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 markets are a lot calmer today and more willing to invest in 'risk'.

First, the Bank of England has rushed in a £65 bln bond buying surge to be concentrated over the next two weeks to steady a British economy that has been lashed by some very bad recent policy moves. "The purchases will be carried out on whatever scale is necessary to effect this outcome," they said. It is a move that seems to have calmed markets globally.

It comes after both the US authorities and the IMF urged their central bank to act decisively to halt the meltdown that those policy moves had initiated.

In the US, mortgage applications resumed their decreasing trend last week after the unusual prior week interruption. And American mortgage interest rates rose above 6.5% for the main 30-year benchmark rate, and that is about as high as it got in the real estate frenzy in the 2006-2008 period before the GFC.

American pending home sales fell in August, falling -2% from July to be down a whopping -24% from August a year ago. This fall was the third in a row and rising mortgage rates are getting the blame.

The US trade deficit rose in August in its usual seasonal pattern even it the rise wasn't as much as expected. Exports rose more than +21% above the same month a year ago, and imports rose +16% on the same basis. Month-on-month the rises were +2.3% and +4.5% respectively as holiday season goods started their seasonal inflows.

Those seasonal flows are making their inventory overhang worse. Wholesale inventories were up another +0.8% in August from July to be more than +25% higher than a year ago. Retail inventories were up +1.9% from July to be almost +22% higher than a year ago. Some of this will be inflation, but despite that, this inventory build is a serious overhang problem that would make any correction worse.

In China, their central bank has set the official yuan exchange rate noticeably lower again today, now down to 7.11 to the US dollar. That is a one day devaluation of -0.5% and a devaluation since the start of the month of -3.2%. Half of that has happened over the past four trading days. The central bank has warned against "forex gambling".

And staying in China, despite their weather and pandemic challenges, it looks like they will deliver record grain harvest volumes this year. Some southern regions struggled, but others in the north had particularly good results.

In Germany, their GfK Consumer Climate Indicator fell sharply again heading into October, hitting a new record low for the fourth straight month and worse than market forecasts. The latest reading highlighted mounting concerns over surging inflation and high energy prices as well as persistent recession fears, with income expectations plummeting to a new record low.

Aussie retail sales held up better than expected in August, rising +0.6% from July at an annualised rate of +7.2%. Year on year it was up more than +19% but a weak base affects that comparison. The August rise was also more than markets were expecting (+0.4%).

The UST 10yr yield starts today at 3.73% and -24 bps lower than this time yesterday in a sharp reversal of recent trends. 

The price of gold will open today at US$1660/oz. This is up +US$30 from this time yesterday.

And oil prices start today +US$3.50 firmer at just under US$81.50/bbl in the US while the international Brent price has risen to be just over US$87.50/bbl.

The Kiwi dollar will open today at just over 57 USc and recovering almost +¾c than this time yesterday. Against the Australian dollar we are little-changed 87.6 AUc. Against the euro we are also unchanged 58.8 euro cents. That all means our TWI-5 starts today at just 67.6, and up +40 bps in a day.

The bitcoin price is now at US$19,522 and up +1.9% from this time yesterday. Volatility over the past 24 hours has been high again at just on +/- 3.1%.

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.