Kia ora,

Welcome to Monday’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 US and India are driving global demand currently.

First, in the week ahead, the major even for us will of course be the Wednesday RBNZ Monetary Policy Review, the last one for 2024. And markets have priced in a full -50 bps cut in the OCR, a setting that will have to last them though to mid-February.

South Korea will also review its policy interest rate benchmark this week.

In the US, they will release a packed set of data until Thursday (NZT) because for them the week ends with their major Thanksgiving holiday, and the related major retail activity that kicks off the period until the end of year. Coming this week from them are October PCE inflation data, and update of their Q3 GDP, durable goods order data, and some more sentiment surveys.

There is not much economic data due from China this week, but Japan will have a set including updates for retail sales and industrial production. Canada and India will deliver GDP updates, and Australia and the EU will come up with inflation data updates.

Over the weekend the US manufacturing PMI for November stayed in contraction territory, hardly moving from the prior two months. But their services PMI rose strongly to a much faster expansion, and a 32 month high. There were no inflationary signals in this survey. Business expectations were the highest level since May 2022, reflecting optimism about potential interest rate cuts, stronger economic growth, and pro-business policies.

On the consumer front however, the November University of Michigan sentiment for November was down-graded from its 'flash'-reported rise, so that in fact little improvement was evident in the month. These sentiment levels remain about -30% lower than pre-pandemic levels.

Canadian retail sales rose unexpectedly in October and now for a fourth straight month. Excluding car sales, which were strong in September, a small correction was expected. But in fact the non-car retail activity rose very strongly. Perhaps the recent Bank of Canada interest rate cuts are working? They have trimmed -125 bps since May this year and now have an official cash rate of 3.75%.

Japanese inflation fell again in October, now running at an annual rate of +2.3%. That is sharply lower than the 3% rate they had in August but it is still within their central bank's target range.

And staying in Japan, their November PMI stayed positive, also bolstered by the service sector, but manufacturing output contract less - in fact hardly at all - in November which was a good improvement for them.

In India, they again reported strong expansions in both their factory and service sectors. But worryingly, there are tangible signs of serious economic over-heating with cost inflation pressures near extreme levels. Something will break soon. And climate over-heating could also leave the economic situation in a messy place.

In China, a selloff in Chinese stocks deepened on Friday as disappointing tech earnings hurt sentiment already weakened by concerns over Trump’s imminent return.

In Europe, their PMIs were disappointing again, with the expansion in their services sector ending, and it joining the contraction they have had for a while in their factory sector. New orders slipped for a sixth month running. Although still modest, the rate of contraction in November was the most marked since January.

In Australia, their November PMIs were also again disappointing. Business activity slipped as services activity joined manufacturing output in contraction. The reduction in activity coincided with a slowdown in new order growth while external demand remained subdued. But despite this, business sentiment was resilient as confidence in future conditions reached a 15-month high. Go figure.

The UST 10yr yield is now at just on 4.41% and little-changed from Saturday at this time. A week ago it was +4 bps higher.

The price of gold will start today at US$2716/oz and up another +US$10 from this time Saturday. That makes the weekly gain +US$149 or up +5.8%.

Oil prices are holding at just over US$71/bbl in the US while the international Brent price is still just under US$75/bbl. A week ago these prices were -US$3.50 lower respectively.

The Kiwi dollar starts today at 58.3 USc and unchanged from this time Saturday but down -40 bps in a week. Against the Aussie we are still lower at 89.7 AUc. Against the euro we still at 56 euro cents. That all means our TWI-5 starts today at just on 68.3, little-changed from Saturday but down -40 bps in a week.

The bitcoin price starts today at US$96,743 and down -2.3% from this time Saturday. 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 will do this again on tomorrow.