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.

Today we lead with news markets are pricing much lower yields for NZ Government bonds, partly in response to international market shifts.

But first, the turn in US economic fortunes still hasn't shown up in their weekly jobless claims data. They came in low last week and lower than expected. There are now 1.9 mln people on these benefits.

But weaker conditions are showing up in more factory data. However the Fed's monthly Beige Book surveys came in less negative than expected, noting "moderate to modest" expansions across the country, in their labour markets, and for prices.

The Philadelphia Fed's updated survey stayed slightly negative in January, although less so than for the prior month.

American building consent and housing start data were both slightly lower in December, but not significantly so. Essentially they are both settling out at pre-pandemic levels.

The latest data on long term investment flows in and out of the US shows larger inflows than were expected in December, and for the year.

It is tough being a bear on the US economy.

But you are being helped by Republicans in Congress who are refusing to pass a budget resolution. The US Treasury has started its 'extraordinary measures' to keep the US Federal Government from defaulting on its payments. Those are likely to drag on for many months yet in response to their pathetic game of chicken.

In Japan, exports rose more than expected in December, and imports rose less than expected. But they still ran a record high trade deficit, which is an historically unusual position for them.

The ECB says inflation in Europe is still way too high. They signaled they are determined to push rates into restrictive territory “for long enough” to return inflation to their 2% target.

In Australia, consumer inflation expectations in rose to 5.6% this month from 5.2% in December, though a general moderation in expectations has been evident in recent months as consumers appear to be responding to higher interest rates, according to the Melbourne Institute who do this survey.

And staying in Australia, the December labour market data was a minor disappointment - mainly because November data was revised lower. Full time employment rose +17,000 when +34,000 was expected. Part-time positions retreated -32,000 when they were expected to expand +25,000. Most analysts seem to think the December hesitation is a 'one-off'.

Container shipping costs were virtually unchanged last week, although bulk cargo freight rates continued they sharp falls and are back at or below their long term averages, which given inflation, makes them very cheap again.

The UST 10yr yield starts today at 3.42%, and up +3 bps from yesterday. 

The price of gold will open today at US$1921/oz and up +US$15.

And oil prices start today little-changed at just over US$81/bbl in the US while the international Brent price is just over US$86.50/bbl.

The Kiwi dollar has softened overnight, now at 63.9 USc and down -½c. Against the Australian dollar we are little-changed at 92.5 AUc. Against the euro we are down -¾c at 59 euro cents. That all means our TWI-5 starts today at 71, and down -50 bps since this time yesterday.

The bitcoin price is stable now at US$20,939 and virtually unchanged from this time yesterday. 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 will do this again on Monday.

Kia ora,

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

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

Today we lead with news that the economic pace is shifting lower in the US  and higher in China.

Although American mortgage applications rebounded strongly last week from the New Year break, they remain well below year-ago levels. But mortgage rates are now falling and are their lowest since September. Despite that, the recovery in transactions in their real estate market are very modest at best.

There is a similar weak rebound in their retail markets for the new year. Sales are up on a same-store basis last week, but not up enough to account for inflation.

And their respected Advance Retail Sales data shows overall December sales fell -1.1% from November, and a rather startling retreat. Year-on-year they are up just +5.3% and nowhere near enough to account for inflation. The Fed's dampeners are working.

On the industrial front, we are starting to see concrete signs of deflation starting to emerge. Even though producer prices are +6.2% higher than year-ago levels, they fell at a -6% rate in December from November, which was more than anticipated.

Business inventories are swelling much faster now, as the slowdown makes this much harder to manage. They were a massive +15% higher than a year ago in November. To be fair however, they are only just back to the range they were in prior to the pandemic on an inventory-to-sales ratio basis.

As you might expect, American industrial production is waning now, and contracted in December from November at an annualised rate of -8% which is pretty sharp. Year on year it is up only +1.6% on a 'real' basis and that is the slowest expansion since before the pandemic.

It is not only industrial production that is turning lower. Overnight Microsoft announced that it is laying off 10,000 employees. The worm is turning even among the tech giants.

With all this weak news, both equity and bond markets are retreating in the US.

Canada also released its producer price data for December. And that also revealed a shift to deflation, and rather a sharp turn. Year-on-year those costs are still +7.6% higher, but that is down from +9.4% in November, so a sharp turn recently. But like the Americans, the main driver for the retreat is falling energy costs, so that isn't necessarily bad.

Chinese foreign direct investment data was reported late yesterday for December and that was weak from the prior month, and similar to the very modest rise in November. Both levels re rising less than the equivalent rises in 2021. In most years there is a surge in December, but that was notably absent this year.

In Japan, their central bank kept its ultra-easy monetary policy unchanged, despite the bond market fallout from a surprise policy shift last month. After the two-day meeting, the BOJ's nine-member board maintained its yield curve control policy, keeping its target band for 10-year Japanese government bonds at between plus and minus 0.5%.

Japan also released data for their industrial production, but that was nor November. However, their results were the opposite of the US. They reported lower year-on-year results, but a sharp improvement in November from October (+2.4% real annualised rate) indicating recent improvement. We also saw that in their December machine tool orders data we noted yesterday.

In Australia, the number of houses (dwellings) under construction reached a record high in December, but that is just as the number of consents and starts for new dwellings fell very sharply.

If they implement the BEPS reforms, the OECD says governments could get a bigger windfall than previously estimated, maybe as much as NZ$400 bln. Holding that up however, is the US Congress and its new Republican-controlled House of Representatives many of whom are in the pocket of wealthy supporters.

Meanwhile the IEA says global oil demand is set to rise by +1.9 mb/d in 2023, to a record 101.7 mb/d, with nearly half the gain from China following the lifting of its pandemic restrictions. Jet fuel remains the largest source of growth.

And at Davos, the IMF is suggesting it is likely to upgrade global growth forecasts because the prospects for improvement after China's reopening may be better than first assumed.

The UST 10yr yield starts today at 3.39%, and down -15 bps from yesterday. 

The price of gold will open today at US$1906/oz and down another -US$6.

And oil prices start today up +50 USc at just over US$81/bbl in the US while the international Brent price is just over US$86.50/bbl.

The Kiwi dollar has firmed slightly overnight, now at 64.5 USc but that is now a two-month high. Against the Australian dollar we are firm too at 92.4 AUc. Against the euro we are up at 59.7 euro cents. That all means our TWI-5 starts today at 71.5, and up another +30 bps since this time yesterday.

The bitcoin price is marginally lower, now at US$20,959 and down -1.1% from this time yesterday. Volatility over the past 24 hours has been moderate at +/- 2.9%.

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 will do this 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.

Today we lead with news inflation may be transitioning lower, but investors seem uncertain what that will do to the level of economic activity

But first up today, there was another dairy auction this morning, and not especially notable. Prices dipped -0.1% in USD terms. Only cheddar cheese showed any life, up +4.0%. The rest of the components moved very little. For example the core WMP price was up a mere +0.1% and SMP was down -0.3%. However even though these prices were little-changed they were undermined by a rising NZD. In local currency, prices fell -2.9% from the prior event. That takes them, in local currency terms, down to the lowest they have been since February 2021. Not helpful.

The New York state factory index turned in a shocker of a result, falling hard. In fact (apart from the pandemic halt), it was their weakest result since the depths of the GFC. Apart from lower inflationary pressures, there are no positive indications here.

In Canada, inflation is easing too. Their December CPI slipped to 6.3%, the least since February and below market expectations of 6.4%, compared to the 6.8% in November and further declining from the 1983-high of 8.1% reached in June. Lower petrol prices drove this latest result. Will it be enough for the Bank of Canada to ease off its rate hikes? We will know when they next meet on Thursday next week.

Meanwhile, Canadian housing starts fell away quite sharply in December and by more than expected. It wasn't a huge miss, but it is their lowest level since January 2022.

Canada is also taking "aggressive measures" to free up its borders and build its immigration levels in the face of serious skill shortages.

China said its economy expanded +2.9% in Q4-2022 from the same quarter a year ago. This was nearly double what was expected. For the full year, it claims +3.0% real. At the same time it said industrial production rose just +1.3% in Q4. Retail sales fell, down -1.8% (an -8% fall was expected. And electricity production was up +3.0% they said. All this key data is far more positive than almost any analysts was expecting. One reason was that their rural sector brought in record harvests.

China also said its population shrank -850,000 to 1.41 bln people by the end of 2022. It's an historic switch lower and is the start of an "irreversible" decline, demographers say. They recorded 9.4 mln births and 10.6 mln deaths in 2022. Now 20% of their population is over 60 years. 

In Japan, investors are bracing for a potential big policy shift by the Bank of Japan as soaring inflation may force the end of its ultra-low rates pledge. The Bank of Japan is meeting now and we will know the outcome of its policy deliberations later today. Certainly speculation is high and investors are on edge.

Singaporean exports fell sharply in December, down more than -20% from the same month in 2021. That is much tougher than the -14.7% pace they reported for November.

For the first time in almost a year (that is, since the Russian invasion of Ukraine), German investor sentiment turned positive, and in a quite spectacular way. It is now net-positive. Driving that has been the expectation that inflation is being brought back under control. And in turn driving that has been the unexpected success the EU has had insulating itself from Russian energy blackmail. And they now think they will avoid recession in 2023. All good reasons for Germans to be optimistic to start the year.

The UST 10yr yield starts today at 3.54%, and up +4 bps from yesterday. 

The price of gold will open today at US$1912/oz and down -US$9.

And oil prices start today up +US$1.50 at just under US$80.50/bbl in the US while the international Brent price is just under US$86/bbl. Moving the dial today are improved demand indicators.

The Kiwi dollar has firmed overnight, now at 64.3 USc and its highest in a month. Against the Australian dollar we are firm too at 92 AUc. Against the euro we are up +½c at 59.5 euro cents. That all means our TWI-5 starts today at 71.2, and up +30 bps since this time yesterday.

The bitcoin price is marginally higher, now at US$21,201 and up +0.9% from this time yesterday. Volatility over the past 24 hours has also been modest at just +/- 1.6%.

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 will do this 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.

Today we lead with news Australia is opening its doors wider to immigrants to address sharp skills demand.

But first, a reminder that the US is on a long holiday weekend, MLK Day, and financial markets are closed there today.

In Canada, the final data for 2022 shows house prices there fell the most on record for any year, down -12%. Their average dwelling price is now C$626,400 (NZ$732,300). Sales volumes there fell -39%. The New Zealand REINZ December data will be released here tomorrow morning.

And staying in Canada, business sentiment continued to weaken in the fourth quarter and sales grew slower as their downturn bites according to a central bank survey. But firms there still only expect a mild retreat with inflation staying higher for longer.

In Japan, the inflation pressure is still building. Their producer prices surged +10.2% year-on-year in December, exceeding market expectations for a +9.5% rise as high global commodity prices and a historically weak yen continued to inflate costs for imported raw materials. December’s producer inflation also accelerated from an upwardly revised +9.7% price growth in November to the highest in three months. The November to December rate was at an annualised pace of +6.0%, so that suggests a possible easing is at hand.

Japanese machine tool orders rose unexpectedly in December. They slumped -7.7% in November from a year ago and were expected to be -4% lower in December. But in the end they rose +1.0% from a year ago, and were up +4.8% from November.

In China, new home prices in their 70 major cities dropped by -1.5% year-on-year in December according to official data, after a -1.6% drop in the previous month which was the steepest pace since August 2015. All this comes amid a property downturn due to a mounting debt problems among developers as well as the impact of a surge in pandemic cases. 55 of the 70 large cities monitored posted month-on-month declines, and those that didn't recorded just tiny rises in this official survey. There are reasons to believe the actual retreats in home resales are much larger; 63 of these 70 cities reported decreases in December.

China is finding it very tough to restart its property development industry. Almost 80% of residential developments remain idle or have only partially restarted despite multiple government initiatives supporting the sector. "More debt" can't overcome buyer reluctance.

In Europe, retail commissions are banned in both the Netherlands and the UK where they are regarded as a serious conflict of interest by "independent agents" who sell financial products from insurers and banks. Those bans have enabled consumers to realise cost reductions about one third. But insurers and banks are fighting back. They have won the support of the German finance minister who is worried it might hurt German insurers. He is concerned because the EU has suggested the benefits to consumers should probably apply EU wide.

In Australia, the Melbourne Institute’s Monthly Inflation Gauge showed prices eased to a four-month low of just +0.2% in December from November, slowing sharply from a +1.0% rise in the previous month while marking the fourth straight month of increase. On a year-on-year basis, this measure is still recording a +7.3% rate, but the lower month-on-month result should give the RBA some comfort.

And the Australian Treasurer said they now expect 2023 immigration to be much higher than the +235,000 they originally forecast for the year. They are moving decisively to address their skill shortage. At the same ratio, that would be equivalent to New Zealand welcoming +60,000 new migrants, which is double what we actually expect here this year.

The UST 10yr yield starts today at 3.50%, and unchanged from yesterday. 

The price of gold will open today at US$1921/oz and little-changed.

And oil prices start today down -US$1 at just under US$79/bbl in the US while the international Brent price is just over US$84/bbl. Natural gas prices are falling now, down to levels last seen in September 2021. Full stocks in China are forcing importers to divert February and March shipments to Europe. Gas storage across Europe is about 82% capacity, up from 50% a year ago and well above the five-year seasonal norm of 70%.

The Kiwi dollar has changed little, now at 63.9 USc. Against the Australian dollar we are firmish at 91.8 AUc. Against the euro we are still at 59 euro cents. That all means our TWI-5 starts today at 70.9, and up +20 bps since this time yesterday.

The bitcoin price is on the move higher, now at US$20,997 and up +0.6% from this time yesterday. Volatility over the past 24 hours has been modest however at just +/- 1.9%.

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 will do this 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.

Today we lead with news some unexpected optimism is creeping back into financial markets.

This week, the spotlight will be taken by US retail sales, producer price inflation, several housing indicators, and earnings reports for some large companies. Also, fresh inflation data will be released for the UK, Japan, Canada, and South Africa and monetary policy meetings will be held in Japan, Norway, Malaysia, and Indonesia. Finally, investors will be waiting for Q4 GDP growth, Industrial production, and retail sales data from China.

We should also note that tomorrow is Martin Luther King Day tomorrow in the US, so many markets there including the NYSE will be closed.

But first, China said its exports were -9.9% lower in December than the same month a year ago, a slightly worse result than anticipated. Its exports to the US were little-changed in value terms. It bought a lot less from Australia and a little less from New Zealand. But its exports to Australia were up strongly, and even more so to New Zealand. Electric cars (Teslas and BYDs) drove those exports. Overall China's car exports are up +57% from year-ago levels.

Looking ahead, investors are turning bullish on China, looking past the immediate pandemic hurdles to the longer term benefits of opening up. The best indication is that commodity prices are rising. The iron ore price is its highest in six months (and China isn't happy about that). There have also been recent heady rises for tin, aluminium, zinc, and especially copper. Interestingly neither nickel nor lithium have benefited from these rises recently, but this may be more about copious new supplies coming on line.

Elsewhere in the region, South Korea raised its policy rate from 3.25% to 3.50% late Friday. This was as expected, and they say is necessary to combat high inflation.

In the US, and in an unexpected surprise, the closely-watched University of Michigan consumer sentiment survey recorded much sharper gains in consumer sentiment in is first January reading that was anticipated. A small gain was expected, but a big rise was recorded. Although the overall level remained low from a historical perspective this was a lift for a second consecutive month. Financial markets took note.

Separately, the US Fed is steadily shrinking its balance sheet. It has sold off US$456 bln since its peak in April 2022, taking it down to US$8.5 tln, a -5% reduction so far. Prior to the pandemic, it was at US$4.2 tln, so there is a very long way to go to 'normalise'.

In Germany, despite all the pressures on them, they have wrapped up 2022 with a +1.9% expansion in their economy. That might be slightly less than 2021, but it is another expansion greater than their ten year average.

Meanwhile, EU industrial production came in better than anticipated, rising +2.0% in November from a year ago when only +0.5% was expected. The expansion from October was better than expected too.

Turkey's inflation rate is falling now, up only +1.8% in December from November, and down to just a +64% annual rate. However, Argentina suffered a +5.7% rise in prices in the month, taking its annual rate to +95% pa!

In Australia, lending for housing fell again and more sharply than expected. The November data makes it the 10th consecutive month of decline and is now -26% down from its January 2022 peak. Lending to owner occupiers fell faster than for investors, but overall, it is now at a ten year low. Lending for construction dived substantially more in November from October as the sector shudders.

The sharp decline in American inflation might mean we are approaching the end of the rising interest rate cycle. Certainly, local wholesale rates are now retreating, mirroring American rate trajectories. But with the prospect of a 2023 recession still being expected by most professional analysts, rate curves have turned negative. The New Zealand rate curves are now at record 21st century inversions.

The UST 10yr yield starts today at 3.50%, and little-changed from Saturday. 

The price of gold will open today at US$1921/oz and up another +US$4. For the week that is a +US$56 gain, or +3%.

And oil prices start today +50 USc higher than Saturday's levels at just over US$80/bbl in the US while the international Brent price is just under US$85.50/bbl. These levels are about US$6 higher than last week.

The Kiwi dollar has changed little, now at 63.8 USc. Against the Australian dollar however we are holding at 91.5 AUc. Against the euro we are a little firmer at 59 euro cents. That all means our TWI-5 starts today at 70.7, and unchanged since Saturday.

The bitcoin price is on the move higher, now at US$20,878 and up a very strong +8.5% from where we left it on Saturday. Recall, it was US$16,846 a week ago, so that is a +US$4000 rise since then, or +24%. Volatility over the past 24 hours has been modest however at just +/- 1.2% with most of the jump happening Saturday afternoon.

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 will do this tomorrow.

Kia ora,

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

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

Today we lead with news financial markets are hoping today's data heralds a downshift in central bank rate hike pressures.

The closely anticipated American inflation rate eased to 6.5% in December, confirming analysts’ expectations. That was a pull back from the 7.1% rate in November. The shift from November to December was actually a tiny decline, mainly as a result of lower petrol prices. The latest 6.5% rate is their lowest since September 2021 and the negative month-on-month shift the lowest since April 2020, and prior to that pandemic bump, August 2015.

Bond yields sank and the USD slipped. Equity markets rose. Market bets that the Fed will dial back the pace of its rate rises rose on this conviction.

Meanwhile, US jobless claims stayed low yet again, suggesting their labour market remains quite resilient. Obviously they rose in actual number after the holiday period but less than seasonal factors would have suggested. There are now 1.87 mln people currently on this support, an insured unemployment rate of just 1.3%.

Meanwhile, American estimates for grain supplies are little-changed. But they expect to import more beef from Brazil, produce less milk, and are also seeing egg production fall. Egg prices are rising very fast there.

There were also no surprises in the December inflation data from China, coming in as expected at 1.8% which was up very marginally from 1.6% in November. But the annualised rate of change between November and December was 0%. Food prices rose +3.7% year-on-year but are easing off now. Beef and lamb prices fell from November. Milk prices rose, and at a surprising fast clip in the month (annualised +8%).

China's producer prices fell -0.7% in December from a year ago, after a -1.3% dropped in the previous month, worse than market forecasts of just a -0.1% decline. This was the third straight month of decrease in factory gate prices, amid weakening domestic demand and falling commodity prices. But the annualised rate of decline from November to December was more than -5% pa. so pressure is building.

The Indian consumer inflation rate eased as well to 5.7%, also reporting a small deflation from November.

India industrial production however rose strongly in December and by much more than expected. It was an impressive result.

In Australia, their trade surplus rose to +AU$13.2 bln in November for both goods and services, from October’s of +AU$12.7 bln, beating market forecasts of a +AU$10 bln surplus. It was the largest trade surplus since June, as exports dropped less than imports, amid high inflation and aggressive monetary tightening by major economies. Australia has now recorded a +AU$135 bln trade surplus for the year to November, and back up to its all-time high first recorded in the year to June 2021. That is a surplus of +5.7% of their GDP.

Australia will report its December CPI inflation rate on Wednesday, January 25. New Zealand reports ours on the same day.

And our weekly look at container shipping freight rates reveals little-change. Bulk cargo rates however are still falling. The heat has gone right out of this supply-chain logistics cost as global trade flows slow, especially from China.

The UST 10yr yield starts today at 3.44%, and down -14 bps from yesterday. 

The price of gold will open today at US$1894/oz and up +US$20.

And oil prices start today +50 USc higher than yesterday's levels at just over US$78.50/bbl in the US while the international Brent price is just under US$84/bbl.

The Kiwi dollar has risen +¼c, now at 63.8 USc. Against the Australian dollar however we are -¼c softer at 91.8 AUc. Against the euro we are soft at 58.9 euro cents. That all means our TWI-5 starts today at 70.9, and -20 bps lower than this time yesterday.

The bitcoin price is now at US$18,150 and up a strong +4.5% from this time yesterday. But volatility over the past 24 hours has been remained low at just +/- 0.6%.

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 will do this 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.

Today we lead with news of a strong defence of central bank independence to make the hard but "necessary" calls to restore price stability.

But first in the US, mortgage applications were little-changed last week from the prior one, but remain more than -40% lower than the same week a year ago. Much of that is because mortgage rates remain high, although the benchmark 30-year rate did settle back to 6.48% last week (plus points).

Yesterday we noted some comments by Fed boss Powell delivered to a Swedish conference. There is another that is worth repeating here, justifying central bank independence: "Price stability is the bedrock of a healthy economy and provides the public with immeasurable benefits over time. But restoring price stability when inflation is high can require measures that are not popular in the short term as we raise interest rates to slow the economy. The absence of direct political control over our decisions allows us to take these necessary measures without considering short-term political factors. I believe that the benefits of independent monetary policy in the U.S. context are well understood and broadly accepted."

And staying in the US, the record high demand for imports over the past two years is now fading, with import shipping volumes reverting to the more usual levels they had in 2019 and prior. But that involves a rather large retreat from mid-2020 to mid-2022 levels. December import volumes were -19% lower than the same month a year ago. Analysts see this continuing with January volumes down -12% and February volumes down -23%.

In China, their central bank and their banking regulator are pleading with banks to step up financial support to the "real economy" and front-load loan issuance to boost the economy. Apparently Beijing thinks "more debt" is the answer to their economic malaise.

Later today we will get the Chinese inflation rate for December. It was just 1.6% in November and is expected to come in little-changed at 1.8% to round out the year. And you may recall their producer prices fell -1.3% in November. Those are expected to stay down but not slip any further in the data to be released this afternoon.

In Hong Kong, their commercial office property market is on track for its biggest glut in nearly 20 years despite hopes that a reopened border would spur demand from the mainland. New building continues making the current 20% vacancy rate even worse there. In some ways it mirrors the property development woes in most other China cities.

In Japan, the parent company of the giant international Uniqlo retailer said it would raise wages by as much as 40%. This is another sign that Japan's rock-bottom wages are starting to rise after decades of deflation and cost-cutting.

In Australia, inflation came in at 7.3% for the year to November, pretty much as expected. But beneath the surface are some worries. The rise from October was at a +10.8% annualised rate, showing the RBA has much more to do to get on top of their inflation problems.

November retail trade rose to almost AU$36 mln in November, a rise of +7.7% from a year ago and basically keeping page with inflation. But the rise from October was sharper, up at a +16% annualised rate and indicating the pace has been accelerating recently. Clothing, footwear and in department stores is where the recent strength is.

Meanwhile, Aussie job vacancies stayed very strong at 444,200 in November, also virtually ensuring the RBA will hike again on February 7, 2023.

The UST 10yr yield starts today at 3.58%, and down -5 bps from yesterday. 

The price of gold will open today at US$1874/oz and unchanged.

And oil prices start today +US$2.50 higher than yesterday's levels at just under US$78/bbl in the US while the international Brent price is just under US$83/bbl. But Russia’s oil is now trading at less than half the international price. The West’s price cap and supporting sanctions, introduced only a month ago, appear to be biting.

The Kiwi dollar has slipped, now at 63.5 USc and little-changed. Against the Australian dollar however we are -½c softer at 92 AUc. Against the euro we are soft at 59.1 euro cents with -¼c slip. That all means our TWI-5 starts today at 71.1, and little-changed from this time yesterday.

The bitcoin price is now at US$17,361 and again virtually unchanged from this time yesterday. Volatility over the past 24 hours has been remained low at just +/- 0.6%.

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 will do this 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.

Today we lead with news it’s all about the size of the coming 2023 global economic reversal.

But first, overnight the US Fed boss was out speaking about how they will stick to their mandate. He said specifically "without explicit congressional legislation, it would be inappropriate for us to use our monetary policy or supervisory tools to promote a greener economy or to achieve other climate-based goals. We are not, and will not be, a climate policymaker."

The American retail impulse weakened sharply last week on a same-store basis, up only +5.3% from the same week a year ago and a gain far less than inflation. This comes after a strong 2022, and is their lowest weekly result since early 2021.

However, Americans are still accessing additional consumer debt at a sustained pace, increasing these obligations by +US$28 bln in November from October. That was more than the +US$25 bln expected but less than the +US$28 bln in October.

Market eyes are now firmly on Friday's US CPI data release. They expect no inflation rise in December from November which will take the annual rate down from 7.1% last month to end the year at 6.5%. Significant variation from these expectations will have outsized repercussions in financial market pricing.

China's new loan growth came in slightly more than expected, but in an expansion that looks very much like prior month. Their central bank is ensuring ample liquidity available as loans while their economy struggles through its unusual low patch. These loans grew +11.1% again in a continuing trend. You have to go back to 2003 to find a loan growth rate less than +10% pa. Their debt overhang is now huge.

The sector under the most stress, property development, is facing debt repayment in 2023 of NZ$220 bln, up about +10% from 2022. About a third of this will be offshore debt. Rising debt prepayment comes as sales and revenues decrease.

After five consecutive months of expansion on a year-on-year basis, Japanese household spending reversed and shrank in November, down -0.9% from October in an unexpectedly large pullback. A small dip was anticipated.

In Australia, their Government has instructed their competition authority, the ACCC, to investigate whether banks are behaving fairly when it comes to passing on interest rate increases to savers. This pressure comes as wholesale funding markets tighten, raising the possibility that banks may have to raise mortgage rates more than the RBA benchmark rate increases. APRA November data shows banks are competing hard in the mortgage sector to win a slimmer pool of market share.

The World Bank sharply lowered its growth forecast for the global economy this year as persistently high inflation has elevated the risk for a worldwide recession. They now expect global growth to be only +1.7% in 2023, a sharp downgrade from the 3% forecast they made six months ago. They say we are headed for a sharp downturn, only overshadowed by the GFC and pandemic reversals.

The UST 10yr yield starts today at 3.63%, and up +10 bps from yesterday. 

The price of gold will open today at US$1874/oz and down -US$2.

And oil prices start today +50 USc higher than yesterday's levels at just under US$75.50/bbl in the US while the international Brent price is just under US$80.50/bbl.

The Kiwi dollar has stayed up, now at 63.6 USc and a -½c dip. Against the Australian dollar however we are firmer at 92.4 AUc and about +¼c up. Against the euro we are soft at 59.3 euro cents with -¼c slip. That all means our TWI-5 starts today at 71.2, little-changed from this time yesterday.

The bitcoin price is now at US$17,310 and virtually unchanged from this time yesterday. Volatility over the past 24 hours has been remained low at just +/- 0.8%.

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 will do this 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.

Today we lead with news markets seem more convinced of a 'soft landing' ahead, and investors are buying on that basis.

The latest American survey of consumer expectations shows how embedded these are - not disastrously, but quite sticky. In the short term, inflation expectations continued to decline but are only down to 5% for the next year. They were unchanged over the medium term at 3.0%. But longer-term inflation expectations edged up slightly to 2.4%. All of them remain above the policy goal of 2%. And when polled about household income growth expectations, that rose sharply to +4.6%, a new high since this survey started in 2014. That is probably the more revealing trend than just asking about 'inflation'.

The total value of building permits in Canada jumped more than +14% in November from October, rebounding after two consecutive monthly losses. It was an unexpectedly strong jump; no-change was expected, and it comes after their labour market also delivered very strong and unexpected gains.

An updated look at the impact of Chinese factors on global supply-chain pressures shows them worsening in December, against the overall 2022 trend of prior improvement. It is a factor that will speed the separation of many companies from reliance on China as a supplier. The per-unit cost penalties are being judged as less than the costs of disruption. Supply reliability has real-world benefits, as many companies are finding out. Essentially the cost of 'time'.

But we probably should also note that copper prices hit a six month high earlier today, and that is all to do with optimism over the intermediate implications of China's 'reopening'.

In Australia, their building permits jolted sharply lower in November. They fell by -9.0% in November from October to be -15% lower than year-ago levels. The month-on-month retreat included a -2.4% decline in approvals for houses and a -20% decline for multi-units. Overall, the market expected a -1% monthly slip so what they got was a shock. This comes as builders have now worked through much of the large pipeline of work that existed in May 2022. These very much lower level of approvals will drive a contraction in capacity as layoffs start or builders fail. The expectations effect of higher interest rates are biting homebuilding hard now.

About 1500 kms "east of Australia", a PLA warship is patrolling to test the Chinese navy's refueling and supply capacity at sea. It is a vessel being closely tracked by French jets from New Caledonia. The excursion is seen as ‘testing the waters’ for voyages further into the Pacific to protect China’s strategic interests. If it refueled at one of its "new friends" in the Pacific, it has been done very quietly.

In November, international air travel expanded sharply, up +85% from the same month a year ago and taking total activity to 75% of pre-pandemic levels, itself a quick upturn.

However, air cargo activity turned lower in November, mirroring ocean freight trends as supply chain pressures ease generally in the face of some slower global economic activity. After matching the pre-pandemic levels in the 2022 year to October, the -10% fall in November on that same basis is quite a pullback.

The UST 10yr yield starts today at 3.53%, and down -4 bps from yesterday. 

The price of gold will open today at US$1876/oz and up +US$10.

And oil prices start today +US$1 higher than yesterday's levels at just under US$75/bbl in the US while the international Brent price is just under US$80/bbl.

The Kiwi dollar has stayed up, now at 64 USc and a +½c gain. Against the Australian dollar however we are softer at 92.1 AUc and about -¼c lower. Against the euro we are soft at 59.5 euro cents with -¼c slip. That all means our TWI-5 starts today at 71.3, unchanged from this time yesterday.

The bitcoin price is now at US$17,332 and up +2.3% from this time yesterday and back to month-ago levels. Volatility over the past 24 hours has been low at just +/- 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 will do this 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.

Today we lead with news all eyes this week will be on Chinese and American December inflation levels.

Although most of the data has been coming from the world's largest economy, the most interesting tends are coming from the second largest, China. There are risks aplenty, giant weaknesses, and giant opportunities. It is just we can't get a great picture because its economic data is so opaque. There are some sources other than official sources, but not to the extent we expect in an open economy.

We should note first than an importer has placed an order for Australian coal, providing clear evidence of the lifting of an unofficial ban imposed more than two years ago on that trade with Australia.

China's new energy relationship with Russia isn't solving their issues in northern China.

And the sheer amount of money Chinese banks have been 'lending' to their property developers to keep them afloat is astounding.

Chinese authorities said Chinese New Year travel will nearly double to 2.1 billion trips this season, after the country all but abolished pandemic border restrictions recently. Most travel will be internal. But there will also be a surge in international travel. Chinese booking site Trip.com said the most popular destination is Australia, followed by Thailand and Japan. We will probably see some spillover from the travel to Australia, maybe even more so given Australia decided to place pandemic testing restrictions on Chinese travelers.

Taiwanese exports fell a sharp -12.1% in December from the same month a year ago. Although this was less than anticipated, it is still a notable fall, mostly resulting from the trade squeeze neighbouring China is put on their country.

In Japan, the world's third largest economy, the yield on 10-year Japanese government bonds rose to a seven-year high of 0.5% on Friday, hitting the Bank of Japan's new upper limit in just weeks as other buyers shy away from the asset. The BOJ surprised the market on December 20 by widening its target band for 10-year yields to 0.5%. 

In the US, there were no surprises in the American non-farm payrolls data for December. Those payrolls grew +233,000 in December to 153.7 mln in the headline series. Markets had expected a +200,000 gain. But as regular readers know, there are two related surveys, the widely-reported Establishment (employer) survey, and the parallel Household survey. This second survey shows there is a 159.2 mln employed workforce, more than +15 mln higher than the employer survey. It has recorded that larger level before the pandemic, the difference fell away during the pandemic, and in 2022 is back to the same +15 mln additional. That extra is almost certainly the unincorporated self employed.

Average hourly earnings rose +0.3% from the prior month, to US$32.82 in December (NZ$51.80/hr or NZ$108,000 pa) following a downwardly revised +0.4% gain in the prior month and below market forecasts. This was the smallest growth in average hourly earnings in four months.

This reinforces the fact that the momentum in the American labour market is slowing, and the Fed will take heart from that. Financial markets did too. They expect that and other more recent data will continue to temper credit conditions. There is something of a new and recent rush on by corporate treasurers to tap bond markets again.

Employment data tends to lag economic activity however, and this may be a high-water mark to start 2023. A leading indicator wasn't so positive, factory orders. In November they dipped -1.8% from October to take them back to just +6.8% higher than year-ago levels and struggling to account for inflation. A -0.8% fall was anticipated, so this is a worse result. And that was largely due to low orders in the month for civilian aircraft.

Perhaps we should also note that 5.8% of all American cars sold in 2022 were EVs. That is up from 3.2% in 2021. For perspective, total car sales fell -8% in 2022 but mainly on earlier chip-supply constraints.

Also falling away much sharper than expected is the widely-watched ISM services PMI. It was expected to come in slightly less positive (55 index level from the November 56.5 level), but in fact it dived into a minor contraction in December (49.6) in a sharp shift no-one saw coming.

In Canada, they also reported labour force data for December. Their employed labour force grew +104,000 in the month and far more than the +8,000 expected. Most of it (+84,500) was for full-time jobs. It is also a good result for them, and like the Americans, both their participation rate rose and their jobless rate fell. It probably means that more big rate hikes are coming from the Bank of Canada. 

The EU released its December inflation report, and for the Euro area it came in at +9.2%. This was far less than the expected 9.7% and much lower than the November 10.1%. From the prior month, inflation is slowing fast, running at an annualised -4.2% deflation rate now. Much of this can be attributed to the success of their efforts to insulate themselves from the Russian energy stand-over tactics.

EU retail sales however showed some surprise strength, rising at a +10% annualised rate in November from October.

Germany reported its December retail sales data and said it will have grown +8.2% in 2022, but that will be less than inflation. They also reported some rather grim November factory order data.

The UST 10yr yield starts today at 3.56%, and down -1 bps from Saturday. 

The price of gold will open today at US$1866/oz and little-changed.

And oil prices start today a bit softer from yesterday's levels at just under US$74/bbl in the US while the international Brent price is just under US$78.50/bbl and easing back to its 12-month lows.

The Kiwi dollar has stayed up at 63.5 USc. Basically, we are back to week-ago levels. Against the Australian dollar however we are recovering at 92.4 AUc but still about -1c below week-ago levels. Against the euro we are firmish at 59.7 euro cents with another +¼c rise. That all means our TWI-5 starts today at 71.3, up a net +20 bps from Saturday.

The bitcoin price is now at US$16,944 and up +0.6% from this time Saturday. Volatility over the past 24 hours has remained very low at just +/- 0.3%.

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 will do this tomorrow.