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 of a strong defence of central bank independence to make the hard but "necessary" calls to restore price stability.

But first in the US, mortgage applications were little-changed last week from the prior one, but remain more than -40% lower than the same week a year ago. Much of that is because mortgage rates remain high, although the benchmark 30-year rate did settle back to 6.48% last week (plus points).

Yesterday we noted some comments by Fed boss Powell delivered to a Swedish conference. There is another that is worth repeating here, justifying central bank independence: "Price stability is the bedrock of a healthy economy and provides the public with immeasurable benefits over time. But restoring price stability when inflation is high can require measures that are not popular in the short term as we raise interest rates to slow the economy. The absence of direct political control over our decisions allows us to take these necessary measures without considering short-term political factors. I believe that the benefits of independent monetary policy in the U.S. context are well understood and broadly accepted."

And staying in the US, the record high demand for imports over the past two years is now fading, with import shipping volumes reverting to the more usual levels they had in 2019 and prior. But that involves a rather large retreat from mid-2020 to mid-2022 levels. December import volumes were -19% lower than the same month a year ago. Analysts see this continuing with January volumes down -12% and February volumes down -23%.

In China, their central bank and their banking regulator are pleading with banks to step up financial support to the "real economy" and front-load loan issuance to boost the economy. Apparently Beijing thinks "more debt" is the answer to their economic malaise.

Later today we will get the Chinese inflation rate for December. It was just 1.6% in November and is expected to come in little-changed at 1.8% to round out the year. And you may recall their producer prices fell -1.3% in November. Those are expected to stay down but not slip any further in the data to be released this afternoon.

In Hong Kong, their commercial office property market is on track for its biggest glut in nearly 20 years despite hopes that a reopened border would spur demand from the mainland. New building continues making the current 20% vacancy rate even worse there. In some ways it mirrors the property development woes in most other China cities.

In Japan, the parent company of the giant international Uniqlo retailer said it would raise wages by as much as 40%. This is another sign that Japan's rock-bottom wages are starting to rise after decades of deflation and cost-cutting.

In Australia, inflation came in at 7.3% for the year to November, pretty much as expected. But beneath the surface are some worries. The rise from October was at a +10.8% annualised rate, showing the RBA has much more to do to get on top of their inflation problems.

November retail trade rose to almost AU$36 mln in November, a rise of +7.7% from a year ago and basically keeping page with inflation. But the rise from October was sharper, up at a +16% annualised rate and indicating the pace has been accelerating recently. Clothing, footwear and in department stores is where the recent strength is.

Meanwhile, Aussie job vacancies stayed very strong at 444,200 in November, also virtually ensuring the RBA will hike again on February 7, 2023.

The UST 10yr yield starts today at 3.58%, and down -5 bps from yesterday. 

The price of gold will open today at US$1874/oz and unchanged.

And oil prices start today +US$2.50 higher than yesterday's levels at just under US$78/bbl in the US while the international Brent price is just under US$83/bbl. But Russia’s oil is now trading at less than half the international price. The West’s price cap and supporting sanctions, introduced only a month ago, appear to be biting.

The Kiwi dollar has slipped, now at 63.5 USc and little-changed. Against the Australian dollar however we are -½c softer at 92 AUc. Against the euro we are soft at 59.1 euro cents with -¼c slip. That all means our TWI-5 starts today at 71.1, and little-changed from this time yesterday.

The bitcoin price is now at US$17,361 and again virtually unchanged from this time yesterday. Volatility over the past 24 hours has been remained low at just +/- 0.6%.

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 will do this tomorrow.