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 inflation might be easing, but the level of economic activity is as well.

In the US, consumer inflation expectations are falling now. A Fed survey revealed they fell to 5.2% in November, the lowest since August 2021. That is down from 5.9% in October and is the sharpest single-month fall since this survey started in 2013.

The US reveals its CPI data tomorrow and a 7.3% headline rate is expected, down from October's 7.7% rate

Japanese producer prices rose at an annualised +7.2% rate in November from October to be +9.3% higher than year-ago levels. This recent slowing isn't as much as the +6% annualised rate expected, but at least it is slowing now. Japan's factories have been hit with the combination of high commodity prices and a weak yen. But starting in mid-November these weaker trends started to reverse, so the pressure may be coming off faster in December.

Orders for Japanese machine tools also fell sharply in November. This is leading-edge data for essential technical components in the global economy. The fall was a sharp -4.9% from October and -7.9% from the same month a year ago. Export orders fell -8.4% in November from October.

China's new yuan loans swelled +11% in November, but that was actually slightly less than was expected. But it is very sharp loan growth year-on-year and approaching three times the growth in economic activity. It's not inflation boosting these debt levels, rather a rush to add liquidity to keep their property sector from imploding.

Meanwhile, confusion is growing over the relaxation in China's Covid-response rules. There is a reluctance to 'go out', fearing getting caught by some technical aspect, and a fear that enforcers are as confused as everyone else. Further, infections are spreading very quickly now and there are reports hospitals are overwhelmed in some places. Key city retail zones are struggling despite the expectations the 'relaxations' would bring a surge of shoppers. Equity markets can sense the hesitations, risks and confusion, and yesterday marked down retail-related stocks sharply.

India's industrial production also fell sharply, by -4% in October from a year ago and a far larger retreat than was expected. That's its worst post-pandemic result.

At the same time, India reported its consumer inflation for November, and that rose +5.9% from a year ago, but actually fell marginally from October.

In Australia, there is full-on pushback by the gas industry to proposed price capping to help consumers. A supply and investment 'strike' is being threatened, but probably won’t happen.

The UST 10yr yield starts today at 3.62% and up +3 bps from this time yesterday. 

The price of gold will open today at US$1785/oz and down -US$13 from yesterday.

And oil prices start today up +US$1.50 from this time yesterday at just on US$73/bbl in the US while the international Brent price is down to just under US$78/bbl.

The Kiwi dollar will open today at 63.7 USc, and and nearly -½c lower than this time yesterday. Against the Australian dollar we are firm at 94.6 AUc. Against the euro we are still at 60.4 euro cents and down -½c. That all means our TWI-5 starts today at 72.4 and little-changed.

The bitcoin price is now at US$17,006 and down -0.9% from this time yesterday. Volatility over the past 24 hours has been modest at just +/- 1.1%. In the US prosecutors are assessing whether to proceed with a criminal indictment of Binance, the world largest crypto exchange. The issues are money laundering and evading sanctions.

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.