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 of more evidence we may be transitioning to a period of lower inflation, globally at least.

The latest US Fed survey of inflation expectations shows them retreating. For petrol, households surveyed expect them to remain at the current lower levels over the next year. That means overall inflation expectations are now 5.7% in the year ahead, down from 6.2% in July. House price growth expectations fell sharply, now down to just +2.1% and a two year low, and expectations of future credit access fell. Households however were much more optimistic about their future income and financial situations.

The latest update to the USDA World Agriculture Supply & Demand Estimates (WASDE) show that global wheat prices will remain historically high, but are falling from prior estimates. High harvest levels in Russia and Ukraine have stopped these prices rising further., they say. Coarse grain yields are slipping and prices rising they say. Rice prices are up on India's export ban and very much lower production in the US. They don't see much change in the beef or dairy trade.

There were two US Treasury bond tenders today. Both brought sharply higher yields. The 3-year bond came in with a median yield of 3.50%, and up from 3.14% a month ago. The 10-year bond came in with a median yield of 3.24%, up sharply from the 2.69% a month ago.

The recovery of the Japanese economy continues, probably best illustrated by the growth spurt in machine tool orders. They were up almost +11% from August a year ago even though this was a slight slip from July, this is a usual season pattern. This high-tech sector is back to pre-pandemic levels now. What is interesting is the strength in order from domestic clients (+16%).

China and Australia may have their high-profile squabbles, and China may have thrown its hand in with Russia. But China also knows Russia is an unreliable partner. In 2021, China bought 2.2 mln tonnes of Australian wheat and it cost them about US$500 mln. In 2022 they will buy 6.3 mln tonnes and it will cost them more than US$2 bln. China seems trapped into relying on Australian-sourced commodities, be it wheat or iron ore or coal. No wonder Australia is generating huge trade surpluses - China is paying up, despite the disrespect China perceives from Australia.

And in China, after last week's brush-by from Typhoon Hinnamnor, the weather tracking suggests Shanghai could get a direct hit from the next on heading its way, Typhoon Muifa.

In India, inflation rose in August to 7% and higher than expected, but that was just back to levels we had seen for the prior four months.

Indian industrial production growth was quite anemic in August however, coming in up just +2.4% when a +4.3% rise was expected. Both benchmarks were well lower than July's +12.7% rise from a year ago.

The UST 10yr yield starts today at 3.36% and +4 bps firmer from this time yesterday. 

The price of gold will open today at US$1729/oz and up +US$12 from this time yesterday.

And oil prices start today +US$2.50 higher at just under US$87.50/bbl in the US while the international Brent price is up a bit less, now just over US$93.50/bbl.

The Kiwi dollar will open today just on 61.5 USc and back up +½c from this time yesterday. Against the Australian dollar we are little-changed at 89.3 AUc. Against the euro we are also little-changed at 60.7 euro cents. That all means our TWI-5 starts today at 70.7 and up +20 bps over the past day.

The bitcoin price is now at US$22,237 and another 2.7% rise from this time yesterday. Volatility over the past 24 hours has been moderate at just over +/- 2.4%.

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.