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.

Today we lead with news the US Fed's interest rate rises haven't yet quelled enthusiasm in either their retail or labour markets, nor consumer sentiment, which is something of a surprise.

American retail sales rose faster than expected last week on a same-store basis to be +14% higher than year-ago levels, picking up the pace and by faster than can be explained by just inflation.

The number of job openings in the US rose and by almost +200,000 in July from June to 11.2 mln, while markets had expected it to drop to 10.45 mln. It was the first increase in job openings after three consecutive months of small declines.

And American consumer sentiment improved, as measured by the widely-watched Conference Board survey. While it wasn't an expected improvement, it doesn't really affect the overall trend of sliding sentiment yet. But it does hold out the possibility that a trend reversal is possible over the rest of 2022, something that seemed unlikely a month ago.

Yesterday we noted the weakness in the Texas factory survey. But today, their service sector survey came in positive for August, even if slightly less so than for July.

The US Fed is raising its benchmark interest rate as we know, and will likely keep at it with chunky increases for some time. They next review this 2.5% rate on September 22, NZT. But at the same time they are pushing through quantitative tightening, and now upping the withdrawal of prior monetary stimulus to -US$95 bln per month from bond markets. This is likely to have a compounding impact on core interest rate yields across the curve. Doing both at the same time is aggressive - and potentially quite risky.

Across the Pacific, yesterday we noted in China that rains had returned to southwestern regions but that they weren't enough to save agriculture or really break the drought. But they have lowered temperatures and reduced electricity demand. Now officials are worried that they might turn out to become excessive quickly and have issued warnings about flash flooding as a possibility. Slips and other land damage is possible too if they become strong. Officials have warned miners to be wary, including at coal mines.

And now that Evergrande has faded, the new 'largest property developer" in China is Country Garden Holdings, a developer that builds lower-end housing. They just filed their six month interim financial reports revealing profits fell -90% compared with the prior year. At least it wasn't a loss. But such weakness could be corrosive for them keeping their funding active. Being "China's largest property developer" is an unwanted title these days.

We should also note that the Chinese yuan is weakening quite quickly now, down -2.0% since the start of the month, down -8.1% since the beginning of the year. There is a loss of face involved here.

In Hong Kong, a total of 140,500 residents had applied as of the end of June for a special British visa that paves the way for citizenship in the UK, with China's sweeping national security law spurring more people to leave, especially families. Their population totaled 7.29 mln as of the end of June, down roughly 120,000 from a year earlier. It maxed out at over 7.5 mln in 2009. This marked the biggest drop since tracking began in 1961. The local government highlighted a "natural decrease" from deaths outpacing births. But in reality a large portion of the decline stemmed from the net outflow abroad of over -110,000 residents over the course of the year to June.

In Europe, Germany reported its August inflation rate overnight, and at +7.8% is was slightly higher than they expected, boosted of course by the cost of Russian energy. On an EU harmonised basis it came in at +8.8%. But it is really the cost of food that is giving this metric the real extra boost, as they wean themselves off Russian energy. Still the high rate in August is very similar to what they have had for the past six months now.

Their rate is tame compared with Hungary, which is paying for the mistake of cozying up to Russia. They have an inflation rate of 14% over the past year and 27% as the annualised rate between June and July, and to try and deal with this pressure they raised their policy interest rate overnight by +100 bps to 11.75%.

The ECB will also be weighing their new moves and that too is sure to include a rate hike as \EU inflation might hit 9% when it is announced later tonight. Just how much the ECB will move is the current question. Their next review is on Friday, September 9, NZT.

In Australia, building permits were expected to fall -2% in July from June, but they actually fell -17%, a huge miss. Year-on-year they slumped -18%. Much of this is because approvals for new apartment building are now very weak, down -45%. But even for houses, the year-on-year retreat is approaching -20%. Rising RBA interest rates are getting the blame.

The UST 10yr yield starts today at 3.12% and up +1 bps from this time yesterday. 

The price of gold will open today at US$1724/oz and down -US$14 from this time yesterday.

And oil prices start today down -US$5/bbl at US$91.50/bbl in the US while the international Brent price is now at US$97.50/bbl.

The Kiwi dollar will open today at 61.3 USc and a -¼c dip from this time yesterday. Against the Australian dollar we still down at 89.5 AUc but off a 5 year low. Against the euro we are down to 61.2 euro cents. That all means our TWI-5 starts today at 70.6 and a small retreat.

The bitcoin price is now at US$19,702 and down -2.8% from this time yesterday. Volatility over the past 24 hours has been moderate at just on +/- 2.6%.

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.