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.

Today we lead with news global trade is losing altitude, with the geopolitical pressures starting to take their toll.

But first, US mortgage applications fell yet again last week, continuing the long string of declines and are -23% lower than year-ago levels. Mortgage interest rates rose to 5.94% in this survey.

The US reported its July trade balance data earlier today which showed a smaller overall deficit by -US$10 bln to a 9-month low of -US$71 bln, broadly in line with market forecasts. Total exports were up a mere +0.2% to a new all-time high of US$259 bln as a rise in exports of services offset a decline in goods shipments. Meanwhile, imports went down by -2.9% to US$330 bln as a decline in imports of consumer goods and industrial supplies offset a rise in shipments of cars. Given their moderately expanding economy, its a good result. That takes their trade deficit to just under 4% of GDP for the first time in a very long time.

The US Fed's Beige Book summaries of regional surveys painted a modest picture of their economic expansion in August. Economic activity was unchanged since July, with five Districts reporting slight to modest growth in activity and five others reporting slight to modest softening. Most Districts reported steady consumer spending as households continued to trade down and to shift spending away from discretionary goods and toward food and other essential items. Car sales remained lackluster across the country, reflecting limited inventories and elevated prices. It is not a very upbeat assessment.

The US may be transitioning to a period of lower growth, but the Fed signaled it will stay targeting inflation until the effort is successful, no matter what the economy does. A top official said they will need to see “several months” of low monthly inflation data to be convinced that rapid price growth is finally cooling, raising the odds that they will again raise interest rates by +75 bps when they meet later this month.

The Bank of Canada raised its policy by +75 bps to 3.25% overnight in a well signaled change. It is the fifth consecutive rate hike, pushing borrowing costs to the highest since 2008. They also said this rate will need to rise further given the outlook for inflation. In addition they will continue their quantitative tightening by selling off their bond holdings. The widely-watched local PMI series reported a sharp expansion in August, after the unexpected drop in July, so there is still strong growth pressure in their economy.

China released its August export data late yesterday and they were weak, even weaker than expected. Their import data was weak as well. Their trade surplus dipped and that was even after their trade surplus with the US rose in August from July.

China's FX reserves fell more than expected in August, taking them down to US$3.05 tln and a drop of -US$50 bln and to their lowest level since October 2018.

Taiwanese exports struggled in August, but by the political and military squeeze put on them from China. Although they remain at an historically high level, the growth impetus disappeared in the latest month.

Global air cargo markets faltered in July, interrupting the expansion track they had been on. The Asia/Pacific region reported almost a -10% reduction year-on-year.

In Australia, economic activity rose in Q2-2022 by about what was expected to be +3.6% more (real) than a year ago. In Q1-2022 the growth rate was +3.3%. Consumer spending was the bright spot in the June quarter. Exports also performed well, however, elsewhere conditions were pretty mixed. These Aussie results are far better than what most countries are reporting for the June quarter.

The UST 10yr yield starts today at 3.27% and retracing -6 bps after deciding some of the earlier rise was overdone. 

The price of gold will open today at US$1717/oz and up +US$15 from this time yesterday.

And oil prices start today -US$4.50 lower at just over US$82/bbl in the US while the international Brent price is now just over US$88/bbl. At these levels they are back to price levels in effect at the beginning of 2022 - and in fact prices pre-pandemic. The weak Chinese trade data undermines these prices today.

The Kiwi dollar will open today just over 60.6 USc and little-changed since this time yesterday. Against the Australian dollar we are unchanged at 89.7 AUc. Against the euro we are a bit softer at 60.7 euro cents. (Notice the parity with the greenback.) That all means our TWI-5 starts today at 70.4 and unchanged since this time yesterday.

The bitcoin price is now at US$$19,001 and a tiny -0.6% lower than this time yesterday. It got down to US$18,559 in between. Volatility over the past 24 hours has been modest at just on +/- 1.5%.

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.