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.

And today we lead with news US workers are back with incomes rising faster than inflation, and China is back with notable growth.

But first up today there was another dairy auction overnight and that brought a surprise lift in prices - not major, but unexpected. Prices rose +3.2% in USD terms and were up +4.9% in NZD terms. This comes after a series of disappointing results, interrupted by the occasional rise. It is hard to know whether this pattern is repeating or this marks a turning point up. Today's rise was the most since September 2022, but was on low offered volumes, the least since June 2022. The core WMP price only moved up +1.0% but butter was up +4.9% from the prior event, cheddar cheese up +5.7% and SMP was up 7.0%. Rising demand for foodservice uses in China was probably behind these shifts.

Meanwhile American retail is still weakening, up a mere +1.1% last week from the same week a year ago, nowhere near enough of a gain to account for inflation. Excluding the pandemic period, that is a weak expansion matching the 2016 period.

Perhaps Americans are becoming more thrifty? Median weekly earnings of full-time wage and salary workers were +6.1% higher in the first quarter of 2023 compared to the same period a year earlier, according to official US data. Inflation during that time ran at +5.8%. The inflation story is almost always about workers falling behind, but not so in the US it seems, and that is pretty notable. Actually, in the US, this positive relationship was pretty normal in the years 2013 to 2021. It was only when inflation got out of control that the tables were turned.

March housing starts in the US were little-changed from February and essentially maintaining their recent uptick even if they are lower than year-ago levels. New residential building consents were at a similar level although they seem to be tailing off in 2023.

Canada didn't surprise with its March CPI inflation number, coming in at the expected +4.3% level from a year ago. But that is its lowest there since mid-2021. Petrol prices fell, food price rises slowed.

China's bounce out of its pandemic lockdown raised their GDP by +2.2% in Q1-2023 from Q4-2022. This was the rise analysts expected. However from a year ago, their GDP is up +4.5% which was more than the +4.0% expected. This was all driven by retail sales which were up +10.6% with widespread revenge spending. Electricity production was up +5.1% with coal production up +5.5% and imported coal flooding back in. Industrial production rose +3.9% when +4% was expected. If you think about these relative changes, they don't actually suggest a very stable situation but that may just be their systems stuttering to reopen.

The Indonesian central bank reviewed its policy rate and monetary settings overnight and left that key rate unchanged at 5.75%.

The recent improvement in economic sentiment in Germany is still there but it is less in the latest ZEW survey. This is despite an improvement in the view for current conditions.

The latest RBA minutes show they are prepared to raise rates again, despite their recent pause, because they fear strong population growth and big public sector wage rises will push up inflation again. The pause was nervously agreed, these minutes show. Inflation is currently running at 7.8%. The policy rate is still only 3.6%

And staying in Australia, their tax authorities are about to audit up to 1.7 million mortgage holders this financial year as it clamps down on tax-rorting by residential property investors. Almost 20 financial institutions, including the big four banks, will be required to share loan data with the ATO as part of a new data-matching program, which the tax office says shows nine in 10 landlords are getting their tax returns wrong - not declaring rental income and/or over-claiming expenses. Billions are involved.

The UST 10yr yield starts today at 3.58%, and little-changed from this time yesterday. 

The price of gold is at US$2005/oz and up +US$10 from this time yesterday.

And oil prices are little-changed and just over US$81/bbl in the US. The international Brent price is just under US$85/bbl.

The Kiwi dollar has moved up slightly against the USD and now at 62.1 USc and a +30 bps firming. Against the Aussie we are unchanged 92.2 AUc. Against the euro we are little-changed at 56.6 euro cents. That means the TWI-5 is at 69.7, up +20 bps.

The bitcoin price is firmer today, now back at US$30,178 and up +2.3% from this time yesterday. Volatility over the past 24 hours has been moderate at +/- 2.3%.

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’ll do this again tomorrow.