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.

Today we lead with news that while oil producers see sharply lower demand, the world's largest economy shows rising retail demand.

But first, the overnight dairy Pulse auction saw SMP dart higher than expected to US$2800/tonne, its highest level since February 2023. The WMP component however slightly undershot expectations at US$3438/tonne, but holding its level of four weeks ago. It is not a serious weakness in over a series of auction events where the WMP price has been a little volatile.

And staying with commodities, OPEC cut its demand forecast - for the second time in two months. That suddenly dropped the price of crude in all markets by almost -5%.

So it might be a surprise to know that US retail demand at physical stores rose last week by +6.5% than in the same week a year ago, far outpacing inflation, and to it's fastest growth since the end of 2022 when it was recovering from the weak pandemic base. Prior to that anomaly, it is its highest growth rate since 2006 !

Away from the business community and the Masters of the Universe crowd, a comprehensive review of US incomes for 2023 revealed a +4.0% rise in the year, and no-change in their poverty rates, which stand at income levels below US$30,900 (NZ$50,000). Their poverty rate was marginally lower at 11.1%.

The NFIB Business optimism index slipped in August, but only off a very high level in the prior month. Even after this slip it is still near its highest since the end of 2022.

There was another very well supported US Treasury bond tender today, this one for their 3 year Note. It brought a 3.40% yield. That is much lower than the 3.75% yield at the prior equivalent event a month ago.

In China, foreign demand for their exports was strong in August. They increased by +8.7% in August from the same month a year ago, the most since March 2023, and to a 23-month high of US$309 bln. That was more than the expected rise of +6.5% and more than July's growth of +7.0%. It was the fifth straight month of expansion. The Chinese factory sector is being held up by international demand, not domestic demand.

New Zealand and Australian demand for Chinese exports is falling however Ditto the EU, Japan and South Korea. Demand from the US is up but only by +2.8%. The countries with the largest demand increases are Brazil, South East Asia, and interestingly, Taiwan.

In China, they are about to require basic military training for high school and university students, part of a broader push by Beijing to place a greater emphasis on national security in education.

Outside their borders, China will help to train 3,000 foreign law enforcement officials over the next year to tackle global security issues and better protect Chinese interests beyond its borders, the country’s public security minister said.

Australia's Westpac-Melbourne Institute Consumer Sentiment index dipped by +0.5% in September from August, the sixth time of decline in 2024. Consumers are still concerned their economy is heading for a harder landing. They are less fearful of interest rate rises, but more fearful of losing their jobs.

The drop in business sentiment in Australia was a surprise, an outsized slump to a nine-month low and the weakest August since 2021.

Aussie prudential regulator APRA has started the process to have banks cull their hybrid capital issues. They say these won't work as intended in a crisis. They are learning the lessons from the 2023 US and EU bank fizzes. Banks who need more capital will have to raise it directly, as full loss-absorbing shareholder support.

The UST 10yr yield is now at just on 3.64% and down -6 bps from yesterday. 

The price of gold will start today up +US$11 from yesterday at US$2513/oz.

Oil prices are down -US$2.50 at just under US$66/bbl in the US while the international Brent price is now just over US$69/bbl and these levels are a three year low.

The Kiwi dollar starts today at 61.5 USc and marginally softer from this time yesterday. Against the Aussie we are +10 bps firmer at 92.4 AUc. Against the euro we are also +10 bps firmer at 55.8 euro cents. That all means our TWI-5 starts today at 69.6, and little-changed from yesterday.

The bitcoin price starts today at US$57,169 and up +1.3% from this time yesterday. Volatility over the past 24 hours has been modest at just under +/- 1.5%.

You can find links to the articles mentioned today in our show notes.

You can 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.