Kia ora,

Welcome to Thursday’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 data is a bit shaky today and the way forward less clear and uncertainties rise.

American mortgage application levels fell less than expected last week, but that still takes them to their lowest level since 1998. This trade survey shows the benchmark 30 year fixed mortgage interest rate rose to 7.16% plus points, their highest since 2001.

So it is no surprise that new home sales fell -11% from year ago levels. It is small comfort that this fall is less than expected. The prior month rise was clearly just an outlier and the downward trend remains. Building consent levels stabilised however, even if at a low level.

Rising imports and soft export levels took their merchandise trade deficit to -US$99.6 bln. While that may not be great for them, their import engine sustains the core of global international trade. Their overall deficit will run at about -3% of GDP this year.

Also not great, their wholesale and retail inventory build, in current dollars, remains up at +25% and +22% year-on-year. These are largely unchanged levels, but problematic all the same. Inflation and supply-chain issues are a part of it, but it clearly can't continue at this level and we are seeing signs of a pullback reaction in the regional factory surveys now.

The US Treasury auctioned US$45 bln of five year bonds today and as usual this was well supported. In fact, the resulting 4.19% yield was lower than the 4.23% at the prior equivalent event a month ago, which is an unusual leveling out. But to be fair, it has run up quite quickly so far in all of 2022.

The Bank of Canada raised the target for its overnight rate by +50 bps to 3.75% which was less than the +75 bps expected. Still, it was the sixth consecutive rate hike, pushing borrowing costs there to their highest since 2008. They also signaled that their policy rate will need to rise further to weigh against inflation but they are near the end of that process, they said. However, their preferred measure of core inflation has not shown meaningful evidence of easing yet. Overall Canadian inflation is running at 6.9% and growth is expected to slow to +3.25% this year and less than +1% in 2023.

In China, parts of the city of Wuhan is again under lockdown as omicron cases start to spread there.

Singapore's industrial production stalled again in September in an unexpected pullback because a modest rise was expected after a set of recent months that were weak.

In the UK, their recent political and financial turmoil has brought a very sharp rise in the yield demanded by investors for their Government debt. The UK 7 year bond tendered today yielded 3.76%. Two months ago when this same bond was offered it yielded 1.96%. Bad policy has real cost. And they are expecting to have to issue huge amounts of new debt as a consequence.

The Australian CPI inflation rate climbed more than expected to 7.3% in Q3 from 6.1% in Q2, above market forecasts of 6.9%. This was the highest level since Q2 1990, boosted by higher prices for new housing construction, automotive fuel, and food. Prices for food rose the most since Q4 1983, up 9.0%. The RBA looks like it has called this completely wrong, even if they do now see Aussie inflation peaking at 7.75%.

The UST 10yr yield starts today down -7 bps at 4.02%. 

The price of gold will open today at US$1667/oz. This is up +US$13 from this time yesterday.

And oil prices start today +US$3 firmer than this time yesterday at just under US$88/bbl in the US while the international Brent price is just over US$94/bbl. But natural gas prices continue to fall as it becomes clearerr that Europe will have more than enough supplies for this winter. And Germany is on target to avoid using any Russian gas.

The Kiwi dollar will open today at 58.3 USc and up almost a full +1c from this time yesterday. Against the Australian dollar we are marginally softer at 89.8 AUc. Against the euro we are a little firmer at 57.9 euro cents. That all means our TWI-5 starts today at 68.2, and +40 bps firmer than yesterday.

The bitcoin price is now at US$20,773 and another strong +3.9% rise from this time yesterday. Volatility over the past 24 hours has been high at just on +/- 3.2%.

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.