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 energy stress is spreading everywhere now.

Remember in the US it is their Labor Day long weekend holiday, essentially signaling the end of their summer holiday season. Markets will return to regular mode tomorrow when volumes traded will be more regular.

But even though they are on holiday, the heat wave in the West is unrelenting, spiking electricity demand and pushing their grid systems to the limit. The California grid operator has declared an emergency today, pleading for users to turn off appliances to avoid uncontrolled blackouts.

In China, their central bank cut its FX reserve ratio by -200 bps from 8% to 6% to try and stem the losses of their plunging currency which hit a 2 year low overnight. But these move to protect the yuan are unlikely to stop its slide. Even their huge FX reserves can't do that. China’s financial institutions held US$954 bln of foreign-currency deposits as of July, down from a record US$1.1 tln in February, a -13% fall.

The lockdown in Chengdu is tightening. Now that region has been hit with an big earthquake, compounding the misery. And another large city in the west, Guiyang is under lockdown orders too.

The Caixin China Services PMI fell to 55.0 in August from July’s 15-month high of 55.5 amid the recent pandemic wave and the impact of adverse weather. Still, the latest result was the third straight month of growth in services activity, as new orders grew solidly with the rate of increase the second-steepest since October 2021 while broadly in line with the series average. Meantime, new export orders fell for the eighth straight month, down at a steeper rate than that in July; while employment declined for the second month running.

The sagging demand, especially from China, has seen OPEC agree to a small oil output cut of about -100,000 bbls/day. This reverses their increase of the same size a month ago. Even though the practical impact is tiny - less than -0.1% - it is intended to show OPEC will defend a price level of about US$100/bbl. Prices rose after the news.

In Europe there is plenty of planning, and an equal amount of angst after Russia has blocked energy supplies from flowing their way. The price of coal hit a new all-time record high. Oil and gas prices rose too. But overall, Europeans seem stoic in the face of the threats, pushing back against the Russian actions. When this whole crisis calms down, Europe will unlikely ever be a buyer of Russian energy again.

Turkey released its August CPI inflation rate and it ticked up over 80%, a 40 year high for them. It does seem to have topped out however.

In Australia, corporate profits rose by +7.6% in Q2 from Q1, easily beating market expectations of a 4% gain. But this follows a downward revision of the Q1 gain from 9.8%. Listed company results are very transparent, so I suppose the downward drift is because unlisted companies aren't doing so well.

Aussie job ads data came in stronger than expected, rising +2%. Given other recent weakish Aussie data, it was expected this job ad metric will have fallen - but not yet, at least.

All eyes are now on the Reserve Bank of Australia's rate review which will come at 4:30pm this afternoon (NZT). They are widely expected to raise their 1.85% cash rate target by +50 bps to 2.35%. (The next RBNZ OCR review doesn't come for another 4 weeks, on October 5, 2022.)

The UST 10yr yield starts today at 3.20% and unchanged. 

The price of gold will open today at US$1711/oz and down -US$2 from this time yesterday.

And oil prices start today +US$1.50 firmer at just on US$88.50/bbl in the US while the international Brent price is now just under US$95/bbl.

The Kiwi dollar will open today just under 61 USc and little-changed. Against the Australian dollar we are softish at 89.6 AUc. Against the euro we are unchanged at 61.4 euro cents. That all means our TWI-5 starts today at 70.6 and very little different to this time yesterday.

The bitcoin price is now at US$19,826 and very little-changed from this time yesterday. Volatility over the past 24 hours has been modest at just on +/- 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.