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 tensions are spilling out in China over their struggling property development and shadow banking industries.

But first, US mortgage applications slipped yet again last week, the fourth week in a row it has done that. And that was undoubtedly because mortgage interest rates rose yet again with their benchmark 30 year rate now at 7.16% plus points and back to matching its October 2022 highs. Prior to that, you have to go back more than 20 years to find a higher level.

US housing starts bounced back in July from their disappointing June levels with a better result than anticipated, rising to an annualised rate of 1,452,000 and almost +6% above the level of a year ago. Canadian housing starts came in at a good level too in July, better than expected, but not quite up to the June level.

American industrial production rose unexpectedly in July from June but it is virtually unchanged from a year ago. But other than construction, it would have been a healthy gain.

The Fed FOMC July meeting minutes were released earlier today and they showed most voting members continued to see significant upside risks to American inflation, which could require further tightening of monetary policy. However, there were a couple that cited the risks to the economy of pushing rates up too far.

China's new home prices fell in July from a year ago, and from a month ago they were unchanged. But in their largest 70 cities, prices for second hand homes are falling in 65 of them from the same month a year ago and at a faster pace. The pressure is on their residential housing market in a way that makes property development a losing proposition there.

And investors in their retreating shadow bank funds industry are not happy again. We are getting reports a very small group have taken to the streets in protest at the situation, a 'brave' thing to do in China, but a sign of how desperate some of them feel. The police are out in force protecting the company at the center of the latest crisis. Beijing policy makers are reported to be pressuring funds not to sell into this troubled market. But it will be a tough conversation; when they tried this in earlier financial crises, it did not end well for the companies who held on to dodgy securities in situations like this.

Analysts are making down China's GDP 'growth' for 2023 now. They will struggle to get anywhere near their "about 5.5%" target.

In Europe, EU GDP rose +0.3% in Q2-2023 from the prior quarter, as expected. And up +0.6% year-on-year. They are holding on to positive growth when the chatter is all about decline.

And confirming that, EU industrial production rose in June when a small fall was expected. But it is still -1.2% lower than a year ago. Still, that is a far smaller retreat than the -2.5% in May and the -4.2% expected. There will be some relief in policy circles.

British CPI inflation fell tom 7.9% in June to 6.8% in July is a solid shift lower. That was the expected change however and was their lowest level since February 2022. But their core inflation was unchanged at 6.9% which policy makers would have found disappointing. It was expected to slip slightly.

The UST 10yr yield will start today at 4.27% and up +5 bps from yesterday and now a sixteen year high. 

The price of gold will start today at US$1898/oz and down -US$5 from yesterday.

And oil prices are -US$1 lower at just under US$79.50/bbl in the US. The international Brent price is down to US$83.50/bbl.

The Kiwi dollar starts today soft at just on 59.4 USc, down -20 bps and near its lowest since November 2022. Against the Aussie we are a little firmer at 92.4 AUc. Against the euro we are marginally softer at 54.6 euro cents. That all means the TWI-5 is now at 68.5 and down -10 bps from this time yesterday.

The bitcoin price is again little-changed today from this time yesterday and still at US$29,124 which is down just -0.6%. Volatility over the past 24 hours has also been low at just on +/- 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.