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 that equity and bond markets are in more of a positive mood ahead of the US Fed's meeting tomorrow morning.

But first today, there was another dairy auction overnight and it was yet another weaker one, made worse by both a slumping cheddar cheese price, and the recent gains by the NZD. Overall prices were down -2.6% in USD terms and down -3.3% in NZD terms from the last auction. That puts them -36% lower than year ago levels. Every product fell, the least by the high-volume WMP (-1.5%), and the most by the cheese price (-10.2% from two weeks ago).

Of the 25 auctions in the past year, 19 have delivered lower prices. The price index is now back to a level we last had in December 2020. This continuing slide will probably have analysts reaching for the calculators to assess what the farmgate milk price will have to be reduced by.

US retail sales inched higher last week from year-ago level on a same store basis (+3.2%) but that isn't enough to account for retail inflation. Retail volumes continue their slow shrinkage.

However there was an unexpected surge in American existing home sales in February with them rising to an annual rate of 4.58 mln or more than +14% higher than year-ago levels. The apparent end of rising mortgage rates has emboldened buyers to commit - and sellers to respond. That was their largest rise since July 2020 and ends a year-long decline. But prices aren't responding to the additional demand yet; they remain -0.2% lower than year-ago levels. That was their first year-on-year fall in 11 years. The higher demand volume is coming from regions where home prices are decreasing and the local economies are adding jobs. It is their strong jobs market that is delivering these gains.

In the US banking scene, California's First Republic has seen its shares rally as confidence returns that it will survive. This comes after a Fed-prompted rescue undertaken by a set of much larger banks. US Treasury boss Janet Yellen commented that they will support deposits at other banks if that becomes necessary. But as we have seen elsewhere, management, shareholders and bondholders will always take the first losses.

Canada's CPI inflation rate slipped to 5.2% in February, a retreat from the January 5.9% rise. The change from the previous month is similar.

In China, they are starting a new surge in flu infections. The rate of people testing positive for influenza reported by hospitals across the country jumped to 53.2% last week, with H1N1, or swine flu, the dominant strain, forcing the suspension of some school classes in Beijing and Shanghai. By comparison, the rate for Covid was just 2.3%.

The German ZEW indicator of economic sentiment rose again in March, the third consecutive improvement, but the gain was far less than in February.

In Australia, APRA is apparently telling banks that it wants to know much more about their exposures to start-ups and crypto-focused ventures following the collapse of Silicon Valley Bank and volatility at global lenders.

Meanwhile, the minutes from the March 7 RBA meeting revealed they are likely to keep their cash rate unchanged at 3.6% on signs of economic softening. Their next review is on April 4, 2023.

More generally, markets are sensing today that contagion risks are fading, so risk appetites are rising.

The UST 10yr yield starts today at 3.59% and up another +10 bps from this time yesterday. 

The price of gold will open today at US$1941/oz and down another -US$35 from this time yesterday.

And oil prices start today up a strong +US$3.50 from yesterday at just under US$69.50/bbl in the US. The international Brent price is now just on US$75/bbl.

The Kiwi dollar is down -¾c against the USD and now at 61.7 USc. Against the Aussie we are -¼c lower at 92.8 AUc. Against the euro we are also -1c lower at 57.3 euro cents. That puts the TWI-5 at 69.9 with a solid -60 bps retreat.

The bitcoin price is much higher today, now at US$28,477 and up +3.0% from this time yesterday. And volatility over the past 24 hours has been modest however at +/-1.9%.

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.