Kia ora,

Welcome to Tuesday’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 in the growing shadow of upcoming central bank decisions.

Financial markets are having a toughish time reading the tea-leaves on what the US Fed will do at this week's meeting. The PCE result for June left open every interpretation and the prior presumption of a September rate cut is in question. Will it give the Fed members enough confidence to hold off until after the election in November? their usual non-change stance around elections. Or will they still feel the need to go now to prevent a monetary policy mistake?

And then there are even bigger questions about what the Bank of Japan will do this week. They have now got the moderate inflation they have been seeking for decades, but seem uncomfortable with the consequences.

Meanwhile, manufacturing in the US oil patch is going backwards. The last time it was positive was April 2022. Since then it has been steadily contracting according to the Dallas Fed's factory survey. The July survey showed little reason to expect that trend to change. It will be touch-n-go whether tomorrow's services survey improves from its narrower negative position.

Another corner of the US economy that isn't doing so great is commercial real estate. According to MSCI, lenders foreclosed on more than $20 bln of loans in this sector in Q2-2024, a +13% jump from Q1-2024 and the most in any quarter in almost a decade.

Across the Pacific, positives are much easier to find in Taiwan where consumer sentiment rose in July to its best result in three years. It was sentiment driven by significantly improved family financial situations, employment prospects, and general feelings of prosperity.

In contrast, we should note there is still no sign of China's June foreign direct investment report. This might be a part of a wider pattern to keep tough news from markets to prevent them "over-reacting". Their equity exchanges have agreed to stop publishing daily data that gives investors the ability to calculate net flows at the end of each trading day.

And their weak equity markets have many piling in to Chinese government bonds, pushing prices up to record levels and yields down to record levels in a sharp risk-aversion mood. Some analysts expect Beijing to intervene by borrowing and selling bonds to reverse the moves. It's a bond bubble built out of fears for China's immediate economic prospects.

The UST 10yr yield is now at just on 4.17% and down -3 bps from yesterday. The China 10 year bond rate is just under 2.14% and a very sharp -6 bps lower and easily a record low. 

The price of gold will start today with a small -US$8 move down from yesterday at US$2378/oz.

Oil prices are another -50 USc softer at just over US$75.50/bbl in the US while the international Brent price is just under US$79/bbl.

The Kiwi dollar starts today marginally softer again at just under 58.8 USc. Against the Aussie we are marginally softer too at 89.8 AUc. Against the euro we are little-changed at 54.3 euro cents. That all means our TWI-5 starts today at 67.8 and down another -10 bps from yesterday.

The bitcoin price starts today at US$66,928 and down -1.3% from this time yesterday. Volatility over the past 24 hours has been moderate, at +/- 2.6%.

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.