Kia ora,

Welcome to Tuesday’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 China is duplicating Russia's bully-play of a smaller neighbour, albeit with different means so far.

But first, northern hemisphere holidays are in full swing now and financial markets are quiet as a consequence, even if war and geopolitical fights seem to be escalating.

In the US, the New York Fed has released its national consumer inflation expectations survey. These fell to 6.2% in July, down from a record high 6.8% in June. Driving this retreat were expectations that the price of petrol would fall sharply. Food prices are also expected to fall back. The same survey reported the recent household spending surge will ease back to more normal levels - and that the jobless rate is unlikely to rise. The point of these surveys isn't as a predictor of the future, rather they inform how household budgets are being set.

This better inflation outlook comes just as the US Congress has passed a huge social and climate program, the centre-piece of the Biden Administration's re-orienting of the giant US economy after the battering it has taken over the past six years.

Across the Pacific, China is making a concerted play to snuff out the democratic government in Taiwan with a semi-permanent "live fire" military exercise surrounding the island nation. At the same time Taiwan reported healthy export orders in July, up +14%, its second-best level ever. Its monthly trade surplus remained over +US$5 bln. But the question remains, how can that continue with the military squeeze tightening? Democratic talking can't compete with military bullying. Regional concerns are rising.

The number of ships navigating around the island on Friday was far lower than usual, down to a handful of vessels from an average of 240 a day over the prior week. Ship owners can no longer get political risk insurance in these waters.

And in an escalation of its pique, China has stopped cooperating with the US in a number of areas including controlling is fentanyl export trade. China may be weaponising the drug trade. It is also signaling that it needs to 're-educate' the Taiwan population away from democracy.

At home, China has a number of issues it is grappling with, including the recent pandemic spread. More than 80,000 tourists are now stranded in China's holiday island of Hainan (China's "Hawaii") as its main city is locked down to prevent spread. And in Xinjiang, tourists have been told to go home early due to a widening outbreak there as well.

In Europe, Norway has said it will cut back electricity supplies to the EU because its hydro lakes are low. It is raising its subsidy on electricity to households to 90% and prioritising local customers.

The UST 10yr yield starts today at 2.77% and -6 lower than this time yesterday. 

The price of gold will open today at US$1788/oz which is up +US$12/oz from this time yesterday.

And oil prices start up +US$1.50/bbl from this time yesterday at just on US$89.50/bbl in the US, while the international Brent price is now just on US$95.50/bbl.

The Kiwi dollar will open today at 62.9 USc which is +½c higher than this time yesterday. Against the Australian dollar we are -½c weaker at 89.9 AUc. Against the euro we are firmer at 61.6 euro cents. That all means our TWI-5 starts today at just on 71.3 and still in our usual range.

The bitcoin price has moved higher from this time yesterday, up +3.0% to US$23,954. Volatility over the past 24 hours has been moderate at just over +/-2.5%.

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.