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.

Today we lead with news the world's factories aren't the driving force they once were.

But first, hanging over today is an imminent visit by a senior US politician to Taiwan, much to Beijing's fury and accompanying threats. It is a tense flash-point right now.

Separately, global factories are now reporting their upturn has stalled as production stagnates and new orders contract. But price inflation and supply chain pressures brought signs of easing. Business optimism fell to a 26-month low in July. Growth is strongest in India, Australia and the US while the EU is struggling.

In the US, both the major July PMI reports said new order levels fell in the month, taking the shine right off their factory expansion. Both are still expanding however as they work through large order backlogs. A dip in new orders isn't unusual as they head into their summer holiday season however and was less than expected. Equally notable is the easing of price pressure, recorded in both reports. The widely-watched ISM one called the July pullback "slight", but the internationally benchmarked Markit one noted the sharp easing of demand.

But four of the six biggest manufacturing industries - Petroleum & Coal Products; Computer & Electronic Products; Transportation Equipment; and Machinery - all still registered moderate-to-strong growth in July.

Defying the Chinese official version which has its factory PMI slip into a contraction, the private Caixin PMI fell but not into contraction. But this fall was more than expected. There were softer increases in output and new orders, employment fell at a quicker pace as firms cut back, and input cost inflation slowed notably, with prices charged falling again.

In Hong Kong, they have fallen into a second recession in 3 years as pandemic restrictions sting their economy which fell -1.4% in Q2 and further weakening its status as a vibrant financial hub.

And staying in Hong Kong, crisis-hit Chinese property giant Evergrande says that one of its subsidiaries has been ordered to pay US$1 bln for failing to honour its debt obligations.

In Japan, factories are still expanding at a modest level but the momentum is slowing.

In Taiwan, the suffered their steepest falls in output and new orders for over two years as their factory sector suddenly contracted in July.

India is a bright spot, recording a rare rise in their expansion, which is now bubbling along at a solid moderate rate.

That is quite the contrast to Europe where they slipped into a minor contraction in July, their first in more than two years. And that was the case for both Germany and France. Generally among other countries there, northern Europe is still expanding while southern Europe isn't.

Not helping is a sharp drop in German retail sales volumes, which although it was expected, came in at the bottom end of forecasts. The Germans are hunkering down ahead of a tough period expected to start in a few months.

Most think the EU has just three months to build resilience to a full winter cut-off of Russian gas. Progress is frantic everywhere and the signs are now reasonable that a unified EU will be able to cope.

The first of the two Australian factory PMIs was released yesterday, and it shows little change with a good moderate expansion continuing. The other local version recorded a decline to a more modest expansion.

And Australian house prices are losing altitude quickly. The CoreLogic home value index, covering the eight major capital cities, fell -1.4% in July, following a -0.8% slip in June and a -0.3% dip in May. The July fall is the largest monthly decline since 1983 and both Sydney and Melbourne are leading the way down.

At the end of today, we will get the August review by the Australian central bank. They are widely expected to raise their cash rate target by another +50 bps to 1.85% at about 4:30 pm this afternoon.

The UST 10yr yield starts today at 2.61% and down -5 bps from this time yesterday. 

The price of gold opens today at US$1769/oz in New York which is up +US$2 from this time yesterday.

And oil prices start +-US$5 lower at just over US$92.50/bbl in the US, while the international Brent price is now just over US$99/bbl.

The Kiwi dollar opened today firmer from this time yesterday at 63.3 USc which is actually a six week high. Against the Australian dollar we are also marginally firmer at 90.2 AUc. Against the euro we are a tad firmer too at 61.7 euro cents. That all means our TWI-5 starts today at 71.3.

The bitcoin price has moved lower from this time yesterday, down -3.3% to US$22,950. Volatility over the past 24 hours has been moderate at just over +/-2.8%.

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’ll do this again tomorrow.