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 the IMF now expects a global soft landing in 2024 and 2025 after authorities seem to have successfully quelled inflation.

But first, an update on dairy prices. We mistakenly signaled a full GDT dairy auction overnight in our report yesterday. But we got that wrong; it is next Wednesday, February 6, 2025. But there was a GDP Pulse even overnight instead and that delivered higher prices. WMP prices were +1.1% higher that the last equivalent event a week ago. SMP prices were +0.3% higher. These gains were less than anticipated in the dairy futures markets, but both continue the recent trend of rising prices.

Meanwhile, the US Redbook retail index of bricks & mortar stores came in +5.0% higher last week than a year ago, maintaining the recent gains. And don't forget these are off heady rises a year ago, so there isn't any indication yet American consumers are flagging under household budget pressures in these results.

And the widely-watched Conference Board survey of consumer confidence rose in its January edition, largely as expected. Consumers are feeling the most upbeat in two years.

And there has been a trifecta of good American data out overnight with the US JOLTS report surprising with a rise in job openings in December. They surged by +101,000 from the previous month to over 9 mln, the highest in three months and above the market consensus which expected to hear of a retreat.

The only American data out overnight that was negative was the Dallas Fed's survey on the service sector in the oil patch. Like the factory survey, it retreated.

In China, market optimism for an economic rescue package is fading. China’s stock and bond markets are giving a clear signal to policymakers that they need to take more steps to revive investor confidence. Stocks fell for a third day on Tuesday, pulling back from last week’s rebound. Their benchmark 10-year bond yield dropped to the lowest level in more than twenty years, as traders now expect the central bank will release additional monetary stimulus to boost growth. But direct solutions for the troubled sectors still seem unaddressed. The IMF may agree with Beijing that current approaches will be enough, but financial markets remain sceptical.

In Europe, sentiment was broadly stable in December.

And the EU released it's Q4-2023 GDP result overnight - and it looks like they have avoided a recession, even if the result was weak. The stalled in the last three months of 2023, following a -0.1% contraction in the previous quarter. Analysts had expected Q4 to decline too. But these are preliminary estimates. They avoided a recession because of better-than-expected growth in Spain and Italy while the French economy stalled and Germany, which is the largest one, contracted. They will be relieved at the overall result, but in fact it doesn't really paid an encouraging picture.

Australia said that December retail sales were weaker than expected, falling -2.7% from November to be just +0.8% higher than year ago levels. That was the steepest drop since August 2020. This follows a revised rise of +1.6 in November and a fall of -0.2% in October 2023. Meanwhile inflation ran at about 4.3% over the same time, so retail volumes in 2023 shrank about -3.5%.

Overnight, the IMF chimed in with an updated 2024 growth forecast, one they raised (which was a bit of a surprise). They now expect 2024 global economic activity to expand +3.1%, and improvement from 2.9% seen in October while keeping the forecast for 2025 unchanged at 3.2%. The key improver came from greater-than-expected resilience in the US and several large emerging market and developing economies, as well as anticipated fiscal support in China. 2024 growth forecasts were revised higher for the US (2.1% vs 1.5%), China (4.6% vs 4.2%) and India (6.5% vs 6.3%) but the institution expects lower growth for the Euro Area (0.9% vs 1.2%) and Japan (0.9% vs 1%). They foresaw small improvements in Australia over the next two years but at modest levels, but forecasts for New Zealand were not included.

The UST 10yr yield starts today at 4.08% and down -2 bps from this time yesterday. 

The price of gold will start today up another +US$8/oz from yesterday at just on US$2035/oz.

Oil prices are up +US$1 at just over US$78/bbl in the US while the international Brent price is now just over US$82.50/bbl.

The Kiwi dollar starts today at just on 61.2 USc and marginally firmer than yesterday. Against the Aussie we are up +20 bps at 92.9 AUc. Against the euro we are unchanged at 56.5 euro cents. That all means our TWI-5 starts today at 70.2 and up +10 bps from yesterday.

The bitcoin price starts today firmer yet again. It is now at US$43,177 which is up +2.1% from this time yesterday. Volatility over the past 24 hours has been moderate at just on +/- 2.0%.

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.