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 that markets are ignoring weak Chinese data and focusing on the positives.

But first, there was another dairy auction earlier today. However this one isn't about the auction prices - which rose +2.4% in USD terms. It is really all about the exchange rate, because in NZD, the auction prices fell -3.1%, and in local currency that means prices have now fallen for four consecutive auctions and wiping out all the good September rises. Year-on-year prices are down -7% on that basis and down -18% in USD terms. Analysts may give up on some of their 2022/23 season pay-out forecasts now. The NZD has risen +5.6% since the prior auction. Prices in USD rose +3.1 for both SMP and WMP, but to have just broken even they needed to rise about +10% and back to those September levels.

In the US, retail sales last week rose only about the CPI inflation rate from year-ago levels, so that is a noticeable slowing of sales volumes heading into their holiday shopping seasons.

Gradually, some of the heat is going out of American producer price inflation too. It was up +8.0% in October from a year ago, but only up at an annualised rate of +2.5% on October from September. "Core' rates rose even less on that same basis. Perhaps 'transitory' is arriving, finally.

Perhaps the heat is going out of American factory stresses, but not everywhere. The New York "Empire State factory survey" rose in November to record a better expansion, with activity and employment indexes high. But new order levels were unmoved. This survey is coming out of a three-month dip.

American consumers are loading up on more personal debt, after many years of relative restraint - and especially credit card debt. US household debt climbed at the fastest annual pace since 2008 in the third quarter, with credit-card balances surging even as the interest rates that lenders charge to consumers hit a multi-decade high. Households added more than US$350 bln in overall debt last quarter, taking the total to US$16.5 tln.

Canada reported that their house prices continued their slide for an eighth month in October as buyers and sellers adjusted to an environment of higher interest rates. Prices are now down more than -10% from their peak and lower than year-ago levels.

The Japanese economy unexpectedly contracted -1.2% on an annualised basis in Q3-2022, missing market forecasts of +1.1% growth and shifting from an upwardly revised +4.6% expansion in Q2. This Q3 result was their first contraction in a year.

China's industrial production rose +5.0% year-on-year in October according to their official dat, less than market estimates of a +5.2% increase and after a +6.3% growth in the prior month.

But electricity production barely reached year-ago levels (+1.3%), so unless the Chinese are undergoing a large productivity gain, it is hard to see how these official figures are what is really going on in their factories.

Chinese retail sales fell, according to official data, slipping -0.5% year-on-year, hurt by foodservice sector which dropped more than -8%. In fact, without car sales, the decline would have been almost -1%. Even after all this the fall was -¥202 bln (NZ$50 bln) in the October month alone.

We should note that not only did Chinese President Xi meet with his US counterpart in what was a positive exchange, he also met with the leaders of Australia and South Korea, also positively. And the background wolf-warrior talk suddenly was dialled back. China's alignment with Russia isn't working out for them, and trade is more promising with countries it previously tagged as rivals.

In Germany there was something of a surprise in consumer sentiment. While it is still deeply negative, it was recorded as much less so in a widely-watched November survey. The 'improvement' certainly took analysts by surprise. Perhaps perceptions that the Ukraine war might not drag on unresolved for many years are helping.

The UST 10yr yield starts today at 3.84% and down half the 6 bps it rose yesterday. 

The price of gold will open today little-changed at US$1771/oz. This is back up +US$2 from this time yesterday.

And oil prices start today little-changed from this time yesterday at just on US$85.50/bbl in the US while the international Brent price is just over US$92.50/bbl.

The Kiwi dollar will open today at 61.7 USc and +¾c stronger. In fact, that is an almost 3-month high. Against the Australian dollar we are unchanged at 91 AUc. Against the euro we are also firmer, up +½c at 59.5 euro cents. That all means our TWI-5 starts today at 70.4 and up +40 bps.

The bitcoin price is now at US$16,938 and up +3.0% since this time yesterday. Volatility over the past 24 hours has been moderate at +/- 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 on tomorrow.