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 international bond yields are still rising sharply and the momentum is rising. It is trashing our currency - and although most other currencies are struggling to stay with the greenback, we are doing relatively worse.

First today, the global economy has lost momentum in the wake of Russia’s war of aggression in Ukraine, which is dragging down growth and putting additional upward pressure on inflation worldwide, according to the OECD’s latest Interim Economic Outlook. They now say global economic growth will be a modest +3% this year before slowing further to just +2.2% in 2023. This is well below the pace of economic growth projected prior to the war and represents around -US$2.8 tln of lost economic activity in 2023. 

Meanwhile in the US, the Chicago Fed's national activity index was unchanged in August, but its July reading was revised higher.

But the Dallas Fed factory survey, which was already struggling, fell further in September. Incoming new orders are slowing now. This survey is more heavily weighted to the US oil patch than most other regional surveys there.

The Chinese central bank made a surprise announcement yesterday, saying it would raise their required foreign exchange risk reserves to 20% from the current zero. The reserve ratio has been zero since 2020. This announcement marks the latest policy measure to stem the faltering yuan which officially fell below 7 to the US dollar yesterday, following the offshore trading pattern late last week.

Japan's factory sector contracted in September according to the latest Markit PMI reading. But their services sector is expanding again in a shift that wasn't expected.

Singapore's industrial production rose in August in an improvement that also wasn't expected. The rise wasn't a lot, but signs of improvement are hard to find these days.

The mood in the German economy has deteriorated significantly. The ifo business climate index fell to 84.3 points in September, and down sharply from 88.6 points in August. This is the lowest reading since May 2020 and the decline runs through all four sectors of the economy.

In Italy, the results of their national elections are still uncertain, but it does look like the far-right Brothers of Italy party will be forming a new government. A real feature of these elections has been a record low 64% voter turnout, allowing an extreme party into power there.

A new Eurozone debt crisis is entirely possible.

And England's economy seems to be going from bad to worse. Investors have panned their recent policy moves as deeply unstable, and now an attempt by the Bank of England to reassure markets are fallen well short, compounding pressures on them. A US Fed official has weigh in about how bad policy in the UK has some wider implications.

In fact, it will probably not only be the UK that starts to raise rates out-of-cycle to contain their problems, this trend might spread. And even if the out-of-cycle trend doesn't spread widely, future benchmark rate hikes could well be super-sized.

The RBA and the RBNZ are two central banks making policy decisions over the next week, the RBA on October 4 and the RBNZ on October 5. They will be facing fierce scrutiny this time.

The UST 10yr yield starts today at 3.89% and +20 bps higher than this time yesterday in a new aggressive push up, almost as much in one day as we had all last week (and that was a lot). It's a 12 year high. 

The price of gold will open today at US$1628/oz. This is down -US$17 from this time yesterday.

And oil prices start today -US$1.50 lower at just under US$77/bbl in the US while the international Brent price has fallen about -US$3 to be just over US$83/bbl. These are new eight month lows.

The Kiwi dollar will open today at just on 56.4 USc and another full -1c drop since this time yesterday and now close to the pandemic low and the rate that applied in April 2009. Against the Australian dollar we are -½c softer at just on 87.4 AUc and a new nine year low. Against the euro we are -½c lower 58.6 euro cents. Against the yuan we are now under ¥4 and its lowest since 2015 (except the pandemic) .That all means our TWI-5 starts today at just 67.1, and down -80 bps to an eleven year low (also pandemic-excepted).

The bitcoin price is now at US$19,076 a mere +0.5% higher from this time yesterday. It has been under US$20,000 for nine straight days now. Volatility over the past 24 hours has been modest at just on +/- 1.8%.

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’ll do this again tomorrow.