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.

And today we lead with news financial markets are struggling to respond to the enhanced geopolitical threats and are doing so by "not over-reacting". In the background, volatility was lower and earnings reports were positive. A speech by Fed boss Powell is due soon.

But first up today, the release of the important US Federal Reserve's Beige Book was an irrelevant affair, reporting little change in October from September. All the usual strengths are on display (labour market, for instance) along with all the usual threats (the housing market, and inflation, although that is broadly easing in these reports).

The American mortgage market hit a new low last week. Mortgage applications fell by -6.9% in the week ending October 13, the sharpest decline since April. Volumes are now their lowest since 1995. Refinancing applications plunged -9.9% in the period, while applications to purchase a home dropped by -5.6%. Meanwhile mortgage interest rates touched 7.7% plus points for their standard 30 year loan, a 23 year high.

Meanwhile housing starts picked themselves off the canvas in September from August's unusual low, but are still quite groggy. They are -7.2% lower than year ago levels which themselves weren't a high standard. Building consents don't give any indication their residential new-build market is about to recover.

Canada however is posting a good recovery in their housing start and residential construction data for September.

Data out of China yesterday was quite positive. The Chinese economy expanded by +4.9% in Q3-2023 from a year ago, slowing from +5.3% in Q2 but beating market forecasts of +4.4%. For a country as large as China, that is a big up surprise. Retail sales climbed by +5.5% in September from a year ago (remembering they essentially have zero inflation), accelerating from a +4.6% rise in the prior month and exceeding market estimates of +4.9%. It was the largest increase in the pace of trade since May. Electricity production rose +7.7% from a year ago, suggesting the headline growth may in fact have some substance behind it. It is the first time in quite some time Chinese growth data has been led by electricity production.

Housing market data in China however, wasn't a positive with their property investment slump deepening in September. However, it is actually quite positive that the growth they did record was consumer-led, and without property. This de-emphasising is a heathy sign.

In Europe, they confirmed its September CPI inflation rate at 4.3% for the Euro area, unchanged from its 'flash' report. A reminder, that is down from 5.2% in August, so good progress there even if core countries like Germany and France aren't quite back at those levels yet

In Australia, there are more reports of farmers desperate to quit stock ahead of the expected El Nino droughts looming. Some are even prepared to give them away as prices collapse to less that the freight to move them off farms. Even then, there were few takers. To be fair, these are only tiny pockets of desperation at this stage, but the trend is clear and market prices are diving, especially for sheep. No farmer wants to be stuck with livestock they can't feed or sell. In addition to the obvious animal welfare concerns, the legal liability is severe.

The UST 10yr yield in volatile today. At one point it was as high as 4.93% but has eased back to now be at 4.88% and up only a net +2 bps from where we started yesterday. Still, this is a new modern post-GFC high. 

The price of gold will start today at US$1952/oz and up +US$27/oz from this time yesterday.

Oil prices have risen +US$2.50 to be now at just over US$87.50/bbl in the US. The international Brent price is now just over US$91/bbl.

The Kiwi dollar starts today at 58.6 USc and down -½c from yesterday. This is its lowest level in almost a year. Against the Aussie we are softer firmer at 92.4 AUc which is down more than -1c since the start of the week. Against the euro we have eased lower again to 55.6 euro cents. That all means our TWI-5 starts today at just over 68.7 which is down another -40 bps from yesterday.

The bitcoin price starts today at US$28,361 and down -0.8% from this time yesterday. Volatility over the past 24 hours has been modest at +/- 1.4%.

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 tomorrow.