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.

Today we lead with news it’s all about the size of the coming 2023 global economic reversal.

But first, overnight the US Fed boss was out speaking about how they will stick to their mandate. He said specifically "without explicit congressional legislation, it would be inappropriate for us to use our monetary policy or supervisory tools to promote a greener economy or to achieve other climate-based goals. We are not, and will not be, a climate policymaker."

The American retail impulse weakened sharply last week on a same-store basis, up only +5.3% from the same week a year ago and a gain far less than inflation. This comes after a strong 2022, and is their lowest weekly result since early 2021.

However, Americans are still accessing additional consumer debt at a sustained pace, increasing these obligations by +US$28 bln in November from October. That was more than the +US$25 bln expected but less than the +US$28 bln in October.

Market eyes are now firmly on Friday's US CPI data release. They expect no inflation rise in December from November which will take the annual rate down from 7.1% last month to end the year at 6.5%. Significant variation from these expectations will have outsized repercussions in financial market pricing.

China's new loan growth came in slightly more than expected, but in an expansion that looks very much like prior month. Their central bank is ensuring ample liquidity available as loans while their economy struggles through its unusual low patch. These loans grew +11.1% again in a continuing trend. You have to go back to 2003 to find a loan growth rate less than +10% pa. Their debt overhang is now huge.

The sector under the most stress, property development, is facing debt repayment in 2023 of NZ$220 bln, up about +10% from 2022. About a third of this will be offshore debt. Rising debt prepayment comes as sales and revenues decrease.

After five consecutive months of expansion on a year-on-year basis, Japanese household spending reversed and shrank in November, down -0.9% from October in an unexpectedly large pullback. A small dip was anticipated.

In Australia, their Government has instructed their competition authority, the ACCC, to investigate whether banks are behaving fairly when it comes to passing on interest rate increases to savers. This pressure comes as wholesale funding markets tighten, raising the possibility that banks may have to raise mortgage rates more than the RBA benchmark rate increases. APRA November data shows banks are competing hard in the mortgage sector to win a slimmer pool of market share.

The World Bank sharply lowered its growth forecast for the global economy this year as persistently high inflation has elevated the risk for a worldwide recession. They now expect global growth to be only +1.7% in 2023, a sharp downgrade from the 3% forecast they made six months ago. They say we are headed for a sharp downturn, only overshadowed by the GFC and pandemic reversals.

The UST 10yr yield starts today at 3.63%, and up +10 bps from yesterday. 

The price of gold will open today at US$1874/oz and down -US$2.

And oil prices start today +50 USc higher than yesterday's levels at just under US$75.50/bbl in the US while the international Brent price is just under US$80.50/bbl.

The Kiwi dollar has stayed up, now at 63.6 USc and a -½c dip. Against the Australian dollar however we are firmer at 92.4 AUc and about +¼c up. Against the euro we are soft at 59.3 euro cents with -¼c slip. That all means our TWI-5 starts today at 71.2, little-changed from this time yesterday.

The bitcoin price is now at US$17,310 and virtually unchanged from this time yesterday. Volatility over the past 24 hours has been remained low at just +/- 0.8%.

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 will do this tomorrow.