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.

And today we lead with news both equity and bond markets are displaying some nerves ahead of tomorrow's US Fed rate and policy decisions.

But first, there was another dairy auction overnight and a good gain was achieved even if not as strong as some market forecasts expected. Overall prices were up +4.6% in US dollar terms on top of the prior event's +2.7%. In NZD terms the increase was a lesser +3.7%. WMP rose +4.6% from the last event, SMP was up +5.4% and butter up +3.8%. But cheddar cheese fell -1.7%. These are positive signals and momentum going into tomorrow's Fonterra result announcements, but we need to keep in mind even after these rises, overall prices are still -24% lower than year-ago levels and the recent rises only take them back to early August levels. This event is a positive sign, but will hardly move the needle on milk payout forecasts. More here.

In the US, residential building consents rose rather sharply in August, but housing starts fell sharply, and it is the falling starts data that is getting all the headlines. With more applications to build being approved, the fall in housing starts might be just temporary.

US retail sales at brick & mortar stores on a same store basis were up +3.6% last week from a year ago, good, but really only enough to keep pace with inflation.

Meanwhile, Canadian CPI inflation rose to +4% in August from +3.3% in July, overshooting market expectations of +3.8%. Rents and petrol are getting the blame. Their central bank has said inflation at these levels is inconsistent with their targets. That will raise expectations for more rate hikes there.

Separately, we should keep an eye on how relations between Canada and India develop, after Canada said it had direct evidence the Indian Government assassinated an opponent in Vancouver, Canada. US evidence in the link is a key component. India's embarrassment will likely result in extended anti-Canada and anti-US reactions.

In China there is a massive exit underway by investors. Official data shows holdings by foreigners of Chinese equities and bonds has now fallen by more than -NZ$330 bln from the peak in December 2021 until August this year when -NZ$20 bln left in that month alone. Those with direct, on the ground investments in China are growing less optimistic too.

The OECD is out with its updated global growth forecasts. It sees global GDP growth at +3% this year (vs +2.7% at its last review in June) and +2.7% in 2024 (vs 2.9%). The US economy is expected to grow +2.2% this year and +1.3% in 2024. The Eurozone is seen rising +0.6% in 2023 and +1.1% in 2024. And China is seen expanding +5.1% in 2023 and 4.6% in 2024. For Australia it is +1.8% this year and +1.3% next. New Zealand doesn't get a mention. As well as growth extending, they also see inflation pressures moderating.

Although it is one of the last to come to this conclusion, the Australian Bureau of Meteorology has declared we have now slipped into an El Niño weather pattern.

The UST 10yr yield starts today up +3 bps at 4.35%. And we make that it a 15 year high, since the end of 2007. 

The price of gold will start today at just on US$1930/oz and down -US$3 from yesterday.

And oil prices are +50 USc firmer from yesterday at just over US$90.50/bbl in the US. The international Brent price is now over US$93.50/bbl.

The Kiwi dollar starts today still in its recent yo-yo range and up about +10 bps from this time yesterday at 59.3 USc. Against the Aussie we are holding at 91.9 AUc. Against the euro we are marginally firmer at 55.5 euro cents. That all means our TWI-5 is also up about +10 bps at 68.8.

The bitcoin price has moved up further from this time yesterday, and is now at US$27,190, a rise of 1.4% and its highest in a month. Volatility over the past 24 hours has been modest at just on +/-1.6%.

You can get more news affecting the economy in New Zealand from interest.co.nz.

Kia ora. I'm David Chaston. And we will do this again tomorrow.