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 Australians look like they have finished their rate-hiking cycle.

But first up today there was another dairy auction overnight and it wasn't a good one. Overall prices fell -4.3% in USD terms, although they were down a much lesser -2.1% in NZD terms. It was the dominant WMP price that took the main beating, down -8.0%. All this comes with volumes sold almost the most of 2023. Buyers were out for bargain WMP and they got it. Fortuitously, all the other products offered basically held the line. And it would have been much worse if the NZD wasn't sharply lower than at the prior event.

Elsewhere the economic data out overnight was quite mixed.

In the US there were two factory PMI's released for July. The widely-watched local ISM one came in with a lesser contraction than in June, but its ninth straight month of contraction. The internationally-benchmarked Markit version was less negative as well. If there was an upside, it was that the 'best bit' was that the new order contraction eased in both surveys.

Similarly, pressures have evaporated in their supply chains with the LMI easing again in July.

Pressure is also easing in their labour markets with the June JOLTS report showing the number of job openings fell by -34,000 from a month earlier to under 9.6 mln, reaching the lowest level since April 2021. The number quitting their jobs also fell and layoffs were low, so workers are now tending to stay put. We get their overall labour market report for July this Saturday, NZT, and the expectation is that it rose by another +200,000 in July, a further solid gain.

Meanwhile the Redbook survey of sales at bricks and mortar retail outlets actually rose last week from a year ago. It was a rise far less than inflation, but it was their first weekly rise in a month. That's something I suppose, perhaps an indication it has reached a bottom. We should perhaps also note that the year-ago base was unusually high.

It is holiday season in the US (or 'driving season'). This period runs until their Labor Day weekend (Monday, September 4, 2023). Petrol prices often rise during this period, but this year they seem to be running -11% lower. They are higher than the 2015 to 2021 period, but they are only back to what they had in 2014. Petrol prices there are no inhibition to summer holidays.

Across the Pacific, the economic news just keeps sliding lower for China. Yesterday the Caixin China General Manufacturing PMI fell, now contracting in July after a small expansion in June. Market estimates expected another small expansion but it hit its lowest reading in six months. It also confirmed the official factory PMI contraction. It was the first Caixin drop in factory activity since April, as new orders dropped after growing in the prior two months, and export sales contracted the most since September 2022.

Germany's jobless rate edged down to 5.6% in July, which was lower than both the previous month and the market expectations of 5.7%. Unemployment levels declined by -4000 to 2.6 mln people, defying market forecasts of a +20,000 increase. Given the surge in Ukrainian refugees in the country, this is actually a very resilient result.

In Australia, the RBA kept its cash rate target at 4.1% following a cooling of inflation pressures (including retail sales), while keeping the door open to future hikes. It was a second month of a rate pause, and wrong-footed most economists but it was in line with financial market expectations. The longer pause suggests the RBA may be approaching the end of its tightening cycle and that sent the AUD sharply lower.

Look out for the NZ labour market data at 10:30am. We will have full coverage of this key indicator. Our jobless rate is expected to stay low at about 3.5%.

The UST 10yr yield will start today at 4.05% and up +9 bps from this time yesterday. 

The price of gold will start today at US$1945/oz and down -US$26 from yesterday.

And oil prices are little-changed at just over US$81/bbl in the US. The international Brent price is now just under US$85/bbl.

The Kiwi dollar starts today down almost a full -1c to just on 61.3 USc. Against the Aussie however we are almost a +½c firmer at 92.9 AUc. Against the euro we are -½c lower at 55.9 euro cents. That all means the TWI-5 has fallen -40 bps to 69.8.

The bitcoin price has eased again since this time yesterday and is now at US$28,934 and down -1.0%. Volatility over the past 24 hours has been modest at just under +/- 1.3%.

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.