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.

Today we lead with news the sharp dive in crypto prices, especially bitcoin, has induced a risk-off tone in markets today.

And financial markets are bracing for tomorrow's release of American CPI data. They expect it to stay high with the headline rate at 8% which will trigger another outsized Fed rate hike on December 15 (NZT). That is currently priced in at +60 bps, with their policy rate expected to top out at over 5% in mid 2023. The risks are to the upside however, unless inflation comes down soon.

American mortgage applications fell again last week, but this time the retreat was small. But from year-ago levels they remain down more than -40%. Their benchmark 30-year interest rate rose to 7.14% plus points.

US wholesale inventories rose barely in September from August as firms work to control the recent run-up, but they remain +24% higher than year ago levels so there is more to go to get them back under control. The inventory-to-sales ratio remains elevated in the perspective to 2021 levels, but on a longer term perspective isn't unusual.

However, there are increasing reports of substantial job layoffs underway in both the tech and finance industries in the US. The economic slowdown the Fed is trying to engineer might be underway.

US election outcomes are too close to call this morning. It will take a while for the dust to settle. But there hasn't been a big swing either way, which is unusual in US mid term elections.

China's annual consumer inflation eased to 2.1% in October from year-ago levels and down from 2.8% in the prior month on the same basis. That was below the expected 2.4% and is the lowest since May. Food prices jumped +7.0% however led by a big jump in pork prices (+9% in October from September). Prices for beef and lamb were little-changed. Prices for milk were little-changed too.

China's producer prices fell -1.3% in October which was the first drop in factory gate prices since December 2020, reflecting disruptions to output and weak domestic demand amid strict pandemic curbs as well as falling commodity prices. Production materials declined -2.5%. Declining producer prices were a feature of the 2012-2017 period when China was building its industrial power. But this latest retreat comes as that international advantage seems to be fading.

China is throwing ¥250 bln (NZ$35 bln) into "bond financing" for struggling property developers. It’s a lifeline for many, and is hard to see as a real commercial transaction.

The UST 10yr yield started today at 4.17% and up +3 bps from this time yesterday. 

The price of gold will open today at US$1714/oz. This is down -US$3 from this time yesterday.

And oil prices start today -US$4 lower than this time yesterday at just on US$86/bbl in the US while the international Brent price is just under US$93/bbl.

The Kiwi dollar will open today at 59 USc and down -1c since this time yesterday. Against the Australian dollar we have stayed firm at 91.5 AUc. Against the euro we are almost -½c softer at 58.8 euro cents. That all means our TWI-5 starts today at 69.2 and -70 bps lower than this time yesterday.

The bitcoin price is now at US$17,023 and falling so may be different when you hear this. It is down almost -17% since this time yesterday and is at its lowest in two years. And volatility over the past 24 hours has been extreme at just on +/- 10.6% with serious market instability. 

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.