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.

And today we lead with news major global trade choke-points are under threat and this may bring very costly work-arounds.

But first in the US, October factory orders fell sharply and by more than expected. They fell -3.6% from September to be down -1.4% from the same month a year ago. But to be fair, this is essentially a story of a drought of new aircraft orders (down -50% from the prior month). True, other order levels were soft, but only by a smaller amount, down -1.2% from September after being up +0.8% the prior month.

It may still be early days, but the new central bank policy approach in Turkey hasn't yet had any effect on bringing down inflation there. It is still running at 62% pa in November.

In Australia, there are building signs their economy is softening, and quite quickly.

In fact, a NSW survey of a wide range of businesses found that Christmas trading is expected to fall on average -11% this year compared to last year. Businesses in two pf the state's regions are anticipating a decline in excess of -20% - and in those two regions almost half plan to cut staff after Christmas. Things are decidedly ropey.

And extending the ropey feel, a broader Australian survey found that activity is being propped up by making more inventory. Meanwhile sales are retreating and profits are under real pressure - although to be fair the overall picture is twisted by a big drop in mining profits. That wages rose while sales fell doesn't give you a good feeling about future employment, or wages for that matter.

Canberra is preparing a new round of cost-of-living relief measures to roll out if things get dire. They are most likely to be released in their May 2024 Budget. However those latest Business Indicators show that wages were up +9.7% in the year to September so it certainly isn't "dire" yet.

Later today, the RBA review will release its final review for 2023 of its cash rate target and it is universally expected to be on hold at 4.35%. Tough talk about inflationary risks are falling on deaf ears in financial markets; they now price in no change all the way through 2024.

But we should all hold our breath. Conflict in the Middle East, and drought in Panama, means that the two vital canals for world trade are under threat and operating sharply below capacity. In Russia, the only two rail links from China have been put out of action by sabotage. (Not to mention South China Sea stresses.) In each case, the alternatives are very costly and will sharply discourage trade. It is very unusual that these threats are all happening at the same time. One measure, the Baltic Dry Index is zooming higher suddenly.

The UST 10yr yield are up +8 bps from yesterday at 4.29% with yesterday's slide arrested. 

The price of gold will start today just on US$2,026/oz and down -US$45 after yesterday reaching an all-time high.

Oil prices have stayed down at just under US$74/bbl in the US. The international Brent price is now at US$78.50/bbl. These are 4½ month lows and levels first reached 16 years ago.

The Kiwi dollar starts today at 61.7 USc and down -40 bps from yesterday. Against the Aussie we are up +20 bps at 93.2 AUc. Against the euro we are still at 57 euro cents. That all means our TWI-5 starts today just on 70.6 and down -20 bps from this time yesterday.

The bitcoin price starts today at US$41,583 and up +4.7% from this time yesterday, and confirming the break out of its recent range. Volatility over the past 24 hours has been high at just on +/- 3.4%.

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.