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 expectations for US Fed rate cuts in 2023 were scaled back by financial markets overnight on Fed-speak commenting. Benchmark bond yields rose.

But first, the overnight dairy auction was a 'good' one with prices up +2.25% in USD terms, and boosted by a falling NZD to be +4.1% higher on the local basis. Most products got better prices, especially butter which was up +5.8% from the prior event two weeks ago. The key WMP was to +1.7%, but that was enough to take it back to a level that we had not seen in more than a year. SMP was up +1.2%. Today's event helps underpin the better farmgate payout levels analysts had expected late in 2023.

In the US, the New York Fed's Empire State factory survey delivered a fierce blow, diving sharply. New orders and shipments also posted sharp declines. The headline general business conditions index fell twenty-nine points, its lowest reading since May 2020. Perhaps oddly however, their expectations of future activity rose just as sharply and while still subdued, clearly firms don't expect the current drop-off to continue into 2024.

Meanwhile a national household survey, also released by the New York Fed, showed a continuation of the recent declining trend in monthly household spending growth, even though spending growth remains well above pre-pandemic levels.

In Canada, December inflation rose to 3.4% in December from 3.1% in the previous month, a rise that was expected - but probably not welcomed by their central bank all the same.

They would have been pleased by the very good rise in housing starts in December, however.

In China, Bloomberg is reporting that China is considering ¥1 trillion (NZ$225 bln) of new debt issuance under a so-called special sovereign bond plan, only the fourth such sale in the past 26 years, as authorities seek more money to finance intensifying efforts to shore up the world’s second-largest economy.

Meanwhile in Davos, a senior Chinese official said the 2023 GDP economic expansion would come in at 5.2% for his country. Apparently there are no inhibitions there for officials releasing market sensitive data early.

The ECB survey of inflation expectations shows it trending in the desired direction there. Median consumer expectations for inflation over the next 12 months dipped to 3.2% in November, marking the lowest rate since February 2022 and down from the previous month's 4.0%.

Also better than expected, the German ZEW sentiment survey rose again for a fifth consecutive time to its highest level since February 2023.

In Australia, the Westpac-Melbourne Institute Consumer Sentiment index fell -1.3% in January from December, remaining in negative territory now for nearly two years. A surge in the cost of living and high interest rates continued to dominate sentiment. The index has been below the 100 mark since February 2022, the longest streak since the early 1990s recession.

The UST 10yr yield starts today at 4.08% and up +10 bps from this time yesterday. 

The price of gold will start today down -US$28/oz from yesterday at just on US$2027/oz.

Oil prices are marginally softer at just under US$72/bbl in the US and down by -50 USc. The international Brent price is still at just under US$77.50/bbl.

The Kiwi dollar starts today at 61.4 USc and down another -½c from this time yesterday. Against the Aussie we are holding at 93.2 AUc. Against the euro we are almost unchanged at 56.5 euro cents. That all means our TWI-5 starts today just under 70.4 and -10 bps lower.

The bitcoin price starts today having turned up, now at US$43,116 and up +1.5% from yesterday. Volatility over the past 24 hours however has remained modest at +/-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.