenth in a row and taking their cash rate target to 3.60%.

Separately, the Aussie agricultural sector is in for a banner year this year on the back of very favourable La Nina growing conditions. They will produce product worth AU$90 bln in the 2022/23 year, also aided by high global prices. But forecasters expect drier conditions to return soon, so this may be a high mark for some time. Although late this year, their fire season is returning now on the back of some very hot weather.

The UST 10yr yield starts today at 3.98% and a net +2 bps from yesterday.

The price of gold will open today at US$1851/oz and down -US$6 since yesterday.

And oil prices start today up +50 USc at just under US$80.50/bbl in the US. The international Brent price is now just over US$86/bbl.

The Kiwi dollar is down -½c at 61.9 USc. Against the Aussie we are down marginally at 91.9 AUc. Against the euro we are down -½c at 57.9 euro cents. That all takes the TWI-5 down to 70.1 and a retreat of -40 bps.

The bitcoin price is little-changed again from this time yesterday, at US$22,523. And volatility over the past 24 hours has been low at +/-0.7%.

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

And 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 that so far, central bank brakes on inflation or optimism don't seem to be working yet.

First up today, global food prices were stable in February from January according to the FAO monitoring. That puts them -8.1% lower than year-ago levels when they were rising sharply. They are now -19% below their March 2022 peak and back to levels we first saw in October 2021.

In China, their National Congress, which marks the end of the road for Premier Li, is underway in Beijing, and has set its lowest economic growth target in decades, aiming for "about +5%" GDP growth this year, a relatively conservative target for them. But this comes after just a +3% advance in the tough 2022 year wracked by pandemic and big-power rivalry stresses - not to mention the property sector woes which are still high on their risk agenda.

But they are off to a positive start. China's private Caixin service sector PMI reported a good expansion in February, a bounce-back from January and confirming the official measure. New orders and employment rose in a direct response to their re-opening.

The expansion in the services sector was even stronger in India in February, out-shining both the US and China.

Singapore is doing it tough however. Their PMI turned negative in February as firms there pulled back, and the retail sales dived worryingly from the prior month in a report for January.

In the US, there were two respected services PMIs out over the weekend, both positive. The widely-watched local ISM one didn't dip from its strong January expansion when a dip was expected. Its employment component was especially strong. New order levels however were what really starred.

The internationally-benchmarked Markit one moved from a contraction to a minor expansion. They said new orders contracted but that employment rose.

Both reported that cost pressure reduced, although one noted that firms are still taking the opportunity to raise prices.

This coming week Fed chairman Powell is testifying in Congress and will use the opportunity to warn (that is, 'lay the groundwork') that interest rates still have some way to rise from here.

And other Fed speakers also said (and here) they will need to raise rates to higher levels than previously anticipated to prevent inflation from rising further, if the recent strength in hiring and consumer spending continues. ECB officials are saying similar things. Oddly both the bond and equity markets ignored the warnings last week.

In Canada they get a central bank rate review this week, currently at 4.50% and likely to rise. But the expected bounce back in building consents didn't happen in January after the sharp fall in December. They got another fall. So maybe the Bank of Canada will hold off. Inflation is falling quickly there now, down to 5.9%.

Germany reported that its exports rose in January from December to be +8.6% higher than the same month a year ago. Meanwhile they say their imports fell, mainly because their imports from Russia dropped -37% in January. They are learning fast how to do without Russian energy.

In the EU, they say producer prices fell in January from December and the year-on-year rise is moderating fast. This was a much larger monthly fall (-2.3%) than was expected (-0.3%).

In Australia, home lending was weak in January, dropping the most month-on-month since July 2022. Lending to investors fell the most. House price declines are suppressing listings and are likely to reduce loan sizes, putting downward pressure on total lending.

And tomorrow, their central bank will almost certainly raise their policy rate again, going from 3.35% currently to 3.60%. Pushback forces are growing, but until inflation looks like it is beaten, they are unlikely to sway the RBA. Markets have now priced in rises to 4.20% by September. (Those same markets have priced in the New Zealand OCR rising to 5.50% by August.) It is worth remembering that RBA rises pack more punch and have an immediate impact solely because most borrowers are on floating rates and are leveraged more.

The UST 10yr yield starts today at 3.96% and down -1 bps from Saturday but little-changed in a week. 

The price of gold will open today at US$1857/oz and up +US$10 since Saturday. It is up +US$46/oz for the week, or a 2.5% rise.

And oil prices start today up +50 USc at just under US$80/bbl in the US. The international Brent price is now just under US$86/bbl. These are weekly rises of +US$4/bbl.

The Kiwi dollar is little-changed at 62.2 USc. Against the Aussie we are still at 92 AUc. Against the euro we are also little-changed at 58.5 euro cents. That all takes the TWI-5 to 70.5 and up only up +30 bps in a week.

The bitcoin price is virtually unchanged from this time Saturday, still at US$22,453. And volatility over the past 24 hours has been modest at +/-1.1%.

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

And 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.