Kia ora,

Welcome to Tuesday’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 both China and Japan are making background moves to raise the value of their currencies after long weak periods.

But first, American inflation expectations for the year ahead were little-changed at 3.6% in August from 3.5% in July, but it was the first increase in five months. Expectations for rents rose to 3.1%, the highest since July 2022. Also, price pressures were seen for petrol, food, medical care, and education but these were all also very minor. Three-year ahead inflation expectations slipped slightly to 2.8%.

Across the Pacific, Japanese machine tool orders inched ahead in August from July, an improvement. Orders from local customers fell less and export orders rose. But they still haven't gotten back to year-on-year gains yet.

Meanwhile, Japanese bond yields rose to their highest since 2014 as remarks by the head of their central bank suggest they want to push back against the very low value of the Yen.

China's central bank moved to raise the value of the yuan on Friday, and held its higher fixing yesterday.

New vehicle sales in China in August were strong at almost 2.6 mln in the month, and this level is near the highs for the month over the past ten years. And it is somewhat unusual that these peaks are occurring in August - usually the peak of the year for them is in November. The NEV segment is now dominating and their total fleet has made a big enough shift that air quality in major cities is improving noticeably.

There was a bounce-back in new lending in August after the unusually low levels in July. New yuan loans rose by nearly +¥1.4 bln which was actually slightly more than the bounceback expected (+¥1.2 bln). From the perspective of the past five years however, the August increase was modest - only 'high' because July was so low.

More major Chinese cities are removing all restrictions on home purchases and resales to revive their sluggish housing markets.

In Europe, the EU said their economy is likely to grow by +0.8% in 2023, which is lower than the previously projected +1.1% expansion. It is being held back by persistent inflation which is hurting consumption and bringing tight monetary policy restraints economic activity.

Locally, all eyes will be on the Pre-election Economic and Fiscal Update (PREFU) and the updated bond issuance required. We will have full coverage from about 1pm this afternoon.

The UST 10yr yield starts today up +2 bps at 4.28%. 

The price of gold will start today at just on US$1921/oz and up +US$2 from yesterday.

And oil prices are also little-changed from yesterday at just over US$86.50/bbl in the US. The international Brent price is still just over US$90/bbl.

The Kiwi dollar starts today nearly +½c firmer from this time yesterday at 59.2 USc. Against the Aussie we are -¼c lower at 9 AUc. Against the euro we are little-changed at 55.1 euro cents. However the TWI-5 is actually unchanged, still at 68.5.

The bitcoin price is lower again from this time yesterday, and is now at US$25,157, a net fall of -2.1% overnight. 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.