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 all eyes are in the latest inflation updates.

But first, mortgage applications in the US fell -0.8% last week, following a -2.9% drop in the previous week and hitting a new 27 year low, since December 1996. This was even after adjusting for their Labor Day holiday weekend. Getting the blame are higher mortgage interest rates, with the benchmark 30 year rate edging up by +6 bps to 7.27% plus points, getting close again to high levels not seen since December 2000.

The American CPI inflation rate for August came in perhaps only slightly higher than expected. But it was a rise for a second straight month, taking the annual rate to 3.7% from 3.2% in July, above market forecasts of 3.6%. Oil prices have been on the rise in the previous two months, which coupled with base effects from last year, have been the main reason. The more recent month-on-month change was a rise of +0.6% and exactly as expected. Stripping out the volatile food and energy items, 'core inflation' fell to a 4.3% annual rate, its lowest in two years.

The Americans release their producer price inflation levels tomorrow and they are expected to be about half the consumer levels.

Will these price numbers motivate the US Fed to make another hike? We won't know until today week after their next review meeting. Markets doubt another hike is coming although there are some talking up the possibility.

There was something of a surprise in the August release of the US monthly budget statement. It recorded a monthly deficit of -US$221 bln in July with spending exceeding income. A similar deficit was expected in August. But in fact they reported an +US$89 bln surplus for the month. Despite that improvement, they are still reporting a -7.2% deficit to GDP, up from -5.3% the previous year. Still, that is nothing like the Trump-era deficits of -14.8% of GDP. Or the GFC-era deficits of -9.8%.

In Japan, producer prices rose by 3.2% in the year to August, slowing slightly from a downwardly revised 3.4% gain in July. It was the lowest rise since March 2021. The latest figure also marked the eighth consecutive month of a slowdown in producer inflation in Japan.

Meanwhile, business sentiment in Japan rose its most in August of any month in 2023, especially large businesses.

And in South Korea, their jobless rate fell to its lowest ever to 2.4% of their workforce (or 2.0% on an unadjusted basis).

In Hong Kong, there is a lot of value destruction in their commercial property market. One way to look at that its to see the changes in the Hang Seng REIT index. Since the start of 2023 it has fallen -32%. And that is just the start of it. Since its all-time peak in 2019 it has fallen -60%. Currently it is now down to levels last seen in 2009.

Globally, ratings agency Standard & Poor's said the number of new corporate defaults reached 16 in August, the highest August monthly number since 2009 and a sign that corporate stress is building. This brought the global corporate default tally to 107 for the year so far, with most of the defaults coming from Europe and the United States.

The UST 10yr yield starts today down -2 bps at 4.24%. 

The price of gold will start today at just on US$1910/oz and down -US$2 from yesterday.

And oil prices are -50 USc lower from yesterday at just under US$88/bbl in the US and off its ten month high. The international Brent price is now under US$91.50/bbl.

The Kiwi dollar starts today +¼c up from this time yesterday at 59.2 USc, settled in to a tight range. Against the Aussie we are similarly firmer at 92.1 AUc. Against the euro we are also fractionally firmer at 55.1 euro cents. The TWI-5 is +20 bps higher at 68.6.

The bitcoin price has moved higher from this time yesterday, and is now at US$26,127, a net rise of +0.5% overnight. Volatility over the past 24 hours has been low however at just on +/-1.2%.

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.