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.

Today we lead with news the next risk to global supply chains may come from drought in China.

But first up today, there was another dairy auction this morning and prices were lower again, for the fifth consecutive time, and the 10th time in the past eleven events. That means from its recent peak in early March, overall prices are now down by more than a quarter, a bear market for dairy products. They were down -2.9% this time from the prior event, but worse, down more than -4% in NZD terms. If there are any positives, they come from the "at least it wasn't as weak as markets expected" variety. Analysts will be less committed to their early 2022/23 farm gate milk payout forecasts now. Then again, there were some below-the-line positives in SMP and cheese especially, so perhaps they will see this as the bottom of the current market.

Elsewhere, global data on offer was also less than positive.

Perhaps bucking that trend however was the recovery in the weekly US retail pulse monitoring by the Redbook survey, with good same-store year-on-year growth above inflation and putting behind it the prior week's dip.

But American housing starts sagged badly, down almost -10% in July from June to be -8.1% lower than year-ago levels. This was much weaker than expected. Building consent levels were weaker too. It may not be much consolation, but the Americans don't have this trend on its own - it has shifted to a global trend where housing is sagging on all fronts now, and may well do for a while yet.

But picking up some of the pace, and perhaps more than expected, was American industrial production in July. June's data was revised up too. This is now +3.9% above year-ago levels (real), and puts behind it two weakish months.

Canada reported its July CPI data today, at 7.6% which was as expected and lower than the June 8.1% rise. It is another inflation data point that suggests the peak is passed for inflation. But this is not expected to slow their central bank's push to raise their policy rate.

And Canada reported better than expected housing starts for July, so that is a positive for them.

The German ZEW sentiment index isn't improving however, coming it at its lowest since the GFC.

In China, normally at this time of year we note excessive flooding along the big river basins like the Yangtze. But this year it is the opposite with very low flows and very high temperatures. This does not bode well for farming, not the industry relying on hydro-electric power from their river systems. There is now talk of factories closing due to electricity shortages. Brands like Apple are having supply issues.

There are no updates on yesterday's reports China is about to block Australian and New Zealand beef imports.

In Australia, an unsurprising RBA set of minutes from the last meeting has most observers convinced they will raise their policy rate another +50 bps again in early September to 2.35%. Some sections of these minutes reflected concerns of downside risks, but the overall tone was hawkish, especially relating to their strong labour markets.

The UST 10yr yield starts today at 2.82% and up +3 bps from this time yesterday. 

The price of gold will open today at US$1776/oz which is down -US$2/oz from this time yesterday.

And oil prices start today down another -US$2.50 at just over US$86/bbl in the US, while the international Brent price is now just over US$92/bbl. These prices are now near six-month lows.

The Kiwi dollar will open today at 63.4 USc which is -¼c lower than this time yesterday. Against the Australian dollar we are a bit lower at 90.3 AUc. Against the euro we have also slipped to 62.3 euro cents. That all means our TWI-5 starts today at 71.9, and down -20 bps.

The bitcoin price is down -0.9% from this time yesterday at US$23,894. Volatility over the past 24 hours has been modest at just over +/-1.2%.

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.