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 of growth downgrades amid bond yields that continue to march higher.

First and as anticipated, today's dairy auction was a negative one, with prices falling -3.6% on average in USD terms. That is on top of falls at the two prior events, so they are down -4.1% since early March. But today's event wasn't as dire as analysts had feared. WMP fell less than the futures market had indicated. SMP fell marginally more. But more importantly, the currency has come to the rescue, falling -3.2% since the last auction so in NZ dollar terms today's overall result was a decline of only -0.2% in local currency.

Given the currency effect, today's results are unlikely on their own to alter any farm gate payout forecast, but it will certainly now push downgrade thoughts to front-of-mind if the trend continues. Fortunately, the current season is in the bag. Any softness will all be about the upcoming season.

In the US, the data released overnight continued its strong run. American housing starts came in above estimates for March and above the prior month which was revised up. The same is true for residential building permits. Both are at historically high levels.

American retail sales for last week were also strong, improving to be +15.2% higher than the same week a year ago, so the strength is much more than 'just inflation'.

Canada housing starts also came in high, but although it was not quite as high as expected, the miss was minor.

But the Canadian housing market is showing signs it has topped out now.

Japan chimed in with an unexpected rise in industrial production, up year on year to February, but more importantly the rise from the prior month was much more than expected.

The IMF has released its lower global growth forecasts, and both the US and China have had chunky lower revisions. The US was cut from 4.0% to 3.7% and for China from 4.8% to 4.4%, and in their case amid intense efforts by state media to play down concerns about the country’s slowing growth outlook. These lower estimates had an immediate effect on the oil price.

For Australia, they now see 2022 growth at 4.2% and in 2023 at 2.5%, down from 4.7% in 2021. For New Zealand their estimate is that we sink from +5.8% in 2021 to 2.7% in 2022 and 2.6% in 2023. 

Meanwhile, China has announced it has actually signed a security deal with the Solomon Islands.

The UST 10yr yield starts today up another +5 bps to 2.91% and rising.

The price of gold starts today down -US$22 since this time yesterday at US$1956/oz.

And oil prices are -US$5.50 lower at just under US$103/bbl in the US while the international Brent price is now just on US$107.50/bbl.

The Kiwi dollar will open today little-changed at 67.3 USc. But against the Australian dollar we are softer at 91.2 AUc. Against the euro we are marginally softer at 62.3 euro cents. That all means our TWI-5 starts today at 73.6 and a little firmer, mainly on the fall of the Japanese yen.

The bitcoin price is up +2.3% from this time yesterday at US$41,346. Volatility over the past 24 hours has been modest at just over +/- 1.9%.

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 next again tomorrow.