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.

And today we lead with news central bankers will be waking up today with a new inflation threat.

More generally though, it will be a busy week in the US with non-farm payrolls, JOLTS job openings, ISM services and manufacturing PMI, and external trade data all due to be released. Elsewhere, inflation rates will be released for South Korea, Switzerland, Mexico, Philippines, Indonesia, and Turkey. Then the central banks chime in. India, Australia, and of course New Zealand are among those that will review their monetary policy settings. Finally, more PMI figures are set to show the state of the manufacturing sector in China, India, Russia, South Korea, Canada, and some of the larger EU countries.

But first up today we have a sharp oil supply cut announced by OPEC earlier today. They are reducing supply by -1 mln/bbl/day. Markets weren't expecting this, and OPEC clearly want a higher price. Saudi Arabia led the cartel by pledging its own -500,000 barrel-a-day supply reduction. They were followed by Kuwait, the United Arab Emirates and Algeria. Russia said the production cut it was implementing from March to June would continue until the end of the 2023. The move is likely to complicate central bank efforts to rein in inflation.

In other news, we can report that Taiwan's factories held all their February recovery in March but couldn't quite break back to an expansion mode. The downturn in production continued to ease, while firms signaled only marginal drops in new orders and employment in the latest PMI update.

Last week we noted that China's recovering car industry is doing so because of steep discounts rolled out by manufacturers, and at a level that is unsustainable. Now we can note that China's airlines are recording higher passenger traffic but also booking huge losses at the same time. Neither industries seem to have a sustainable business plan. So that will be why earlier last week we reported a sharp deterioration in Chinese business profits.

And staying in China, their factory expansion extended to a third straight month, even if it didn't quite rise to the expected level. But according to the official data, their service sector is positively booming. But before accepting those conclusions it is probably best to await the private survey results which are due out later today.

Japan's stats are a different story, accepted as unvarnished. They reported a surprise rise in industrial production in February, far stronger than anticipated. And they reported far better retail sales for February than expected as well. If they keep this up, the world's third largest economy may become a driver of international trends.

But there is huge uncertainty hanging over Japan at present. They have finally got inflation up consistently above 2%. And they have a new central bank governor who seems committed to unwinding their ultra-loose monetary policy. What has to be achieved on that front is huge. And the implications for other economies could be massive. For example, Japan's loose policies shifted vast amounts of investment overseas - they own 8% of New Zealand's debt securities, 10% of Australia's. The total is so large it exceeds the UK's annual GDP by +26%. Decisions to be made in Tokyo in coming months will determine the speed of the unwinding, a disinvestment offshore that could easily roil financial markets.

In the US, data out over the weekend showed personal incomes rose at a +6% rate in February from January, and their personal spending rose at a +2.5% rate. This is not a sign of growing household stress. The inflation measure in this latest data shows it receding, running at an annualised 3.6% in February from January, and +5.0% higher than year-ago levels. That is actually its lowest rate since August 2022 when it was on its steep rise.

Meanwhile the Chicago PMI remained very negative in March but unchanged from February, in this barometer of the American industrial heartland.

And the University of Michigan sentiment index slipped in March, but driven mainly by those who self-identify as 'Republican'.

But those ho-hum data don't seem to be indicators of financial stress. Even in a long perspective the share market VIX index of stress isn't currently elevated. And the broader financial stress index maintained by the St Louis Fed isn't either, quickly retreating after a brief and relatively minor spike last week. Even the Fear & Greed index is currently running at Neutral, after running in Fear territory a week ago, and Greed territory a month ago.

Although the battle isn't anywhere near over and the Fed still signals inflation is their top concern, markets are saying they like the PCE track.

In Europe, German retail sales came in unexpectedly weaker for February.

French inflation eased in March to 5.6% and Italian inflation eased to 7.7%. Along with easing German inflation that we have previously reported, the EU says its overall bloc inflation was 6.9% in March, lower than the 7.1% expected and very much lower than February's 8.5% rate. They will count these declines as 'wins'. Falling energy prices are behind all these improvements, aided by the price caps imposed in Russian energy.

In Australia, CoreLogic's March house price report shows a +0.8% rise from February, gaining back some of the -8.7% fall for the year. That is actually its first rise in 11 months. For Sydney, they had a better-than-average monthly rise of +1.4% but remain -12% lower in a year. For Melbourne, the gain from February was +0.6% to be -9% lower in a year.

The UST 10yr yield starts today at 3.47%, and down -7 bps from Saturday. 

The price of gold will open today at US$1970/oz and retreating -US$2 from Saturday.

And oil prices were little-changed on Saturday at just over US$75.50/bbl in the US. The international Brent price is now just under US$80/bbl. A week ago these prices were US$69 and US$74.50/bbl respectively. But following today's supply cuts, these prices are sure to rise.

The Kiwi dollar is little-changed against the USD and now at 62.5 USc. Against the Aussie we are firmish at 93.6 AUc. Against the euro we are firm at 57.7 euro cents. That means the TWI-5 is now at 70.6. But it is up +40 bps from a week ago, and up +30 bps from the start of March.

The bitcoin price is very little-changed again today, now at US$28,211 and down a very minor -0.4% from Saturday. Volatility over the past 24 hours has remained modest at +/-1.1%.

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’ll do this again tomorrow.