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 heat is going out of some of the global pressure points - and equity markets like that.

But first there was a dairy auction overnight, and not an especially good one. Overall prices were down -3.5% in USD terms and down -1.2% in NZD terms. Leading the fall was WMP with a -4.0% fall. We are lucky we have a depreciating currency because that has limited the retreat. There was also a large retreat in the butter price (-7.0%), but every component fell. This was a surprise in terms of the signals from the derivatives market, but the intervening Pulse events have signalled that WMP might be soft, and it was. This events decline ended the prior two price rises. Overall prices are back to where they were in August.

American retail sales last week rose to be +12.3% higher than the same week a year ago. This data is on a same-store basis and is the strongest result since the end of August. Some of this increase will be inflation of course, but not all of it.

Meanwhile, pressure on the US job market seems to be easing. The number of job openings there dropped to 10.1 million in August, the lowest since June 2021. That is down from a downwardly revised 11.2 million in July. The all-time record level of 11.9 million was in March 2022.

As expected, new orders for US manufactured goods were flat in August from the prior month following a -1.0% fall in July on that basis. Excluding aircraft orders, there was a small rise, but it was orders for consumables that were the strongest. Year-on-year these overall orders are up +12.8%.

The American logistics LMI rose in September, but that isn't necessarily a positive signal. It was fueled by high levels of inventory and the associated levels of cost and utilisation holding them. On the other hand, transportation metrics continue their slowed pace.

In Europe, new September data out overnight shows that pressure on producer prices there isn't letting up, rising an extreme +5% in the month to be +43% higher than a year ago. These are higher level than they recorded in August.

Late yesterday, the Aussie central bank turned dovish, raising their policy rate by only +25 bps when markets expected a full +50 bps rise. Only +25 bps is priced in at present for their November review. But markets now expect them to keep raising their rate well into 2023. Their new current policy rate is 2.60%. Markets now expect that to top out at 3.50% in the middle of next year. That is now a much longer hiking cycle that previously expected.

Aussie building consents raced higher in August on the back of a strong recovery in consents for rental apartment buildings. It was a much more aggressive rise than anyone expected.

Meanwhile, housing finance fell in August. Mortgage approvals are now almost -20% below their peak at the start of the year. This latest data on turnover and prices, available up to September, points to more weakening to come. 

Later this morning, we will report on the Barfoot's September sales results. These come after CoreLogic pointed out the fall in prices nationwide is gathering steam. And this afternoon, the RBNZ will announce its decision on the OCR level. It is widely expected to rise +50 bps to 3.50%.

The UST 10yr yield starts today at 3.63% and down -2 bps from this time yesterday. 

The price of gold will open today at US$1722/oz. This is up another +US$30 from this time yesterday to a three week high.

And oil prices start today up +US$3 from yesterday at just under US$86/bbl in the US while the international Brent price has risen to be just under US$91.50/bbl.

The Kiwi dollar will open today at 57.5 USc and nearly +½c higher than where we that this time yesterday. Against the Australian dollar we are up +¾c at 88.4 AUc. Against the euro we are down -¾c at 57.5 euro cents. That all means our TWI-5 starts today at 67.2, and little-changed since this time yesterday morning.

The bitcoin price is now at US$19,998 and up +2.7% from this time yesterday. Volatility over the past 24 hours has been moderate at just under +/- 2.2%.

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.