Kia ora,

Welcome to Monday’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 investor inflation expectations are the key uncertainty this week.

Despite China being on holiday, it will be a busy data week ahead. For us it will be highlighted with the Wednesday release of our Q4-2022 inflation data. That will be quickly followed by the same data from Australia. Both have the potential to be market-moving. Markets expect the NZ CPI rate to come in at 7.1% and little changed from the September 7.2%, and for Australia at 7.5% and up from the prior 7.3%. The week will end with the US releasing its first estimate of 2022-Q4 GDP growth on Friday, and a +2.6% rate is expected. At the same time a +2.5% rise durable goods orders is expected. Before all that flash PMI data for January for the US, Japan, Europe and Australia will be released. We will also be following the Canadian policy rate decision on Thursday (+25 bps expected to 4.50%).

Of course, it is a full week official holiday in China, and Taiwan and Singapore are other countries taking a New Year holiday today at least. Hong Kong's financial market will be closed until Thursday this week, unlike Shanghai which doesn't reopen until Monday, January 30.

The Chinese central bank reviewed its loan benchmarks late Friday and left them unchanged. This wasn't a surprise and is the fifth straight month they have been untouched. 

The gigantic Chinese New Year (Year of the Rabbit) travel event has started, which will see more than 900 mln people move around internally and externally, probably extending Covid to every corner of their country. Some 2.1 bln trips are expected to take place during the 40-day Spring Festival period, double the number of treks from last year.

China's financial markets and government departments will be closed for all of next week, returning on Monday, January 30, 2023.

But when they return, there is some optimism that the restart to their economy will be stronger than we have seen it for a while, and that should drive a counterbalance to an expected slowdown in the US economic engine. (Optimism about China's prospects is not universal however, even in China.)

It's been a long-talked-about American slowdown, but there are few real signs of it yet. However, it will be no surprise if one comes. Most analysts expect it to be a mild retreat, and if inflation also retreats and stays down, then a more sustained rise may follow.

American resales of existing homes fell in December, continuing housing's current funk. 

The key to watch is the American labour market. Their tech industry retrenchment is gathering steam, with Google the latest to announce very large job cuts. But so far, the wipe out by the tech titans has had little impact on overall employment.

And of course, markets will be jostling ahead of the next US Fed meeting on February 2, 2023 (NZT).

Canada retail sales rose in December after falling in November, but the shifts are pretty modest. Year on year sales rose in nominal prices (+5.1%) less than their inflation rate (6.3%), they are seeing volume declines.

Japanese inflation hit a 41-year high in December, up +4% and above their central bank 2% target for a ninth straight month. It is up from +3.7% in November, the sharpest rise since 1981. The rise from November to December was at an annualised +3.5% rate, so perhaps there is some moderation coming.

In Australia, investors are increasingly wary of commercial real estate. They suspect there will be a reset in asset values as credit markets tighten will hit office landlords. It a re-pricing that will be wider than that sector of course, but it has been on the cards for some time as interest rates rise. Much will depend on market reactions to the upcoming CPI data.

The IMF is about to release its latest global forecasts and indications are it will be raising estimates of expansion, including in China - and the EU.

The UST 10yr yield starts today at 3.48%, and unchanged. 

The price of gold will open today at US$1926/oz and very little different from where we left it on Saturday.

And oil prices start today little-changed, at just over US$81.50/bbl in the US while the international Brent price is just over US$87.50/bbl.

The Kiwi dollar has firmed slightly overnight, now at 64.7 USc. Against the Australian dollar we start the week at just under 93 AUc. Against the euro we are unchanged at 59.6 euro cents. That all means our TWI-5 starts today at 71.8, and the highest of the year so far.

The bitcoin price is up further, now at US$22,836 and a heady rise of +6.9% from this time Saturday. Volatility over the past 24 hours however has been modest at +/- 1.6%.

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 will do this again tomorrow.