Kia ora,

Welcome to Friday’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 the US economy still seems to be exhibiting impressive resilience in the face of global and domestic uncertainties.

Initial jobless claims in the US last week came in at a similar low level as the prior week at +191,000 leaving 1.427 mln people on these benefits. This data is still bumping along at all-time low levels. It is an impressive run.

The Philadelphia Fed Manufacturing Index rose to 6.2 in August from -12.3 in July, returning to positive territory after two consecutive negative readings. This was better than expected and far better than the neighbouring New York survey we noted yesterday. However new orders levels remained negative. But employment levels rose and the price indexes continued to fall back from elevated levels.

But American existing home sales fell almost -6% to an annual rate of 4.81 million in July, the slowest pace since May 2020 and below market expectations. This was the sixth consecutive monthly retreat reflecting the impact of the mortgage rate peak of 6% in early June. The median existing-home price for all housing types was $403,800, up +11% from July 2021, and total housing inventory increased +4.8% to 1,310,000 units.

Canada's producer price hikes seem to be past their peak with a notable fall back in July. Still, they remain +12% ahead of year-ago levels even if the monthly reversal was a sharp -2.1%.

In China, the important inland manufacturing city of Chongqing (population 32 mln) has ordered factories to suspend operations until August 24 to conserve energy after an exceptionally hot spell led to a surge in electricity demand. The extreme heat has led to a huge increase in the use of fans and air conditioners. Chongqing has a high number of factories that make cars and computers, and their shutdown could have an impact on supplies domestically and internationally. Previously, the government had only required that factories cease production during consumption peaks, but the tight power supply-demand situation has become so severe that shutdowns were deemed necessary. Local authorities said that many areas in Chongqing have been experiencing high temperatures of over 44o C.

Meanwhile, a major Hong Kong-based lender, the Bank of East Asia, has seen its profits plunge as it provisions for losses from the Chinese property sector. If mainland banks recognised the same reality, it would undoubtedly crystalise a full-blown banking crisis in China - but almost all large banks are state-owned there. This is what makes the BEA result 'interesting'. Shares in companies like Evergrande are now worthless according to fund managers.

The EU confirmed its July CPI inflation rate as 9.8% although less in the eurozone. But their core rate - that is, without food or energy - is only 4.0% and in their special circumstances, that will be pleased with that.

In Turkey, they are still doing odd things with monetary policy. With inflation running at 80% and rising fast - they cut their benchmark policy rate by -100bps to 13%. Their currency, which was already historically its weakest ever, slumped to a record low (as any independent observer could have predicted) and this will likely boost inflation further. Their current account surplus has turned to a deficit. Harsh “liraisation” measures by the central bank have failed to support their currency. It is just more evidence that the laws of economics apply to autocrats as well.

In Australia, their July labour market stats show a jobless rate that dropped to 3.4% s.a. from 3.5% as a further 20,000 people moved out of unemployment (3.3% actual). And that was despite their employed labour force shrinking unexpectedly by -41,000 in the month. (New Zealand's June jobless rate was 3.2% actual.) Australia's participation rate is 66.4%; New Zealand's is 70.5%.

Container shipping freight rates are falling faster now, especially for trans-Pacific cargoes out of China. Overall, rates fell -3% last week to be -35% lower than year-ago levels. It looks like American buyers are successfully pivoting their supply chains away from China. Bulk cargo freight rates are lower too, now back into the range that has applied since the GFC.

The UST 10yr yield starts today at 2.88% and little-changed from this time yesterday. 

The price of gold will open today at US$1759/oz which is down -US$6/oz from this time yesterday.

And oil prices start today up +US$3.50 at just over US$91/bbl in the US, while the international Brent price is now just under US$96.50/bbl.

The Kiwi dollar will open today at 62.6 USc which is a touch lower than this time yesterday. Against the Australian dollar we are also a touch softer at 90.4 AUc. Against the euro we have risen slightly to 62 euro cents. That all means our TWI-5 starts today at 71.4, and little-changed.

The bitcoin price is down -0.8% from this time yesterday at US$23,256. Volatility over the past 24 hours has been low at just under +/-1.0%.

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 on Monday.