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 drought in China is compounding their problems, and making their summer holiday break a very uncomfortable one for Beijing officials.

But first, the US Fed minutes were released today showing a maintained hawkish view, committed to getting inflation back to its 2% target. They said that for the central bank to scale back its rate hikes, inflation reports due to be released on September 14 would need to confirm that the pace of price growth was cooling. They meet next on September 22, 2022 (NZT)

American retail sales disappointed in July, held back by lower petrol sales, and car sales. But online sales rose, kicked along by Amazon's Prime Day, and other non-vehicle sales did ok too. Overall, despite the weakish car sales, they still posted a +8.6% year-on-year gain. But there was no month-on-month rise, so this will go down as an underwhelming event.

Also disappointing is the rise and rise of business inventories, up +1.4% in June from May to be almost +19% higher than year ago levels. This was as expected. Their inventory-to-sales ratio isn't out of whack yet, but it is rising, and relentlessly

US mortgage applications fell last week, so the prior week's gain has proven to be the anomaly.

In China, the heat and drought are biting harder with industry shutdowns extending, now to steel mills. Beijing's worry levels are growing. The weather situation is worsening an economy that was already underperforming.

As you are probably aware, Norway saved much of its oil riches, building the world's largest sovereign wealth fund. But recent market turmoil has hit it hard and they lost -US$174 bln (NZ$278 bln) in the first half of 2022. After that loss their fund is worth US$1.3 tln, the largest drop in the funds history. To put that loss into perspective, in half a year the New Zealand GDP is NZ$185 bln. Norway has a population of 5.5 mln people, so the Fund is worth about NZ$375,000 per citizen.

In the UK, inflation rose to 10.1% in July from 9.4% in the previous period and above market forecasts of 9.8%. It was their highest level since February 1982.

The UST 10yr yield starts today at 2.89% and up +7 bps from this time yesterday. 

The price of gold will open today at US$1765/oz which is down -US$11/oz from this time yesterday.

And oil prices start today up +US$1.50 at just over US$87.50/bbl in the US, while the international Brent price is now just under US$93/bbl.

The Kiwi dollar will open today at 62.7 USc which is -¾c lower than this time yesterday. Against the Australian dollar we are a bit firmer at 90.5 AUc. Against the euro we have fallen to 61.7 euro cents. That all means our TWI-5 starts today at 71.3, and down -60 bps.

The bitcoin price is down -1.9% from this time yesterday at US$23,440. Volatility over the past 24 hours has been moderate at just over +/-2.4%.

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.