Kia ora,

Welcome to Wednesday’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 bond yields are rising fast today as hot American data fuels bets the US Fed will need to raise rates again.

But first, the overnight dairy auction was a reprise of the previous two, up another +4.3% this time. But to be fair it hasn't yet made back all of its steep falls of July and August yet even if it is on the way. Both SMP and WMP rose like the overall result, butter was up +2.9%. Prices at this level are basically what we had in the 2016-2020 period. It was a solid, average auction, and a relief that the steep reductions from the 2021 peak seem to have ended.

In the US, retail sales came in stronger than expected. They were up +0.7% in September from August, following an upwardly revised +0.8% rise in the prior month and beating forecasts of a +0.3% rise. Gains were across the board, and car sales topped other sectors. Year-on-year that is a +3.8% rise and now topping inflation (3.7%). The data continues to point to healthy consumer spending despite high prices and borrowing costs.

This is all confirmed with much better bricks & mortar retail sales, up +4.6% year-on-year in the Redbook weekly survey of same-store sales last week.

US industrial production is again expanding too, up +0.3% in September and enough to drag their year-on-year activity positive, even if only modestly at this stage.

US business inventories were up, but not as fast as sales, so they do not have a problem in this regard.

The only sector in the US struggling is their residential real estate sales sector. That includes homebuilders who remain glum. Buyers aren't buying because of the high interest rates.

In Canada, they revealed their September CPI inflation overnight and like New Zealand, it came in lower than expected. There it fell to 3.8% in September from 4% in the previous month. The result further strengthened expectations that the Bank of Canada will refrain from further rate hikes in the current cycle.

In China, they are finding that only Beijing is confident enough to invest in industries designated as 'strategic' and their central government is responding with a +30% rise in support for those industries.

And all eyes are on giant developer Country Garden, who are widely expected to default on bond payments later today. There is a chance that the impact could cascade through the wide network of dependent contractors.

In Germany, the ZEW Indicator of Economic Sentiment surged by 10 points from the previous month to almost eliminate their negativity in October, significantly exceeding market expectations. 

In Australia, they released the minutes of the last RBA meeting yesterday and they were somewhat more hawkish than expected. They might raise fears that the RBA may be inclined to raise rates again which would be a 13th rise since they last fell. "[M]embers noted that some further tightening of policy may be required should inflation prove more persistent than expected." They have a target of "between 2 and 3 percent". The last monthly inflation indicator was 5.2% in August and the next one is released for September on Wednesday, October 25, 2023.The RBA next meets on Tuesday, November 7, 2023 and they have signaled they will have a low tolerance if inflation progress isn't forthcoming.

The UST 10yr yield starts today up +14 bps from where we started yesterday at 4.86% and a new modern post-GFC high. 

Locally, market pricing expectations for another RBNZ rate rise have all but vanished.

The price of gold will start today at US$1925/oz and up +US$3/oz from this time yesterday.

Oil prices have dipped -US$1 to be now at just over US$85/bbl in the US. The international Brent price is now just over US$88.50/bbl.

The Kiwi dollar starts today at 59.1 USc and little-changed from yesterday. Against the Aussie we are slightly firmer at 93.6 AUc. Against the euro we have eased lower by almost -½c to 55.8 euro cents. That all means our TWI-5 starts today at just over 69.1 which is down -40 bps from yesterday.

The bitcoin price starts today at US$28,590 which is up another +1.7% from this time yesterday. Volatility over the past 24 hours has been modest at +/- 1.3%. In Australia, they have released their long-awaited crypto regulations and they are expected to wipe out the bulk of Australian-registered exchanges as they struggle to comply with the requirements designed to limit the scams and fraud rife in the industry.

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.