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 risk aversion is the theme of the day for investors who seem particularly jittery about AI valuations, crypto prices, and the prospects for the US economy.

But first, we start today with the results of another full dairy auction, and they aren't good. Not so much because the overall result was down -3.0% in USD terms, more because that makes it seven declines in a row from early August, taking the cumulative drop to -13%. And the recent retreats seem to be getting more intense. We now have prices lower than year-ago levels. And the decline in USD is being matched by the decline in NZD now, down -2.9% in this latest event.

Clearly analysts will be dusting off their current season payout forecasts because they are risk of being downgraded. Behind the softness is a faster-than-expected rise in dairy production levels due to good weather conditions globally. That is as true for New Zealand as anywhere, where milk production is rising. The pointy end of this pressure is the butter price, and that dropped -7.6% at this latest auction. WMP was down a lesser -1.9%, SMP down only -0.6%.

In the US, the ADP weekly payrolls report delivered another drop, the one for the week to November 1 not as sharp as the prior week however. This data suggests the US labour market lost momentum in late October, with a number of large companies announcing job cuts during the month, including Amazon and Target.

Official data releases are being restarted in the US, but the data is old now. Overnight they said August factory orders rose to be +2.0% higher than year-ago levels. But because this is not inflation-adjusted and the past US PPI rise was +2.6%, it probably means shrinkage in real terms. There has been no indication this things have improved from August.

And restarted official jobless claims data is only for October 18, but it rose then to +232,000 and above the expected level of +223,000. Continuing claims were a touch under 2 mln (1.96 mln) and notably above the 1.85 mln in the same week in 2024.

The US NAHB housing market index came in essentially unchanged for October from September and -17% lower than year-ago levels. But they will be pleased it didn't drop back.

Yesterday we reported a good improvement for factories in the New York region. But today the report for the very much bigger services sector in the same region has remained very negative.

We could perhaps note that the Atlanta Fed monitors home loan affordability for the US is a similar way we do for New Zealand. They say that in September 2025, 43% of take-home pay was required to service an American mortgage and that is 'unaffordable'. They say affordability starts when it is 30% or less. (Our New Zealand September HLA was 33.0%.)

In Canada, housing starts dropped sharply in October to their lowest in six month and to levels lower than the same month a year ago

The Australian central bank released the minutes of its last meeting on November 4 yesterday, closely-watched because they have rising inflation and a relatively strong labour market. But they downplayed both aspects, calling them 'slight' and expecting them to be transitory. Policy was still viewed as slightly restrictive, and the board saw “no need to adjust” the cash rate. They said patience was deemed appropriate while assessing spare capacity, labour trends, and policy stance. Scenarios supporting a hold included stronger demand, lower supply capacity, or a view that policy was no longer restrictive. Conversely, further easing could be warranted if labour conditions weaken or growth disappoints. Basically, you don't learn anything by reading these minutes.

The UST 10yr yield is now at 4.14%, up +1 bp from this time yesterday.

The price of gold will start today at US$4061/oz, and down -US$6 from this time yesterday.

American oil prices have softened very slightly from yesterday to be just under US$60/bbl, with the international Brent price down -50 USc to US$64/bbl.

The Kiwi dollar is now at just on 56.6 USc, and down -10 bps from yesterday. Against the Aussie we are down -10 bps at 87 AUc. Against the euro we are also little-changed at 48.9 euro cents. That all means our TWI-5 starts today at just over 61.2, and down -10 bps from yesterday.

The bitcoin price starts today at US$93,460 and down -0.4% from yesterday and it is still lower than year-ago levels. At one point in the past 24 hours it dipped below US$90,000. Volatility over the past 24 hours has been moderate at just on +/- 2.6%.

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.