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.

And today we lead with news there was an unexpected turn in the US tariff situation late last week.

In a dramatic ruling, most of Trump’s global tariffs were declared illegal by a US appeals court that found he exceeded his authority in imposing them. He will almost certainly appeal to his Supreme Court.

Then, over the weekend we got the official Chinese PMIs for August and they extended the sluggish environment their manufacturing sector finds itself in. Despite the 90 'extension' before punitive tariffs kick in with the US, orders contracted for a fifth consecutive month. On the services side however, they maintained their small expansion in August, albeit marginally better.

But early data suggests their housing slump is not ending, maybe even getting worse. Sale volumes in August are likely to be more than -17% lower than a year ago.

Although it is a shortened week in the US, it ends with the August jobs data. Markets expect another weak result (just +78,000). You will recall the weak data last month saw Trump fire the agency head who compiled it. So there will be special attention this time on its believability under the BLS agency's deputy. Before that we will get lead-up jobs data, the ISM PMIs for the US.

Canada will also release labour market data. The EU inflation data, and others will release GDP data for Q2-2025, including from Australia on Wednesday.

At the end of last week, July data out in the US shows that disposable personal income was up +2.0% from a year ago, personal consumption expenditure was up +2.1% on the same basis. On a month-on-month basis, the income was up +0.4% and expenditure up +0.5%. These elements are not major but they do indicate a tightening in household financial budgets.

Nested deep within this release was that core PCE index rose 2.9% year-on-year in July, its largest rise since February and above the Fed’s target and comfort zone. Tariff costs are getting the blame. Financial markets noticed.

And that is the same sort of tightening indicated by the widely-watched University of Michigan sentiment survey. Its final August version fell back markedly from its initial readings, a clear indication households are finding it tougher. It is now -14% lower than a year ago. The Biden boom is now just a memory.

On the factory floor, the latest indicators are shifting down too. The August Chicago PMI headed south quite sharply to be -10% below year-ago levels.

And the US seems to be losing the tariff war it started - and Americans are paying the tariff-taxes. The latest trade data for July shows that the US merchandise trade deficit jumped to -US$104 billion in the month, exactly the same as July a year ago, and far above expectations of -US$90 bln deficit. It is their largest in four months. Imports jumped +7.1% from a month earlier, led by industrial supplies, capital goods, food, and consumer goods. Meanwhile, exports slipped -0.1%.

Certainly, American farmers are not happy. And they have a President who probably doesn't even know where Pakistan is, let alone most other simple facts.

In Canada, they got a sharp dose of shock in their Q2-2025 GDP result from the sharp turn on them from their southern neighbour. Their GDP fell -0.4% in the quarter and cancelling out the +0.5% gain in their first quarter. Year-on-year their GDP is still up +0.9% however.

Across the Pacific the economic data is generally much more positive. South Korea’s retail sales surged +2.5% in July from June, a big jump from a revised +0.7% increase in June and marking the fastest growth in over two years. From a year ago it is up +2.4% and that too is the most since January 2022.

South Korean industrial production grew solidly in July as well, up +5.0% from a year ago.

After a good gain in June, Japan’s industrial production fell -1.6% in July, reversing a +2.1% June gain and much more than the -1.0% decline anticipated.

Japanese retail sales only rose by +0.3% in July from a year ago, slowing sharply from a downwardly revised +1.9% gain in June and falling well short of market expectations for a +1.8% increase.

But Japanese consumer confidence actually rose in August to its best level of the year with gains across all surveyed questions.

We should also note that protests in Jakarta on Friday that turned deadly have put Indonesia on edge. They have spread over the weekend. Canberra will be watching nervously.

In Europe, the ECB's survey found that consumer inflation expectations were stable ("well anchored") in July at 2.6% for the year ahead.

Globally, air passenger demand was up +4.0% in July, driven by the Asia/Pacific +5.7% rise and held back by the North American +1.9% rise. Most of this is due to international travel. Meanwhile, air cargo traffic was even stronger in July, up +5.5% from a year ago, up +6.0% for international trade. Asia/Pacific was the strongest region here too, up +11.0% for international cargoes. But North American international cargo volumes only rose +1.5%, the weakest global region.

The UST 10yr yield is now at 4.23%, unchanged from Saturday, but down -3 bps from a week ago. 

The price of gold will start today at US$3,447/oz, up another +US$5 from Saturday, and close to a new record high, but basically a measure of the USD markdown. A week ago it was at US$3,371/oz so a net +US$76 gain

American oil prices are again little-changed at US$64/bbl with the international Brent price holding just under US$67.50/bbl.

The Kiwi dollar is at just under 59 USc and unchanged from Saturday at this time, up +30 bps for the week. Against the Aussie we are holding at 90.1 AUc. Against the euro we are unchanged as well at 50.5 euro cents. That all means our TWI-5 starts today at just under 66.5, and unchanged from Saturday, up +20 bps for the week.

The bitcoin price starts today at US$109,022 and up +0.5% from this time Saturday. But is down -6.7% for the week. Volatility over the past 24 hours has been low at just on +/- 0.5%.

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.