Kia ora,

Welcome to Tuesday’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 the rise and rise of global bond yields has investors fretting that the chances of a global recession are rising.

But first, China's scorched southwestern regions extended curbs on power consumption as they deal with dwindling hydropower output and surging household electricity demand during the current long drought and heatwave. Wildfires are a problem there too. There have been power cuts even in Shanghai although at this stage they seem only to be symbolic and in sympathy with central regions doing it tough.

The People's Bank of China cut their one-year loan prime rate by -5 basis points to 3.65% from 3.7%, while the five-year rate was cut by -15 basis points to 4.3% from 4.45%. A cut was expected, but -10 bps for each. Most new and outstanding loans in China are based on the one-year loan prime rate, which is now loosely pegged to the central bank's medium-term lending facility rate, while the five-year rate influences the pricing of mortgages.

It is this housing signal that is getting the most attention, showing Beijing is still struggling to stop the sector's sharp retreat. Their housing sector crisis just won't go away.

We should also note that the Chinese yuan has fallen to a two year low against the US dollar. But it isn't the only currency sinking; the British pound is also at a 2-year low, and the Euro is back at parity with the USD and at a 20 year low.

Taiwanese export orders fell in July from June, and the impetus is going out of this banner feature of the Taiwanese economy.

In the US, the Chicago Fed's national activity index rose, a rebound that wasn't really expected and putting two monthly declines behind it. All four broad categories made positive contributions in July; production, orders, employment and personal consumption. Investors ignored this data.

But there are new signs that the US housing market is entering a downturn that is bringing sharply lower prices. This a special problem in regions that saw sharp rises during the pandemic when there was a shift away from major urban centers.

The tone of the upcoming speech from the Fed boss at the end of this week is taking on huge implications. Markets will be super-sensitive to any perceived 'new' signals. We are less than two weeks away from the US Labor Day long weekend, signaling the end of their summer holiday season and the start of a more serious assessment of the prospects of the giant US economy. Sentiment is everything at this stage, and Powell will have an influence on that.

The UST 10yr yield starts today at 3.04% and up +7 bps from this time yesterday. 

Wall Street is in a sell-off mood with the S&P500 down -2.2% in Monday trade. 

The price of gold will open today at US$1737/oz which is down -US$11/oz from this time yesterday.

And oil prices start today at just over US$89.50/bbl in the US which is very little-changed, while the international Brent price is still just on US$95.50/bbl.

The Kiwi dollar will open today at 61.6 USc and only marginally softer than this time yesterday. Against the Australian dollar we are unchanged at 89.8 AUc. Against the euro we have risen about +½c to just over 62 euro cents. That all means our TWI-5 starts today at 70.9 and a minor firming.

The bitcoin price is now at US$21,226 and a -1.0% fall from this time yesterday. Volatility over the past 24 hours has been moderate at just on +/- 2.1%.

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

And 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.