Economy Watch

Just a couple of years ago there was huge excitement about buy now pay later (BNPL) companies. Via smartphone applications, or apps, their buy now and pay over installments service0 was drawing in consumers and worrying banks.

The high water mark saw US payments company Square, now Block, strike a US$29 billion deal to acquire Australian BNPL service provider Afterpay in August 2021.

But 18 months on the picture is very different with several BNPL companies in serious difficulties or shutting up shop. Latitude Financial Services has just announced its pulling the plug on Genoapay, its BNPL service. Openpay went into receivership, Humm pulled out of the New Zealand market and NZ company Laybuy has delisted from the Australian Stock Exchange.

So what has gone wrong with the BNPL sector? And did its substance ever really match the hype swirling around it?

To discuss this we spoke with Melbourne-based Grant Halverson, CEO of retail banking and payments consultancy McLean Roche, in the latest episode of interest.co.nz's Of Interest podcast.

Halverson notes that BNPL services, in one form or another, have been around for centuries. The new twist was putting an app on a phone. He notes the sector, which both the NZ and Australian governments are moving to regulate, currently offers unregulated credit.

A long time critic of the sector, Halverson describes it as: "Worse than payday lenders in terms of what they're doing, but they do it with an image that doesn't actually hold scrutiny."

Whilst supporting moves to regulate BNPL services, Halverson suggests many of the companies won't be around for much longer as the rising interest rate environment has dramatically increased their funding costs.

'I think it [the future] is very dismal. I think unless they can be bought by somebody most of them [ BNPL companies] will have disappeared by the end of this year. They're all in trouble, they're all in deep trouble," says Halverson.

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

Kia ora,

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

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

And today we lead with news bond interest rates pushed higher overnight on a backdrop of stubborn inflation signals.

But first, last week American jobless claims slipped slightly to +201,000 and taking the total number of people on this support to just under 1.9 mln. A rise was expected. So far, this leading indicator isn't showing any changed labour market stress. It has been widely expected for months but just hasn't surfaced yet.

Meanwhile, American labour productivity is rising. Output rose +3.1% while hours worked rose +1.4%, giving a boost to a key economic metric. However, this is Q4-2022 data so a little dated.

US car sales ran at a 15.7 mln annual rate in January, a fifth straight month of increase. Easing supply chain pressures are getting the credit as manufacturers are able to deliver more. The US is the world's second largest car market, well behind the expanding Chinese market.

Across the Pacific, there was again no useful data released by Chinese authorities. But a survey by the Shanghai-based American Chamber of Commerce in China, found that most members plan to stay engaged, but worryingly a quarter said they had started disengaging in some way, up from 14% a year ago.

In Hong Kong retail sales bounced back strongly in January, although the timing of the New Year holiday embellished the data this year. And it was off a weaker than usual base a year ago.

Singapore's PMI however didn't change much, still in a steady state of neither expanding nor contracting. Still, that is a small improvement for them, away from contracting.

In Europe, while energy inflation slowed, food inflation rose. Their CPI dipped to 8.5% in February, the lowest since last May, but above market expectations of 8.2%. This latest data reinforces that inflationary pressure remains high in Europe and bolstered expectations that the ECB will remain hawkish for longer. 

In Australia, building consents collapsed in January. They slumped -28% month-on-month to 12,065 units, reversing from an +18% rise in December and coming in worse than market expectations for an -8% drop. That is a decade low. Year-on-year they are down -8.4%. This was also among the steepest declines on record as higher interest rates dampened economic activity. A -40% drop in multi-unit dwellings was the main drag.

Although it has dropped fast to a low level, the cost of international containerised freight fell even more last week, down -2%. Outbound rates from China are the weakest. Rates are now more than -30% lower than ten year averages - averages that include the very high two year pandemic peak. Rates for bulk cargoes however are recovering fast from their unusually low mid-February trough. That have doubled since that unusual point.

The UST 10yr yield starts today at 4.08% and up +9 bps and its highest since November. 

The price of gold will open today at US$1836/oz and down -US$5 since yesterday.

And oil prices start today up +US$1 at just under US$78/bbl in the US. The international Brent price is now just over US$84/bbl.

The Kiwi dollar is down -½c at just under 62.1 USc. Against the Aussie we are little-changed at 92.4 AUc. Against the euro we are unchanged at 58.6 euro cents. That all takes the TWI-5 to 70.6 and down -20 bps.

The bitcoin price is a little softer today, now at US$23,269, and down -1.9% from this time yesterday. And volatility over the past 24 yours has been modest at +/-1.3%.

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 China seems to be shaking off its pandemic handbrake faster than many expected.

China said both its factory sector, and its services sector, each expanded at a moderate rate in February, a key set of improvements. Both were outcomes better than expected. The services sector result was a two year high; the factory result was a ten year high. And backing that up was the private Caixin PMI survey which reported similar good improvements.

Meanwhile, there are some indications that local incentives are in fact luring more buyers back into their housing markets.

Those much better China PMI results mean that globally, the factory sector returned to an expansion mode. Output rose for the first time in seven months amid improving supply chains and China's re-opening. Business optimism also revived, rising to its highest level in a year. This expansion and mood is being led by India, China and South East Asia. Now Europe, Japan and the US are the laggards.

The hoped-for turnaround in the American mortgage market has been a mirage. After a brief revival in application activity in January when mortgage rates dropped to 6.2%, there has now been three straight weeks of declines in applications as mortgage rates have jumped 50 basis points over the past month. Those applications fell -5.7% last week and the benchmark mortgage rate rose to 6.71% plus points. Those applications are now running a spectacular -70% lower than year-ago levels.

The ISM manufacturing PMI edged higher to 47.7 in February from 47.4 in January, which was the lowest since May 2020, but fell short of expectations of 48. The reading pointed to a fourth consecutive month of falling factory activity with companies continuing to slow outputs to better match demand for the first half of 2023. It's not much, but the contraction in new orders eased off, if there is a bright spot in this data.

American construction spending isn't coming to the rescue, although to be fair it isn't a drag either.

The price pressures within the PMI data has markets raising their expectations on where the US Fed will have to go to with its policy interest rate. Now bond market pricing indicates a 5.5% Fed rate by September, from its current 4.5%. The next review is on March 23 (NZT) and it is expected to rise to 4.75% then.

German inflation isn't moderating. It came in at 8.7% in February, not far from a peak of 8.8% seen in October and November and above market expectations of 8.5%, its preliminary estimate showed. On an EU harmonised basis, prices rose +9.3%. Food prices are the driver as oil and gas prices ease off. This data is sure to steel the ECB for more rate hikes.

Australia reported its Q4-2022 GDP growth yesterday, coming it as expected at +2.7% from the same quarter a year ago. In Q3-2022 it was +5.9% so the rate more than halved.

Like New Zealand, Australia also reports its formal CPI on a quarterly basis, and for Q4, 2022 that was +7.8%. But they also have a monthly CPI indicator series and for December that came in at 8.4%. However that monthly measure fell back to 7.4% in January, their second highest level since this monthly CPI series started in 2018. Analysts had expected it to retreat to 8% so this is a bigger fall than expected.

The UST 10yr yield starts today at 3.99% and up +6 bps. 

The price of gold will open today at US$1841/oz and up +US$13 since yesterday and building on yesterday's move up.

And oil prices start today down -50 USc at just under US$77/bbl in the US. The international Brent price is now just under US$83.50/bbl.

The Kiwi dollar is up another +½c at just under 62.6 USc. Against the Aussie we are up +¾c at 92.5 AUc and a six week high. Against the euro we are firmish at 58.6 euro cents. That all takes the TWI-5 to 70.8 and up +50 bps.

The bitcoin price is now at the upper end of its recent range, now at US$23,719, up +1.1% from this time yesterday. And volatility over the past 24 yours has moderate at +/-2.0%.

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 the world seems to be settling in to a low-growth high-inflation period, not quite stagflation but disarmingly close.

In the US, retail sales last week on a same store basis were up +5.3% from year-ago levels, unchanged in a week, and hardly accounting for inflation.

American inventories were little-changed in January from December. But that can't hide the fact that retail stocks of goods are +12% from year-ago levels and wholesale stocks are up +16% on the same basis. Still, it is probably good that that expansion seems to have stopped, and that some of it is "just inflation".

Meanwhile, American exports slipped in January from December to be up less than +12% in a year. But imports rose marginally on the same basis but are only up +2% year-on-year. That means their merchandise trade deficit rose to almost -US$89.3 bln in the month from December, but is actually -US$11 bln less than the same month in 2022.

The Chicago industrial heartland isn't in its best shape, with declining activity, according to the ISM Chicago PMI for February. It is contracting at a pace that is uncomfortable for them but at least there is light ahead - New Orders, Order Backlogs, and Supplier Deliveries increased.

The situation is similar in the Richmond Fed district's factory survey in the mid-Atlantic states region. New order levels are quite weak here, but those firms surveyed expected them to pick up soon.

Consumers are less optimistic than expected. The Conference Board consumer sentiment survey was expected to improve from a modest net positive. But it actually slipped back in February - still positive, but less so than expected. It was their view of business conditions that lagged. Their view of the American labour market was more positive.

The Canadian economy was unchanged in Q4-2022 from the prior quarter, putting an end to five consecutive quarters of growth and following a +2.3% pa expansion in Q3. That was a disappointment. Markets had expected a modest +1.5% Q4 boost.

India said they ended 2022 with less of a tailwind. Their Q4-2022 GDP data shows their economy expanded +4.4% from year-ago levels, well below the +6.3% in the three months to September. Analysts expected +4.6%. Private spending which accounts for almost two thirds of their GDP slowed sharply. Still, India's expansion is outpacing China at present.

In Japan, their retail sales came in very strong in January, up +6.3% when a +4% rise was expected, and compared with a +3.8% rise in December. But things were not so great for their industrial production, which fell a sharpish -4.6% in January.

Both Spain and France reported February inflation levels overnight and both came in higher than in January. Bond markets noticed.

In Australia, it is becoming clearer that their immigration surge is turning the housing market prospects around from 'negative' to 'balanced', according to Westpac. They report a material tightening in rental markets. Continued net inflows and subdued levels of new building mean a sustained further tightening across the wider market is likely in coming years. These forces are likely to push the current focus on inflation and interest rates into the background there.

Even though retailer Harvey Norman said its sales were down -10% in January, national Australian retail sales surprised on the upside, coming in up +1.9% from December and up +7.5% from a year ago. These rises are not inflation adjusted however. But they do follow a sharp retreat in December. Yesterday the share market was not kind to the Harvey Norman share price which was down -12.5.

Staying in Australia, regulator ASIC has launched its first court action against alleged greenwashing conduct, commencing civil penalty proceedings in the Federal Court against Mercer Superannuation for allegedly making misleading statements about the sustainable nature and characteristics of some of its superannuation investment options. ASIC alleged Mercer, which oversees A$27.5 billion in assets, misled members of its Sustainable Plus fund by claiming it excluded companies that were involved in carbon intensive fossil fuels but then heavily invested in 15 stocks from the sector including AGL Energy, BHP, Glencore and Whitehaven Coal.

The UST 10yr yield starts today at 3.93% and up +1 bp. 

The price of gold will open today at US$1828/oz and up +US$11 since yesterday.

But oil prices start today up +US$1.50 at just on US$77.50/bbl in the US. The international Brent price is just over US$83.50/bbl.

The Kiwi dollar is up almost +½c at just under 62 USc. Against the Aussie we are firmer at 91.8 AUc. Against the euro we are firmish at 58.4 euro cents. That all takes the TWI-5 to 70.3 and up +30 bps.

Bitcoin is still within its recent narrow range, now at US$23,450, up +0.3% from this time yesterday. And volatility over the past 24 yours has remained quite modest at +/-1.0%.

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 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 we are in that transition zone where 'gains' and 'losses' are offsetting each other.

First, American durable goods orders retreated in January from December. A fall was expected mainly because there was an outsized rise the prior month, but it was more than anticipated. However the retreat was mainly due to a drop in orders for commercial aircraft. Excluding that, there was a rise. And on the same basis, capital goods order rose as well, suggesting boardrooms are still in 'invest' mode. (It is likely that February orders will jump, based on some very large recent aircraft orders.) Year on year, durable orders are up +3.0% and non-aircraft capital goods orders are up +5.3%. (As an aside, it is notable how small defence orders are in the scheme of things. They represent less than 5% of total orders and are pretty stable. You might have thought the defense of Ukraine would have supersized these, but it hasn't been the case.)

In the US oil patch, the Dallas Fed's factory survey is weak in February. We have noted it declining for some time, but now it is lower than year-ago levels for the first time since May 2020. The non-month run of declining new orders has caught up with them. This is a specialised region, so it is hard to draw national conclusions from it.

But nationally, in what their sector suspects is a turning point, the number of pending home sales in January rose more than expected from December, and by quite a bit more. A +1% rise was anticipated but the actual increase was +8.1%. This surprise gain comes on top of the stronger new home sales we noted last week.

Hong Kong reported a huge retreat in merchandise trade activity for January. Exports fell -37% from year-ago levels while imports retreated -30%. These were worse levels than for December. The export drop was their largest in 70 years. It is sad to watch the life being squeezed out of what has been a globally important city.

In the UK, they seem to have tidied up their deal with the EU on trade with Northern Ireland, a revised side deal called the Windsor Framework. Both sides claim 'victory' which is usual in these sorts of negotiations.

In Australia, their prudential regulator APRA has kept its pandemic extra's, the 1% capital buffer for risk weighted assets, a buffer in bank capital for stress, and a 3% serviceability buffer "to maintain prudent lending standards". That's +3% above the rate banks will lend at. Borrowers must meet lending standards at that extra higher level.

The UST 10yr yield starts today at 3.92% and down -3 bps. 

We should also note that the two year swap rate hit its highest level yesterday since November 2008.

The price of gold will open today at US$1817/oz and up +US$6 since yesterday.

But oil prices start today soft at just under US$76/bbl in the US. The international Brent price is just over US$82/bbl. Both remain little-changed in a week.

The Kiwi dollar is still at 61.6 USc, and unchanged since yesterday even if it is still close to a three month low. Against the Aussie we are also little-changed at 91.6 AUc. Against the euro we are soft at 58.2 euro cents. That all takes the TWI-5 to 70 and down -20 bps.

Bitcoin has within its recent narrow range, now at US$23,387, up +0.9% from this time yesterday. And volatility over the past 24 yours has remained modest at +/-1.5%.

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 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 all eyes this week will be on how equity markets react to stubborn US inflation and the expected Fed resolve.

But first, in China they are about to dump the respected technocrat boss of their central bank with new political appointments and giving Beijing even closer control over monetary policy. It is a shift that raises the risks of unexpected consequences in policy changes. It is also very noticeable how little economic data is being published by China these days. It was already quite light for a major power, but the flow is drying up even more. Their push to deny international news organisations visas has tightened the flow inexorably. China is more opaque than ever.

Separately, the central bank released a standard quarterly "implementation report" on Friday, saying it wants to avoid "flood irrigation" of new debt to support their recovering economy. But they also noted the external environment remains "severe and complex", adding that the basics of domestic economic recovery are "not solid". The report also said the property sector requires time to transition while the pressure of balancing local government fiscal revenue and expenditure persists.

This report is probably the final from the current bank leadership. You have to hope the new appointments retain a sense of realism to avoid boom settings that will just make the resulting bust arrive faster.

Japan reported CPI inflation in the year to January of 4.3%, up from 4.0% in December. This is their highest rate in 42 years, since December 1981. Food prices were up 7.3%. But generally it was driven by rises in the cost of imported raw commodities and yen weakness. The annualised rate of change between December and January was almost +5%, so the pace is quickening. There is now a greater chance the Bank of Japan will pivot away from its long-standing ultra-loose policies. Not only is there a new BofJ boss incoming, but major companies are starting to raise wages sharply, a key factor for the central bank.

Going the other way, Singapore's industrial production fell in January and by much more than expected. It was expected to dip slightly from December but the actual data was much worse and twisted the year-on-year result to a retreat.

Over the weekend we got data that shows the American policy response against inflation isn't working yet. Their core PCE price index, the Federal Reserve’s preferred gauge to measure inflation, rose by 4.7% annually, higher than 4.6% in December and surpassed market expectations of 4.3%. More concerning is that the annualised rise from December to January was at a rate above 7%.

"Better" or "worse" depending on your perspective, is that incomes are rising at the same rate. It is "good" that workers are not falling behind, and a tight labour market helps that. But it is "bad" because policy makers will see that wage claims are a driver, and wage-push inflation is settling in. The only way out of that is to induce a recession. But they don't look like they are anywhere near that yet.

Markets are nervous. Equity prices fell, bond yields rose, and the USD jumped. Markets are expecting the Fed will push on and do what it says it wants to go; kill off wage-push inflation. And that means tough times are ahead.

But just not yet.

Sales of new American homes in January came in higher than expected, and a boost to housing confidence.

More generally, the widely-watched University of Michigan sentiment survey also showed rising confidence. It not only rose from the prior month, it is up strongly from a year ago. Americans seem to be tolerating higher prices when they aren't being hurt on the income side.

Warren Buffett's Berkshire Hathaway reported its 2022 results, and they are an overall -US$22.8 bln loss, and unusual result for Buffett. He is dismissive of the formal accounting result however, saying "exclusive of capital gains or losses from equity holdings, [earnings] set a record at $30.8 billion". His Annual Letter to Shareholders was unusually short this year.

Across the Atlantic, Germany updated their interim Q4-2022 GDP result with a slightly bigger retreat than first indicated and a loss of momentum as the year ended. Weaker business investment was behind this shift

In Australia, another BNPL champion as reported a continuing cash burn and has been forced to retreat from more offshore markets to stem the flow. It is pulling out of Mexico, Singapore and the UK. And it will soon retreat from India, Turkey, the Czech Republic, South Africa, Poland and the Philippines. BNPL has hardly ever been a profitable business for anyone, lots of 'mystery' with no positive 'history'.

Elsewhere, it is interesting to note that the rare metal molybdenum has zoomed in price recently. It is the ingredient that hardens steel. There is a severe supply squeeze on at present. This one stands out as most other major metal prices are stable or soft.

The UST 10yr yield starts today at 3.95% and unchanged since Saturday but up +14 bps in a week. 

The price of gold will open today at US$1811/oz and unchanged since Saturday. But that is a -US$30 fall in a week.

And oil prices start today up +50 USc at just over US$76.50/bbl in the US. The international Brent price is still at US$82.50/bbl. Both are unchanged in a week. Interestingly, the North American rig count is falling again in direct response to low prices. Those are down -4% since the recent peak in November when prices were over US$90/bbl.

The Kiwi dollar is at 61.6 USc, and unchanged even if it is close to a three month low. Against the Aussie we are also little-changed at 91.7 AUc. Against the euro we are holding at 58.5 euro cents. That all takes the TWI-5 to 70.2 and also very little-changed.

Bitcoin has stayed pretty much unchanged over the weekend, now at US$23,188. And volatility over the past 24 yours 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.

In a rare show of bipartisan cooperation, the Labour and National parties teamed-up to enact new housing intensification laws in late 2021.

This came through the Resource Management (Enabling Housing Supply and Other Matters) Amendment Act. Pushed through a rushed select committee process to the protestations of the ACT and Green parties, it will allow the building of up to three homes of up to three storeys on most sites in Auckland, Hamilton, Tauranga, Wellington and Christchurch without the need for a resource consent.

Councils in the five cities are now moving to adopt medium density residential standards (MDRS). 

But what does all this really mean, where's the process at, and is this actually the right way to tackle New Zealand's housing crisis?

To discuss all this we spoke with Doug Fairgray, director at consulting and economic research firm Market Economics, in a new episode of the Of Interest podcast.

"One of the effects [of the changes] will be that the distribution of new housing supply is likely to become spread more widely across cities rather than focused around centres and transit stations as is intended under the National Policy Statement [on Urban Development]," Fairgray says.

"There has been a strong narrative, [over] the last decade at least, that planning is to blame for high housing prices. And that has led to a focus that therefore planning legislation should solve the problem. There's quite a debate about that because house prices have been driven above all by consumer sentiment and interest rates," adds Fairgray, who is also secretary of the Association for Resource Management Practitioners.

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

Kia ora,

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

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

And today we lead with news underlying resilience is holding the global economy from any meaningful pullback.

There are no real signs yet of weakness in the American labour market. Their jobless claims were expected to rise last week, but they fell and were below their low year-ago levels. There are now 1.9 mln people on these benefits, 1.3% of their workforce.

The American Q4-2022 GDP growth data was updated today. Recall the advance estimate was a surprise +3.1% rate and this latest update was expected to trim that to +2.9%. But in the event, it has come in even lower at +2.7%. Actually, this second estimate recorded a higher nominal expansion, but also a higher price adjustment, so the 'real' expansion is lower. There will be a third estimate released on March 31 (NZT). The Q4-2022 New Zealand GDP result will not be released until March 16.

The next regional Fed factory survey is out, this one from the Kansas City Fed district. It shows a slight easing of conditions there, but they did record gains for new orders and jobs, which is more positive than many other districts.

In fact, the Chicago Fed's National Activity Index suggests economic growth picked up in January, and probably its best expansion in six months.

Taiwanese industrial production slumped more than -20% in January from a year ago in a worrying dive. But their retail sales rose on the same basis, although at a fast-easing rate.

Singapore's inflation rate was little-changed in January at 6.6% (December 6.5%). But this was less than the expected 7.1% so they will count this as a win.

In South Korea, they had a monetary policy review yesterday and they held their benchmark interest rate at 3.5%, as expected. This is regarded as a hawkish pause as more voting members seem to be open to future hikes. They are still battling inflation above 5%, but their expansion is slowing.

We should note that the case of mad-cow disease in Brazil has been confirmed. Already, exports to China have been suspended. This may rock beef prices in the short-term and the share price of all the major Brazilian exporters have been hit hard.

In Australia, a migration boom is underway. More than 400,000 permanent workers arrived in the country in 2022, and while this pace is expected to ease off, they still expect +350,000 this year and another +275,000 next year. That is +1 mln in just three years, and alone will raise Australia's population by +4% and decrease its average working age. They seem to be up for the inevitable stresses that may bring in the short term. If demographics is destiny, then Australia's looks bright.

The OECD is noting that international trade contracted in value terms in Q4-2022, although some of that is related to the sharp falls in the price of crude oil.

Reflecting that pullback, global container shipping rates fell another -3% last week and are now -30% below ten year averages. Bulk cargo rates actually stopped falling this week and turned a little high, but are still near their pre-pandemic lows.

The UST 10yr yield starts today at 3.91% and up +1 bp from yesterday but still off its recent highs. 

The price of gold will open today at US$1820/oz and down -US$12 from this time yesterday.

And oil prices start today up +50 USc at US$75/bbl in the US. The international Brent price is now at US$81.50/bbl.

The Kiwi dollar is at 62.1 USc, softer than this time yesterday. Against the Aussie we are a little firmer at 91.8 AUc. Against the euro we are unchanged at 58.7 euro cents. That all takes the TWI-5 to 70.3 and a -10 bps easing.

Bitcoin has risen +1.1% since this time yesterday and is now at US$23,865. However, volatility over the past 24 yours has again been moderate at +/-2.1%.

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 on Monday.

Money laundering is a scourge of the modern financial world. Whether it's the actual dirty money stretching its tentacles and influence widely, or the US$210 billion annual tick-box compliance effort as people and companies strive to meet anti-money laundering laws, the impact is massive.

In a new book, The War on Dirty Money, authors Nicholas Gilmour and Tristram Hicks detail the failings of the fight against money laundering and offer solutions designed to make the war more winnable.

Speaking to interest.co.nz for the Of Interest podcast, Gilmour describes dirty money as all money deriving from crime, and money laundering as a series of transfers and purchases as criminals strive to distance the money from the crime. The war against dirty money needs a better global response, says Gilmour, with New Zealand one of hundreds of countries where dirty money sloshes around.

Hicks points out the horrendously high death toll from the recent Turkish earthquake involves a "straight forward link" between corruption, dirty money and the loss of life because of corruption around building standards.

So is the war winnable?

"We think it is [but] it's going to be a difficult war to win. This is a global problem, it requires a global solution. But it is winnable and it's winnable in small increments. It's not going to be easy and it's going to mean that some people have to change their mindset completely, do a 180 degree change in their mindset," says Gilmour.

"The Financial Action Task Force [the global money laundering and terrorist financing watchdog] only looks at countries, it doesn't look at illicit financial flows between countries. We think that it could do that and we've proposed a way of doing it," Hicks adds. 

Gilmour, now a consultant/advisor working with governments and the private sector on financial crime, analysis plus information and intelligence sharing, previously worked for the NZ Police Financial Intelligence Unit. Hicks is an advisor on the operational effectiveness of asset recovery and criminal justice anti-money laundering regimes.

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 that high bond yields are rattling international equity markets. 'Good' economic news is currently 'bad' for market prices because it brings expectations the monetary authorities will keep raising interest rates.

But first, US mortgage applications took another sharp dive last week, down -13% from the week before to be a stunning -72% lower than year ago levels. That was undoubtedly because benchmark mortgage interest rates jumped to 6.62% and their highest of the year so far. The American real estate market seemed to have effectively stalled.

Meanwhile, consumers have turned their attention to retail therapy. Same-store sales rose last week to be +5.3% higher than year-ago levels, roughly keeping pace with retail inflation, and bucking the idea than things are generally grim. It seems to be only their housing market that meets that criteria.

In Brazil, they are mobilising investigations into a suspected case of mad cow disease. If Brazil suddenly stopped exporting beef, that would throw the international market into turmoil - and be inflationary everywhere else.

We noted yesterday that German business sentiment is improving, and another widely-watch survey on that is out today confirming the trend, their most optimistic since June last year.

In Australia, their wage price index rose again in Q4-2022 to reach its highest in a decade. That's the good news. The bad news is that wages are rising at only half the inflation rate, so Aussies are suffering a sharp loss in real wage levels. It seems to be a uniquely Aussie problem, with the data here showing that wage gains seem to have kept up with inflation - so far at least.

We should note again that the international price of natural gas just keeps on falling, now back to levels we last saw in 2020 and first saw in 1990. After some strategic shocks, it looks like the world has effectively pivoted away from growing use, leaving suppliers with an unprofitable trade. The inflation-adjusted cost of natural gas is its lowest ever, and it is similar for crude oil.

And we should note that the cost of lithium is sinking very fast now, almost a collapse. It is down -30% from its high in November. Waning demand for EV's is said to be the driver of this sharp shift.

It is also worth noting that the cost of carbon credits in New Zealand continue to retreat, now at one year lows.

The UST 10yr yield starts today at 3.90% and down -4 bps from yesterday and off its recent highs.

The price of gold will open today at US$1832/oz and down -US$2 from this time yesterday.

And oil prices start today down -US$2 at US$74.50/bbl in the US. The international Brent price is now at US$81/bbl.

The Kiwi dollar is at 62.3 USc, very little-changed from this time yesterday. Against the Aussie we are +1c firmer at 91.4 AUc. Against the euro we are almost +½c higher at 58.7 euro cents. That all takes the TWI-5 to 70.4 and a +50 bps rise.

Bitcoin has retreated sharply from this time yesterday and is now at US$23,605 which is down a large -6.5%. Volatility over the past 24 yours has been moderate at +/-2.4%.

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.