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 the Fitch downgrade has cast a pall over financial markets today, trumping any data. Equity markets are grumpy, bond yields are rising and the US dollar is rising.

But first in the US, we get their July labour market details on Saturday NZT and today the precursor ADP Employment Report is out. That says private businesses hired +324,000 extra workers in July, following a downwardly revised +455,000 increase in June and surpassing market expectations of a +189,000 rise. Consensus analyst forecasts are for the US non-farm payrolls to rise +200,000 in July, so there seems to be upside there.

Also rising were American total vehicle sales in July, up to an annualised rate of 15.7 mln. That is up from a 14 mln annual rate in July 2022. Of course, the American vehicle markets is far smaller than the Chinese one that ran at a 26.1 mln annual rate in June.

But falling, and for a second successive week, were American mortgage applications, and it was a moderate -3% fall. The benchmark mortgage interest rate rose and back near its highest since November 2022. Rates near 7% really hurt the perception of house-buying affordability. The US home ownership rate was little-changed in Q2-2023 at about 66% although that is up from 63% in 2016 after for than a decade of previous falls.

However the big news was that credit rating agency Fitch cut the US Federal Government one notch from AAA to AA+, echoing a move made more than a decade ago by S&P. Moody's still rates the US Aaa. Tax cuts and new spending initiatives coupled with multiple economic shocks have swelled budget deficits, Fitch said, while medium-term challenges related to rising entitlement costs remain largely unaddressed. The White House isn't happy. Nor the US Treasury.

In China it is summer holidays and the senior leadership has decamped Beijing to the nearly beach resort area of Beidaihe. They probably won't re-emerge for two weeks or so, baring emergencies. Before they left, as we noted previously, they rattled off a list of support measures for their economy, a list that underwhelmed.

Now they have followed that up with the National Development and Reform Commission saying they will boost loan access for private companies and extend other funding measures to small firms. Also, the central bank and others pledged to increase financial support to smaller firms in key supply chains. Then both the central bank and the State Administration of Foreign Exchange said that banks will be "guided" to adjust existing mortgage rates lower to support the real estate market.

It is a good time to leave this year because we should note that the Beijing flooding has turned out to be pretty severe, involving loss of life. Of course, the problems are wider than just the capital city.

The UST 10yr yield will start today at 4.07% and up +2 bps from this time yesterday and a ten month high. 

The price of gold will start today at US$1937/oz and down -US$8 from yesterday.

And oil prices are down -US$2 at just over US$79/bbl in the US. The international Brent price is now just over US$83/bbl.

The Kiwi dollar starts today down nearly -½c to just on 60.9 USc. Against the Aussie however we are firmer at 93 AUc. Against the euro we are -¼c lower at 55.6 euro cents. That all means the TWI-5 has fallen another -30 bps to 69.5.

The bitcoin price is higher today since this time yesterday and is now at US$29,131 and up +0.7%. Volatility over the past 24 hours has remained modest at just under +/- 1.9%.

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.