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 international inflation is still raging, while the economic slowdown needed to quell it is starting to show in some parts.

There were two regional factory surveys out overnight in the US. The Chicago PMI was little changed and that was an unexpected disappointment because an improvement was expected. It remains quite negative. And the Dallas Fed factory survey for October was also disappointing. Output rose there but the level of new orders didn't and the firms surveyed said the outlook isn't as positive. The Dallas Fed factory survey has been more negative than anywhere else in the rest of the country.

The official Chinese factory PMI unexpectedly fell to 49.2 in October from 50.1, missing market forecasts of 50.0. This was the lowest reading since July, and comes amid the return of strict pandemic restrictions in several big cities with output, new orders, and export sales all falling. Their service sector PMI's turned negative too, largely for the same reason.

And here's an indication of just how tough China's anti-Covid measures are. It locked crowds in the Shanghai Disneyland after a case there was suspected. And it is not the first time they have done something like that.

Meanwhile, the Hong Kong economy is going backwards faster, down a sobering -4.5% from the same period a year ago. This is its steepest contraction since the 2020 pandemic period, and before that the worst since the GFC.

Japanese industrial production was up +9.8% in September from a year ago, but that is artificially enhanced by a weak base. From August, there was slippage, down -1.6% which is rather a sharp negative change.

Japanese retail sales rose by 4.5% in September 2022, compared with an expected +4.1% gain. This was the seventh straight month of increase in retail trade there and the steepest pace since May 2021, and interestingly higher than CPI inflation.

The overall inflation rate in the EU rose to 10.2%. It was the first time it has been in double figures since the EU was formed. Yesterday, we reported Germany's +11.6% rise, today we can note France is up +7.1%, Italy up +12.8%, and Spain was up +7.3%. 

Germany retail sales rose in September from August (in 'real' terms), an improvement analysts were not expecting.

Despite those pressures, the EU is still expanding, even it it is slower. It grew +0.2% in Q3 from Q2 and up +2.4% year-on-year. It's a creditable result given all the challenges the region is facing. Portugal and Spain are both doing the best in this bloc.

Australian retail sales rose more than expected, and that is the 9th month in a row of gains. However, almost all of the recent monthly gains are likely due to higher prices rather than volumes. Fashion and dining led the uptick. But year-on-year the gain was more than +17%, mainly because of a very weak base.

The RBA will likely raise rates this afternoon; markets expect a tame +25 bps rise to 2.85%. Anything else will be a surprise. But Australia does face a rising inflation threat, so +25 bps is probably inadequate as an inflation-fighting response.

In Brazil, the Presidential election result gave ex-President Lula the win by a small but clear margin of some 2.1 mln votes. But that probably won't stop the loser Bolsanaro from "doing a Trump". Lula doesn't officially take over until January 1, so there are probably some extremist events to play out until then. Markets seem to respect these results.

The UST 10yr yield starts today up +4 bps at 4.05%. 

The price of gold will open today at US$1636/oz. This is down -US$10 from this time yesterday.

And oil prices start today -US$2.50 lower than this time yesterday at just on US$85.50/bbl in the US while the international Brent price is just over US$91/bbl.

The Kiwi dollar will open today at 58.1 USc and little-changed since yesterday. Against the Australian dollar we are firm at 91 AUc. Against the euro we are up +½c at 58.8 euro cents. That all means our TWI-5 starts today at 68.7 and +30 bps higher.

The bitcoin price is now at US$20,390 and down -1.1% from this time yesterday. Volatility over the past 24 hours has been modest at just on +/- 1.4%.

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.