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 markets are reacting to US Fed views that 'everything is on track' and no more rate rises are likely.

Firstly though, the first indications of bricks & mortar store retail sales for last week are coming through with the US Redbook index up an impressive +6.3% from the same week a year ago. Although that isn't as big a jump as the online indexes have had, it is still a healthy real increase, well above inflation. And it is the strongest weekly gain of the year.

Also better than expected is the latest US consumer sentiment reading, this one from the Conference Board. The rise was mostly on the forward looking aspects.

There were two regional Fed survey out. The Richmond Fed's services survey also found more optimistic conditions, but that was not matched in their factory sector. And in the oil patch, both sectors turned more glum in Texas. But to be fair, none of them actually shifted much.

Fed speakers have been fueling the idea that they are done raising rates and that inflation in heading in the right downward direction now. And that is taking the top of the recent benchmark UST yields - despite the US government's need to issue much more debt paper. Lower benchmark rates is also pushing the US dollar lower.

In China, their central bank chief has opened up about local authority debt pressures, confirming authorities are worried about the situation in parts of the country.

And in a far corner of China's foreign policy analysis, they are talking up the possibilities of the change of government in New Zealand. They see our new Prime Minister as a friend who they can do business with.

In Australia, October retail sales came in weaker than expected, recording a -0.2% decline from September when markets expected a +0.2% gain. This follows monthly gains of +0.9%, +0.2% and +0.6% in the prior three months. Annual sales growth slowed to just +1.2%. With their population growth running at +2.4% per year and retail price inflation running at +3.6% in the September quarter, this October retail trade result implies a very large real, per capita decline in the -4.5% to -5% range.

The overnight GDT Pulse auction for WMP and SMP wasn't encouraging with lower prices from both the last full auction, and the prior event. We should say, lower USD prices, and because the greenback is in a weakening trajectory, prices in NZD look even weaker. Hopefully dairy company hedging mitigates the decline.

The UST 10yr yield is down another -3 bps from yesterday, now at 4.37%. 

The price of gold will start today just on US$2040/oz and up +US$30/oz from this time yesterday. The falling greenback is behind much of this rise, but it is getting near to its all-time high of US$2075 in August 2020 (not inflation-adjusted however).

Oil prices have risen +US$2 since yesterday at just over US$77/bbl in the US. The international Brent price is now just over US$81.50/bbl.

The Kiwi dollar starts today at 61.4 USc and up +½c from yesterday, but and a new high since July. Against the Aussie we are -10 bps lower at 92.2 AUc. Against the euro we are up +20 bps at 55.9 euro cents. That all means our TWI-5 starts today just under 69.9 and actually little-changed from yesterday.

The bitcoin price starts today at US$37,854 and up +2.3% from this time yesterday, although to be fair it has been meandering around this level for three weeks now. Volatility over the past 24 hours has remained modest at just on +/- 1.5%.

Join us at 2pm today for full coverage of the last RBNZ Monetary Policy Statement of 2023 before we go into a long pause until the next one in February.

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.