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.

Today we lead with news Australia gets "the Budget we need" rather than the one that just papered over their issues.

But first, American retail sales are holding, up +8.2% from a year ago on a same-store basis last week.

But US consumer sentiment is not holding. The widely-watched Conference Board survey has it dipping after two months of gains.

And nor is the next regional Fed factory survey, this one from the Richmond Fed in the mid-Atlantic states region. They are continuing to report weaker conditions as they have done most of the year, with little supply-chain relief.

In China, their slowdown is expected to push the state budget to a -US$1 tln deficit. That would be -5.5% of GDP and similar to the American one.

In Japan, most banks and insurers face currency losses from their giant holding of US Treasuries. They are no longer buyers. In turn, that is putting upward pressure on US yields for these benchmark bonds.

The Ifo Business Climate indicator for Germany edged lower to 84.3 in October, the weakest since May 2020, compared to an upwardly revised 84.4 in September. Still, this new level was not as bad as expected. Winter recession is coming and Europe's biggest economy will contract by -0.6% in the fourth quarter, Ifo forecasted. In the face of all their pressures, that is a pretty creditable result.

The volatile economic situation is changing the landscape of who has bragging rights for the world's largest economies. In 2021 the top five were the US, China, Japan, Germany and the UK (or France on a PPP basis). In 2022 this set is the US, China, Japan, Germany and India. But lurking behind them is an unlikely contender. California is rising fast and is overtaking Germany in late 2022. Just a few years ago, California ranked #7. Much has been written about California's supposed demise and a "flight to Texas". It turns out that was just invented partisanship. The move is the other way, in fact.

Australia released its October mini-Budget and it seems to have been a major change. This is the first Budget from their new Labor Government. Huge amounts of 'pork' from the Morrison/Frydenberg Government have been removed (-AU$22 bln), and they have benefited from rising tax revenues. There seems to be a wholesale change of emphasis underway. Winning sectors include renewable energy, the environment, foreign aid, and a commitment to build an extra 1 million new houses. Losing sectors include the construction industry with some very large projects deferred (-AU28 bln), government consultants (-AU$3.6 bln), and potentially, households, because tax increases loom for some and the claim little can be done for them to fight inflation, especially energy inflation. It is a Budget that is getting grudging support as "the Budget we need" after years of perceived mismanagement. Financial markets will pass their judgement later today.

The UST 10yr yield starts today down -14 bps at 4.09% in a volatile mood. 

The price of gold will open today at US$1654/oz. This is up +US$4 from this time yesterday.

And oil prices start today fractionally firmer than this time yesterday at just under US$85/bbl in the US while the international Brent price is just under US$92/bbl.

The Kiwi dollar will open today at 57.4 USc and up +½c from this time yesterday. Against the Australian dollar we are marginally softer at 90 AUc. Against the euro we are little-changed at 57.7 euro cents. That all means our TWI-5 starts today at 67.8, and +30 bps firmer than yesterday.

The bitcoin price is now at US$19,998 and a strong +3.6% higher than this time yesterday. Volatility over the past 24 hours has been moderate at just on +/- 2.0%.

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.