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 high interest rates are becoming the new normal, even as benchmark rates keep in rising fast. Where will it end?

But first, the overnight dairy auction was a good one again, a third consecutive rise, this one by +4.4% in USD terms, up +5.0% in NZD terms. That takes the year-on-year change to -20.6% and an improvement from the -25% change at the last event. And today's gains only take things back to where we were at the start of August. But it is much better than more retreats. A very good sign is that SMP rose +6.6% indicating the foodservice market demand is returning in China. But EU buyers have been active too. We should note two more things; volumes sold at this auction were high, the most in three years. And worth noting is that milk production in both New Zealand and the US is down, and a decline is anticipated for China soon too, encouraging buyers to secure supplies now. NZ production is down -2.1% and American production down -0.2%. Luckily prices are up more.

In The US, more strong labour market indications. Their August job openings rose by +690,000 from the previous month to 9.61 million, well above the market consensus of 8.8 million.

The American LMI (Logistics Managers Index) rose more than expected too in September, indicating stronger distribution activity.

The US retail Redbook survey rose +3.5% last week above the same week a year ago and still good enough to indicate better-that-CPI growth in retail bricks-and-mortar retail sales.

But the big news continues to be the intensifying bond selloff. The capital losses are going to hurt big-time, remembering there is US$140 tln in global bonds, and more than the market cap on equity markets. And equity markets are retreating now too; the giant US equity markets are down more than -6% in a month although to be fair they are up +15% from a year ago. But mark-to-market bond valuation changes will flush out huge losses.

But the sharp jump in yields isn't worrying Fed officials at this point; they see it as what would happen "in an ordinary tightening cycle."

But real American interest rates are soaring, attracting foreign investors, big time, and turbocharging the US dollar. The yen is touching 150 to the USD as it did in November. But it is much tougher on others like the Russian ruble and the Turkish lira. The NZD is getting off lightly so far. But the AUD is now down to an eleven-month low.

In India, new orders, production and employment all expand further in September in their factory sector and their factory PMI is still expanding fast, even if not quite as fast as in August. This is in clear contrast to China.

In Australia, new housing loans rose marginally in August from July, but remained a steep -12.3% lower than the same lending a year ago. Meanwhile, Australian building consent approvals for housing also rose in August from July, but these too remain lower than last year and by -9.4%.

And staying in Australia, the RBA kept its cash rate target unchanged at 4.1% during the first meeting under new Governor Michele Bullock, extending the rate pause for the fourth straight month.

Globally, air cargo demand rose in July, its first gains since February 2022.

The UST 10yr yield starts today up another sharp +13 bps from yesterday at 4.81%. It was last at this level in August 2007. 

The price of gold will start today at just on US$1824/oz and down another -US$8 from yesterday. This is another new low since February 2023, all driven by the sharply rising yields.

Oil prices have stabilised lower at just on US$89/bbl in the US. The international Brent price is just on US$91/bbl. Both are +50 USc rises from this time yesterday.

The Kiwi dollar starts today at 59 USc and down another -½c as the greenback surges. Against the Aussie we are firm however, now up at 93.7 AUc and a new four month high. Against the euro we have slipped -¼c to 56.4 euro cents. That all means our TWI-5 starts today at just under 69.5 and down -30 bps.

The bitcoin price has moved lower today from yesterday, and it is now at US$27,393 and back down -2.1% and taking the top off yesterday's jump. Volatility over the past 24 hours has been modest at just on +/-1.6%.

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

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.