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.

And today we lead with news there are worries the Aussie energy transition is falling short and they could face tough choices as early as this summer.

But first, US mortgage applications rose +2.3% last week from the prior week and mortgage interest rates held steady at a very high 7.31% plus points. It was their first rise in six weeks and doesn't really interrupt the lower track this market has been on.

US pending home sales also ticked a minor +0.9% higher in July from June (in just a 'noisy' change) to be -14% lower than a year ago.

The pre-cursor report to the Saturday (NZT) non-farm payrolls report, the ADP employment report, revealed a +177,000 jobs gain by private employers for August. This was slightly less than the +195,000 expected. They said this level is consistent with the pace of job creation before the pandemic. After two years of exceptional gains tied to the recovery, they are moving toward more sustainable growth in pay and employment as the economic effects of the pandemic recede. +170,000 more jobs are expected for the non-farm payrolls report.

The second estimate of US Q2-2023 economic growth was market down slightly to an annualised +2.1% from the first estimate of +2.4% growth. In Q1-2023 the growth rate recorded was +2.0%. This latest markdown was because both consumers and government spent slightly less in the period than originally estimated. There will be a third and 'final' estimate in about a month. This same data release has PCE inflation running at +2.5%, well down from the Q1 rate of +4.1%.

In China, things for Country Garden just get worse. They announced a gigantic loss today and warned of default. The country's overall property crisis is deepening.

And elsewhere we have been noting the rise and rise of the Chinese dairy industry. But there are limits and China seems to be bumping up against them now. Demand for meat and dairy is increasing the need for production of feed grains as arable land grows scarce.

Japanese consumer confidence dipped marginally in August when a continuing improvement was expected. Prior to July it had risen for eight straight months. The dip was minor however.

And staying in Japan, Toyota told suppliers it may produce more than 10 mln vehicles in 2023, a new global record, 3.4 mln in Japan and 6.8 mln overseas. And this is despite a -15% fall in production of its vehicles in China. (Although they have higher revenue, Volkswagen Group produces about 9 mln vehicles per year.)

The German CPI inflation rate is proving to stubbornly high, not continuing the fall we saw from January to April. For four months now it has held at +6.1% and a long way higher than policy makers need it to be. Other countries around it are reporting similar stories for August. This sticky inflation problem has investors betting that the ECB will raise rates again soon. Their next meeting is in about two weeks.

In Australia, their energy regulator says this summer could be hotter than normal and electricity demand higher than planned. Major stress looms for South Australia and Victoria. A hot dry summer with low wind, along with the failure to replace ageing coal plants with clean power fast enough, could bring widespread blackouts at a time of heat stress. This is a far grimmer assessment of what lies ahead than their last review six months ago.

Australia's July monthly inflation indicator rose 4.9% from a year ago, a rate that is down from 5.4% in June. Annual price rises continue to ease from the peak of 8.4% in December 2022. Even though they came in lower than expected, the July levels are still far higher than the RBA needs them to be, but it will probably lock in a rate pause there because it is going in the right direction.

And staying in Australia, their residential building consents fell at an -8.1% rate in July from June to be down -10.6% from a year ago. The private sector components are more negative than the overall results. Interestingly, these are falling faster recently than in New Zealand and both are fast month-on-month falls.

The UST 10yr yield will start today at 4.12%, unchanged from this time yesterday. 

The price of gold will start today at US$1944/oz and up another +US$7 from yesterday.

And oil prices are +50 USc higher at just under US$81.50/bbl in the US. The international Brent price is now at US$85/bbl.

The Kiwi dollar starts today fractionally firmer than yesterday at just on 59.7 USc. Against the Aussie we are unchanged at 92.1 AUc. Against the euro we are also little-changed at 54.7 euro cents. That all means the TWI-5 is still at 68.6 and essentially unchanged.

The bitcoin price has fallen back somewhat today after yesterday's big jump and is now at US$27,164 which is down -2.6% from yesterday. Volatility over the past 24 hours has been modest at just under +/- 1.8%.

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.