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.

And today we lead with news the new war in Gaza, and a stumbling Chinese economy are together posing new risks to an already fragile global economy. But there are some bright spots still.

Firstly in the US, one-year ahead inflation expectations held steady at 3.7% in September, up fractionally from August. Conversely, five-year-ahead inflation expectations declined by 0.2 percentage point to 2.8%. Perceptions about households’ current financial situations slipped slightly in September with more respondents reporting being worse off than a year ago and fewer respondents reporting being better off. In contrast, year-ahead expectations improved with more respondents expecting to be better off a year from now.

The weekly bricks & mortar retail store survey reported that sales were +4.0% higher than a year ago, indicating is sector of their retail industry is back experiencing real, above-inflation growth.

Not so happy are small business owners for whom optimism dipped in September as inflation remains the top problem in their mind. Oddly this survey has been the inverse of the retail survey with small business owners more optimistic when sales growth was lower and less so when it rises above inflation. Odd.

It is probably worth pointing out that a US$46 bln US bond tender today was wildly popular, garnering US$118 bln in bids - but investors are only slightly higher returns. The median yield for today's 3 year bond was 4.67% pa and that was up from 4.60% a month ago. While that is higher, it isn't as high as you might have expected given the background events, and six months ago the yield was 4.58% pa. - again, much less advancement that you might have expected.

The Fed is expected to pause any consideration of rate rises for now, given the international pressures. It next meets in three weeks on November 2, NZT.

In a Hong Kong stock exchange filing, giant developer Country Garden said it is facing a severe liquidity problem and can't pay its bond obligations. The end is near and when this giant falls, it could take a vast range of construction dependent companies with it. This will be one risk that is pushing Beijing to reconsider its recent aversion to traditional infrastructure stimulus - often building roads and rail "to nowhere" to keep their growth targets in focus.

In Australia, the NAB business confidence index was marginally positive in September, the same steady level for a third straight month. Meanwhile, business conditions remained resilient (although dipping slightly from August), suggesting their economy remained in reasonable shape through the middle of the year. Forward orders rose after contracting in August. The signs for inflation were positive.

Staying in Australia, the Westpac-Melbourne Institute Consumer Sentiment index rose in October from September, hitting the highest level in six months, but it is still in deeply pessimistic territory. And that is consistent with the contraction in per capita spending seen since late 2022 and a worry heading into the pre-Christmas sales season. Rate rise fears have also resurfaced.

The IMF released its latest global financial stability report today saying the risks to global growth remain skewed to the downside as inflation remains elevated and interest rates are set to stay higher for longer. They left its global growth forecast steady at 3% for 2023 but cut its forecast for 2024 to 2.9% compared to 3% made in July. Also, the expectations for global inflation were revised higher to 6.9% in 2023 from 6.8% and to 5.8% from 5.2% in 2024.

Meanwhile, the IMF raised its growth forecast for the US, Japan and the UK. On the other hand, the Chinese economy will probably grow at a slower 5% in 2023 (vs 5.2% seen early) and 4.2% next year (vs 4.5%). The Euro Area is also seen growing slower. The risks they are watching are the Chinese crisis, and commodity price volatility. They say fiscal buffers have eroded in many countries.

We should also note that wheat prices continue to fall sharply now on very good harvests across the globe. This price is down more than -4% in a month, down -38% in a year.

The UST 10yr yield starts today up +1 bp from yesterday at 4.66%. 

The price of gold will start today at just on US$1862/oz and up another +US$12 from this time yesterday.

Oil prices have slipped -50 USc to US$84.50/bbl in the US. The international Brent price is still just on US$87/bbl.

The Kiwi dollar starts today at 60.4 USc and up almost +½c from yesterday. Against the Aussie we are a tad softer at 94 AUc. Against the euro we are down -10 bps to 56.9 euro cents. That all means our TWI-5 starts today at just on 70.3 which is up +10 bps from yesterday and a new three month high.

The bitcoin price starts today at US$27,451 which is up a mere +0.3% from this time yesterday. Volatility over the past 24 hours has been low at +/-0.7%.

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.