Kia ora,

Welcome to Tuesday’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 EU has suddenly realised it is on the wrong track, with an unstainable mix of policies which are leading them into blind social and economic alleys.

But first, US consumer inflation expectations for the year ahead were unchanged at 3% in August, the same as in July and June. The five-year-ahead inflation expectations was also steady at 2.8%. These same consumers said median one-year-ahead expected earnings growth is expected to be +2.9% and up from 2.7% in July, and above its 12-month trailing average of 2.8%. There is nothing here suggesting consumers expect inflation to be a problem, or that it threatens their real earnings.

Also not a problem is the level of wholesale inventories which continue to run at normal levels in July, showing no early signs of business stress.

But perhaps some more current data points to an issue. Total vehicle sales in the US ran at the annual rate of 15.1 mlnn much lower than the 15.8 mln rate in July. That was softer than the expected dip to a 15.4 mln annual rate.

American consumer debt rose by more than +US$25 bln in August, about double what was expected and the biggest rise since the end of 2022. The outsized +6.0% jump was driven by higher 'revolving' debt, like credit cards. It is a change that is sure to raise a few eyebrows.

Across the Pacific, Taiwan said its exports were particularly strong in August at US$43.6 bln. That was more than +16% better than the same month last year and far more than the expected +7.4% rise. Imports rose too, by almost +12% but that was less than expected. Taiwan's economy is certainly starring in the region. And this data reveals another big trend. Taiwan's largest export market is no longer Mainland China. It is the US. The shift has been swift. It also mirrors what is happening in other East Asian nations.

In China, the threat of deflation, a risk high on Beijing's agenda, is not fading as fast as they would like. Their CPI inflation rate edged up to +0.6% in August from a year ago, from +0.5% in June, but less than market forecasts of +0.7%. Still, it was the highest level since February, mainly due to a strong pick-up in food prices, especially fresh food. However, beef prices are down nearly -13% in a year, lamb prices by -6.3%. Milk prices are down -1.7% on that same basis.

Meanwhile, Chinese producer prices fell by -1.8% year-on-year, the most since April, and steeper than the expected -1.4% drop.

And a large investment bank, China Renaissance, has seen its share price collapse after Beijing apparently arrested its chairman on unknown charges. The bank was an important funder of China's digital economy. 

Local economists aren't as positive about China's immediate prospects any more. Beijing is losing the hearts and minds of and important set of influencers.

Halfway around the world, a new EU report said they must be spending about €800 bln per year on investment if they are not to lag the US, China or Japan in productivity projects. Without that they would be “forced to choose” between climate, economic and foreign policy goals. That is about 5% of the bloc's GDP and would require a massive new commitment. Without this extra investment, the reports ays the EU will be unable to finance its social model and will have to "scale back some, if not all, of [its] ambitions".. It is a tipping point moment for Europe as their competitiveness wanes. They need to change direction.

In Australia, all eyes are on the fast-falling iron ore price. In some markets it is now below US$90/tonne which represents a -23% fall in the year, down a massive -38% since the start of 2024.

The UST 10yr yield is now at just on 3.70% and down -2 bps from yesterday. 

The price of gold will start today up +US$5 from yesterday at US$2502/oz.

Oil prices are up +US$1 at just on US$68.50/bbl in the US while the international Brent price is now just under US$72/bbl.

The Kiwi dollar starts today at 61.6 USc and and marginally softer from this time yesterday. Against the Aussie we are -30 bps softer at 92.3 AUc. Against the euro we are unchanged at 55.7 euro cents. That all means our TWI-5 starts today at 69.6, and little-changed from yesterday.

The bitcoin price starts today at US$56,426 and up +3.8% from this time yesterday. Volatility over the past 24 hours has been moderate at just under +/- 2.4%.

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 tomorrow.