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 all eyes have been on Washington DC and the US Fed.

As expected, the American central bank's September policy review was a "hawkish hold". It kept its policy rate at 5.25% following a +25 bps hike in July but signaled there could be one more hike this year. They pointed out that their labour market strength isn't wavering and inflation risks remain high. Tighter credit conditions haven't dampened activity to the extent they need and the remain "highly attentive to inflation risks".

In the economic projections they released with today's decision, the 'dot-plot' shows most voting members see a higher rate by the end of the year (12 of 19 whose projections were plotted). Essentially they are signaling that rates will stay elevated well into 2024 with fewer projected cuts.

Market reactions included the USD rising +20 bps vs the NZD, the UST 10yr benchmark was little-changed having fully priced in the outcome, it seems. Equities (the S&P500) fell -0.3%. So overall, markets have taken this review in its stride.

Somewhat surprisingly, American mortgage applications jumped +5.4% last week, the first rise in three weeks, and the biggest since mid-June. And this was despite benchmark mortgage interest rates rising again, to 7.31% plus points.

In Japan, household assets are growing, and in a different way to the usual cash-priority they have had traditionally. Total financial assets rose +4.6% in the year to June and to US$14.3 tln (NZ$195,000 per capita). But the cash portion only rose +1.4% (or 53% of them), while equity holding jumped +26% (to 13% of those overall holdings) and funds in investment trusts rose +16%. The re-emergence of inflation is changing Japanese household investment motivations.

After a good surge in 2021 and 2022, Japanese exports slipped -0.8% in August from a year ago, a second month of no expansion. Their exports to China dropped -11%. But at least overall they are holding on to their earlier gains. And the August slip was less than feared. Imports however fell more than expected, the most in three years. But most of this can be attributed to big falls in oil products (-33%), and it is encouraging that Japan is learning how to do with significantly less oil.

Taiwanese export orders fell -15.7% in August from year-ago levels, although they held at the value levels we have seen every month this year. Still the year-on-year fall was more than expected and extends the retreat to 12 straight months.

China held its Loan Prime rates in its monthly review yesterday. This is what analysts expected. The one-year loan prime rate (LPR), which is the medium-term lending facility used for corporate and household loans was kept unchanged at a record low of 3.45%; and the five-year rate, a reference for mortgages, was held at 4.2% for the third straight month.

China is worried about the outflow of funds by foreign investors. Yesterday it held a 'symposium' for JPMorgan Chase Bank, HSBC, Deutsche Bank, BNP Paribas, UBS Securities, Mitsubishi UFJ Bank, Tesla, BASF, Trafigura, Schneider and other foreign financial institutions and foreign-funded enterprises to hear of their concerns, and provide reassurances.

In Germany, fast-retreating energy costs are allowing producer price inflation to cool fast. Their PPI tumbled -12.6% in August from a year ago, matching market forecasts while very much faster than the -6.0% July retreat. It was the second straight month of decline and the steepest pace since data collection began in 1949, largely due to a base effect. Energy prices slumped -32%, with electricity prices dived -43%. They will appreciate the relief.

British CPI inflation fell marginally to +6.7% in August from +6.8% in July, and this was lower than the expected +7.0% rate.

An Australia, the Victorian State Government said (page 20) it will tax short-stay rental platforms 7.5% from 2025. There are more than 36,000 short-stay accommodation places in Victoria and almost half of these are in regional centers. More than 29,000 of those places are entire homes. The goal is more affordable long-term rental accommodation. But their tourism industry is livid.

They need to build more houses too. Nationally, housing starts by their major builders slumped -23% last year to a decade-low as insolvencies soared. The legacy of fixed price contracts and fast rising input costs was behind the pullback. But there is now some evidence that the houses now being built are being done so for more than cost.

The UST 10yr yield starts today unchanged bps at 4.35%. 

The price of gold will start today at just on US$1943/oz and up +US$13 from yesterday.

And oil prices are -US$1 lower from yesterday at just over US$89.50/bbl in the US. The international Brent price is now at US$92.50/bbl.

The Kiwi dollar starts today still in its recent yo-yo range and up a net +30 bps from this time yesterday at 59.5 USc. Prior to the Fed decision it was up to 59.8 USc. Against the Aussie we are holding at 91.9 AUc. Against the euro we are a little firmer at 55.7 euro cents. That all means our TWI-5 is also up about +20 bps at 69.

The bitcoin price has barely moved from this time yesterday, and is now at US$27,215, a rise of just 0.1%. Volatility over the past 24 hours has been low at just on +/-0.8%.

You can 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 tomorrow.