Economy Watch

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 the world's economy seems to be ending the year in a flat funk. Momentum has leaked away and financial markets are sensing a fairly bleak 2024.However American mortgage applications rose by +2.8% last week from the prior week, marking the fifth consecutive weekly increase and pushing applications to their highest level in ten weeks. Helping was the continuing fall in home loan interest rates with the benchmark 30 year fixed rate now down to 7.35% plus points.Private businesses in the US hired +103,000 workers in November, below a downwardly revised +106,000 in October and well below the expectation of +130,000. That is according to the ADP survey. The November result brought the expected rise in services hiring, but an unexpected fall in manufacturing job levels. However, expectations for Saturday's (NZT) non-farm payrolls have firmed and are now at a +180,000 gain.US exports of goods and services came in little different in October than September (-1.0%), but were +1.3% higher than year-ago levels.In Canada, they too delivered a hawkish hold in their overnight monetary policy decision. They held its target for the overnight rate at 5% for a third consecutive meeting, in line with market expectations, leaving borrowing costs at a 22-year high. The Canadian economy currently seems stalled.Canadian exports were also little changed in October from September (+0.1%), and almost the same year-on-year.In Japan, sentiment at big manufacturers there surged, improving for a second straight month as the vehicle sector continued to recover from last year's semiconductor shortage and supply chain woes.China is really battling that flu outbreak we noted a week or so ago. Hospitals are crowded, healthcare employees very stressed. Authorities are worried, using language that is easily decoded by their population.Moody's put Hong Kong, Macau and lots of China's state-owned firms and banks on downgrade warnings overnight as it wasted little time in following up on an identical move the previous day on the mainland government's rating. The Hong Kong government isn't happy.EU retail sales volumes rose in October from September but not by as much as expected. In the end the rise was trivial, but at least it is a volume rise. However, from a year ago, these volumes are -1.2% lower, although that is much better than the -2.9% decrease in September.But German factory orders were unusually weak in October. They fell -3.7% in October from September, following an upwardly revised 0.7% rise in September. Analysts had expected a gain, but their industrial sector remains fragile. The biggest drag came from orders for machinery and equipment. These October order levels were -7.3% lower than year-ago levels. For an economy as large as Germany, that is a lot.In Norway, their parliament has backed deep-sea mining in the Arctic Ocean. This is a bit of a surprise given they have a center-left government.Yesterday’s independent Aussie PMI from the Australian Industry Group was also something of a depressing read. Their Index sank deeper into contraction in November on the back of falling demand and activity. It is now back at levels last seen in the depths of the pandemic. The activity/sales, new orders and input volumes indicators all materially fell in the month. Employment increased marginally. November's was the lowest reading since June 2020. On a trend basis, all four activity indicators point to contractionary conditions.Australia released at Q3 GDP data yesterday, showing their economy grew +2.1% in the September quarter from the same period in 2022. That is better than the expected +1.8% year-on-year expansion, and the same as their Q2 expansion. Having noted all these year-on-year changes, we should also note that the change from the June quarter came in softer than anticipated - and it is this softness that is grabbing headlines across the ditch, especially the lower household incomes. It is a sharp contraction in per capita terms.The UST 10yr yield is down -7 bps from yesterday at 4.11% with the slide extending.The price of gold will start today just on US$2,030/oz and up +US$13 from yesterday.Oil prices are -US$3.50 USc lower in a notable drop at just on US$69.50/bbl in the US. The international Brent price is now at US$74.50/bbl. These are new 5 month lows.The Kiwi dollar starts today at 61.6 USc and up +¼c from yesterday. Against the Aussie we are up +10 bps at 93.7 AUc. Against the euro we are up +¼c to 57.1 euro cents. That all means our TWI-5 starts today just on 70.7 and up +2 bps from this time yesterday.The bitcoin price starts today at US$43,815 and up another +2.6% from this time yesterday. Volatility over the past 24 hours has been moderate at just on +/- 2.0%.You can find links to the articles

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 Moody's has downgraded the Chinese economy's outlook.First up today however there was a dairy auction overnight and that came in with a minor +1.6% gain in USD terms, although only a +0.5% rise in NZD terms. Rather oddly, most of the major components managed better rises. Cheddar cheese recovered +9.7%, SMP was up +1.2% and WMP rose +2.1% from the prior event two weeks ago. This auction won't be changing minds about farm gate payouts, but at least it wasn't negative.In the US the news is quite mixed. Starting with the positives, the ISM services PMI expanded faster and ny more than expected. A feature is that it led by faster expanding new order levels. The internationally-benchmarked S&PGlobal (ex Markit) one also reported a pick up in expansion and better new order levels, but at a lower level that the ISM one.However the LMI logistics survey revealed a contracting sector in November quite a sharp turn down from October. But at least inventory levels and freight costa are reducing, which is probably a good thing for them.Also falling however are job openings. This data is for October and the retreat reported is quite sharp, down -617,000 from the previous month to 8.733 mln and the lowest since 2021. Perhaps this is the early indication of a slowing American jobs market, something analysts have been expecting for almost two years now. But the current forecasts for non-farm payrolls are a +185,000 expansion in November when the data is released Saturday NZT (and the ADP report at +130,000) and analysts have been increasing their bets recently.US retail sales as reported by their Redbook index for bricks & mortar stores on a same-store basis has slipped back to +3.0% year-on-year. Just enough to account for inflation perhaps, but nothing more and certainly not the real gains we have had in the past eight of twelve months.In China, Moody's affirmed their credit rating at A1 but revised the outlook from "stable" to "negative", citing growing risks stemming from lower medium-term economic growth, rising debt, and the ongoing restructuring of their property sector.The OECD released their PISA review results of education and they make grim reading for New Zealanders. Schools are failing our kids, according to these reviews. The education community is brushing these results off as "pandemic-related" and that may be a part answer. But the OECD itself says there is more at play here. Australia also scored worse although got gains in science. The US held its own, but Japan for instance improved.Yesterday, the Reserve Bank of Australia held its policy rate unchanged at 4.35% and delivered the expected hawkish commentary.Internationally, the Bank for International Settlements has warned that rapid global growth in buy now, pay later services could create risks in the financial system. The warnings are focused on both Australia and Sweden who have the heaviest adoption.Air cargo volumes continue to rise and in October were +3.8% higher than the same month a year ago. For the Asia/Pacific region they are up +7.6%. But to be fair they still trail pre-pandemic (2019) levels although the shortfall is now a minor -2.4% on that basis.On the same basis, international passenger travel is still -20% lower in the Asia/Pacific region than pre-pandemic equivalents, down -5.8% globally. But the gains from last year are very sharp as the return to globe-trotting returns to normal. But the biggest gains aren't international, they are domestic air travel which is now greater than pre-pandemic.The UST 10yr yield is down -11 bps from yesterday at 4.18% with the slide resuming.The price of gold will start today just on US$2,017/oz and down another -US$9 after yesterday and now way off its all-time high.Oil prices are -50 USc lower at just under US$73/bbl in the US. The international Brent price is now at US$77.50/bbl and -US$1 lower. These are new 5 month lows.The Kiwi dollar starts today at 61.3 USc and down another -40 bps from yesterday. Against the Aussie we are up +40 bps at 93.6 AUc. Against the euro we are down -20 bps to 56.8 euro cents. That all means our TWI-5 starts today just on 70.5 and down a mere -10 bps from this time yesterday.The bitcoin price starts today at US$42,725 and up another +2.7% from this time yesterday. Volatility over the past 24 hours has been modest at just on +/- 1.6%.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.

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.And today we lead with news major global trade choke-points are under threat and this may bring very costly work-arounds.But first in the US, October factory orders fell sharply and by more than expected. They fell -3.6% from September to be down -1.4% from the same month a year ago. But to be fair, this is essentially a story of a drought of new aircraft orders (down -50% from the prior month). True, other order levels were soft, but only by a smaller amount, down -1.2% from September after being up +0.8% the prior month.It may still be early days, but the new central bank policy approach in Turkey hasn't yet had any effect on bringing down inflation there. It is still running at 62% pa in November.In Australia, there are building signs their economy is softening, and quite quickly.In fact, a NSW survey of a wide range of businesses found that Christmas trading is expected to fall on average -11% this year compared to last year. Businesses in two pf the state's regions are anticipating a decline in excess of -20% - and in those two regions almost half plan to cut staff after Christmas. Things are decidedly ropey.And extending the ropey feel, a broader Australian survey found that activity is being propped up by making more inventory. Meanwhile sales are retreating and profits are under real pressure - although to be fair the overall picture is twisted by a big drop in mining profits. That wages rose while sales fell doesn't give you a good feeling about future employment, or wages for that matter.Canberra is preparing a new round of cost-of-living relief measures to roll out if things get dire. They are most likely to be released in their May 2024 Budget. However those latest Business Indicators show that wages were up +9.7% in the year to September so it certainly isn't "dire" yet.Later today, the RBA review will release its final review for 2023 of its cash rate target and it is universally expected to be on hold at 4.35%. Tough talk about inflationary risks are falling on deaf ears in financial markets; they now price in no change all the way through 2024.But we should all hold our breath. Conflict in the Middle East, and drought in Panama, means that the two vital canals for world trade are under threat and operating sharply below capacity. In Russia, the only two rail links from China have been put out of action by sabotage. (Not to mention South China Sea stresses.) In each case, the alternatives are very costly and will sharply discourage trade. It is very unusual that these threats are all happening at the same time. One measure, the Baltic Dry Index is zooming higher suddenly.The UST 10yr yield are up +8 bps from yesterday at 4.29% with yesterday's slide arrested. The price of gold will start today just on US$2,026/oz and down -US$45 after yesterday reaching an all-time high.Oil prices have stayed down at just under US$74/bbl in the US. The international Brent price is now at US$78.50/bbl. These are 4½ month lows and levels first reached 16 years ago.The Kiwi dollar starts today at 61.7 USc and down -40 bps from yesterday. Against the Aussie we are up +20 bps at 93.2 AUc. Against the euro we are still at 57 euro cents. That all means our TWI-5 starts today just on 70.6 and down -20 bps from this time yesterday.The bitcoin price starts today at US$41,583 and up +4.7% from this time yesterday, and confirming the break out of its recent range. Volatility over the past 24 hours has been high at just on +/- 3.4%.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.

Reserve Bank Governor Adrian Orr says he's "extremely confident" the world is heading back to a period of low inflation, saying the central bank is prepared to do "whatever it takes" to achieve its mandate of low and stable inflation.Speaking in in the latest episode of interest.co.nz's Of Interest podcast, Orr talks about the reaction from financial markets to last week's Reserve Bank monetary policy review, what its Monetary Policy Committee members will be watching between now and when they next review monetary policy on February 28, and what the Reserve Bank would need to see to be more relaxed about inflation."We just need to repeat we are willing to do whatever it takes to achieve our mandate, [of] low and stable inflation. If we get further inflation shocks there may be more work to do. So we're in a holding position, but we've made it clear where our nerves sit," Orr says."Basically we need to see more spare capacity in the economy to have the real confidence that the inflation pressures are coming off. All the indicators are moving in the right direction, but there's a lot of news still to arrive on the table."He also talks about "historically significant" immigration, noting countries such as Australia, Canada and New Zealand, with strong net inward migration are "having the highest core inflation challenges."With the new National-led government set to remove the Reserve Bank's requirement to "support maximum sustainable employment," from its monetary policy remit, Orr discusses how different monetary policy might have been over recent years if that hadn't been part of the Reserve Bank's mandate.Orr also says profit-led inflation, businesses pushing through price increases under cover of news about a major shock to the economy because there'll be less pushback from customers at such times, has been happening in NZ as it has overseas."We just used to call that inflation expectations and generalised inflation," Orr says."Whenever you've got high inflation people can hide price rises even though it's not something specific to their good or service. They can get away with high or variable inflation, they can start shifting relative prices around, and then that leads to more generalised inflation as input costs rise and wage costs rise and so on.""And it's that scramble and mess that causes long-term inflation problems. And so I would say all of those things have been happening in New Zealand as they have been everywhere else," Orr says."This is the challenge for monetary policy, we have to lean against that desire to tuck a little price increase in behind generalised inflation hoping no one notices. Consumers have to be laser-like focused and think 'is that right, should I be shopping somewhere else?'," Orr adds.In the podcast Orr also discusses the degree to which Official Cash Rate (OCR) rises are responsible for reducing inflation, inequities involved with monetary policy, whether price controls could be used to help fight inflation, whether the Reserve Bank's monetary policy should be required to support sustainable house prices, what he expects to see from the Commerce Commission's market study into retail banking competition, the level where he'd consider the OCR to be neutral in that it's neither stimulating nor constraining economic activity, his ideal scenario for monetary policy a year from now, and how he's "fully convinced" the world is heading back to low and stable inflation but there may be higher interest rates on average to achieve that.*You can find all episodes of the Of Interest podcast here.

Kia ora,Welcome to Monday’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 the social consequences of the Chinese economic slowdown are just not going away.But first, there were a flurry of factory PMIs released over the weekend confirming a global manufacturing downturn remains, even it is minor.But not minor is the widely-watched US ISM version as that reports a noticeable shrinkage across the board. The internationally benchmarked S&PGlobal (ex-Markit) version however records barely a drop. But it does confirm lower demand.In a Friday speech, Fed boss Powell signaled that they are likely done raising rates, but his comments were laced with caution.Canada's labour force grew at a faster pace than expected in November, faster than the good +24,900 increase in employment. Payrolls swelled much more, but the number of self-employed fell rather sharply. That meant that their jobless rate inched up to 5.8%. This wasn't unexpected.In China the Caixin factory PMI diverged from the official NBS version again, and again was more positive. But to be fair it is just oscillating around a steady state with this an 'up' month. However this report does note "a sustained rise in new orders".Meanwhile, Beijing has pledged to target ¥1 trillion in manufacturing and infrastructure development. Along with some supply knocks in Panama, this has helped jerk up the price of copper to US$8,615/tonne, it highest since August. (But still a long way below the US$9400/tonne it reached in January.)Overall, China's economic performance remains problematic, and along with the implied criticism he received from Party elders during their summer retreat, it now looks like President Xi is delaying a major set-piece economic conference (the "third plenum"), one where Xi's new team (the one appointed at the "second plenum") releases its longer-term economic plans.Meanwhile, Chinese borrowers are defaulting in record numbers as their economic troubles extend. More than 8.5 mln people are sharply downgraded in their 'social credit' which essentially means they are blacklisted, after missed payments on mortgages and business loans. That is about 1% of working-age Chinese adults, and is up from 5.7 mln defaulters in early 2020.And another Chinese property developer is scrambling to save itself - Gemdale.We should also note a sudden uptick in China's actions to take over the whole South China Sea, with a particular flashpoint in the Philippines.In Australia, CoreLogic reported that in November the heat came out of their housing market as values across Melbourne dipped and Sydney slowed.Australia faces its final RBA rate review for 2023 on Tuesday and markets don't expect their 4.35% rate to be changed. This is the last of their monthly reviews. In 2024 they change to a less frequent meeting schedule much like the RBNZ one.The UST 10yr yield fell sharply on Saturday, now just under 4.21%. That is a massive -22 bps retreat for the week and is now at a 2½ year low. The price of gold will start today just on US$2071/oz and up +US$11/oz from this time on Saturday after briefly touching its all-time high of US$2,089.70 intraday. A week ago it was at US$2000/oz, so a +3.6% gain since then.Oil prices fell a sharpish -US$2.50 over the weekend to just on US$74/bbl in the US. The international Brent price also got a sudden shift and it is now down to US$79/bbl.The Kiwi dollar starts today at 62.1 USc and up +10 bps from Saturday. A week ago it was at 60.7 so a +1½c gain from then. Against the Aussie we are still at 93 AUc. Against the euro we firm at 57.1 euro cents. That all means our TWI-5 starts today just on 70.8 and up +10 bps from this time Saturday, up more than +100 bps in a week.The bitcoin price starts today at US$39,703 and up +2.4% from this time Saturday, and confirming the break out of its recent range. A week ago it was at US$37,928 so up +4.7% rise from then. Volatility over the past 24 hours has remained modest at just on +/- 1.4%.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.

Kia ora,Welcome to Friday’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 global inflation is coming down as energy cost pressures recede. And so far it hasn't been at the expense of global economic expansion.But first today, US headline jobless claims rose but the increase was minor and less than expected. On an actual basis the fall was rather sharp but recall last week was a retail holiday week. There are now just 1.56 mln people on these benefits, almost the lowest in a year. So still no sign of rising labour market stress in this data. A week from tomorrow their November non-farm payrolls report is released and markets currently expect an expansion of +175,000 - modest but still expanding.October pending home sale levels gave up more ground in the continuing trend. Pending home sales is a forward-looking indicator of home sales based on contract signings and the -1.5% drop in October is the lowest number since this index was originated in 2001. The prospect of low demand because buyers are put off by high mortgage rates is holding back sellers from listing into a falling market.October income and spending data growth was modest, each rising just +0.2% from September. That is the lowest for both in seven months of much better gains. Perhaps of more interest was that PCE inflation eased again, now down to +3.0% (3.5% on a core basis) and closer to the US Fed's 2% target range. But even if it is moving in the right direct, there is still some way to go yet.The slowing the Fed wants, to quash inflation, is well underway according to the November Beige Book surveys. Economic activity slowed since the previous report, with four Districts reporting modest growth, two indicating conditions were flat to slightly down, and six noting slight declines in activity. They are managing to slow things without falling into recession. It's actually an impressive performance.It is tougher in Canada however. They reported a Q3 GDP decline of -1.1% from a year ago, a sharpish shift from the +1.4% expansion in Q2. Analysts expected a small +0.2% expansion in Q3, so this is a big miss.India also released Q3 GDP results overnight and these came in better than expected. The Indian economy expanded +7.6% year-on-year in the period, following a strong +7.8% growth in the previous period and beating forecasts of a +6.8% rise. The reading is also higher than the Reserve Bank of India projection of +6.5%.In Japan, the steam seems to have gone out of their rising retail trade. It fell in October from September by -1.6% to be +4.2% higher than a year ago. Meanwhile, Japanese industrial production has turned up in October, its biggest monthly rise in almost a year.China's official November PMIs brought some more minor slippage and at a faster pace. The factory sectors contracted slightly faster (although it is still minor); it was expected to contract less. And their services sector's expansion, already minor, eased toward a steady state. It is hard to see how Beijing will be happy about these trends. Their top-level charm offensive of recent weeks isn't working yet in terms of getting business people to change their actions and reactions.In Europe declining energy costs are still helping cool inflation there. The inflation rate in the Euro Area declined to 2.4% year-on-year in November 2023, reaching its lowest level since July 2021 and falling more that the market consensus of 2.7%. Meanwhile, the core rate, excluding food and energy, also cooled to 3.6%, marking its lowest point since April 2022 and coming in below forecasts of 3.9%.In Australia there is some substantial positive action in residential building consents. They rose an impressive +7.5% in October from September to be -6.1% lower than a year ago. That is a huge improvement from the year-on-year fall of over -20% in September. It is a sharp shift up that wasn't anticipated by analysts. Still, despite the rise the overall levels remain low.Container freight rates were unchanged last week. Bulk cargo rates leapt however in a surge we haven't seen since 2022 and to its highest level since May 2022.The UST 10yr yield has risen +6 bps from yesterday, now just under 4.34%. The price of gold will start today just on US$2040/oz and down -US$2/oz from this time yesterday.Oil prices have fallen -US$1.50 since yesterday at just under US$76/bbl in the US. The international Brent price is now just under US$81/bbl. Markets were unimpressed by the latest OPEC non-decisions.The Kiwi dollar starts today at 61.7 USc and unchanged from yesterday. Against the Aussie we are marginally firmer at 93.2 AUc. Against the euro we are back up +20 bps at 56.5 euro cents. That all means our TWI-5 starts today just under 70.5 and up +10 bps from this time yesterday.The bitcoin price starts today at US$37,795 and almost unchanged (-0.1%) from this time