Economy Watch

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 we are ending the year with mostly a strong international economy, but worries are growing about prospects for 2025. If both China and the US turn down together, then all bets are off.But right now, it's going to a relatively quiet week ahead as you would expect with major holidays in some of the largest financial markets. But we will get data from Singapore (CPI), Thailand (exports), Taiwan (retail sales and industrial production), China (industrial profits and their MLF interest rate), Canada (PPI), and the US (durable goods orders, new home sales, jobless claims and some regional factory surveys). So enough to keep an eye on while we relax. Nothing locally of course except the November data dump from the RBNZ tomorrow.In the US, there was a last-minute avoidance of their shutdown as conservative Republicans were not prepared to give the incoming President the blank cheque of a suspension of their debt limit. Trump lost that one by quite a wide margin, so it may not be plain-sailing for the Trump/Musk presidency.Meanwhile, the widely-watched US PCE measure of inflation came in at 2.4% in November, up a tick and to its highest since July. Core PCE inflation stayed even higher at 2.8%. But these results were actually a tick less than expected. The 2.8% inflation level is what the University of Michigan consumer survey also reported.American personal disposable income rose +2.6% from a year ago, a slight undershoot. But personal spending remained strong, up +2.9% and similar to the gains over the past six months. Personal saving as a percent of disposable income rose marginally to 4.4% from the prior month and ending the longish decline from the start of the year when it ran at 5.5% of personal disposable income. The 4.4% level is where it ran for most of 2023.Across the Pacific, Taiwanese export orders stayed elevated, up +3.3% from the same month a year ago which itself was elevated.China reviewed its loan prime rates on Friday and kept them unchanged - at record lows. It's MLF rate will be announced this coming week.In China, there have been recent reports of officials calling in bond traders to lecture them about 'responsible trading' - and the consequences for not. Chinese bond yields had fallen to record lows, as readers here who tracked our monitoring of the Chinese 10yr yield below will know. But today, the fear of losing money is winning out over the fear of officialdom's wrath.China’s one-year bond yields broke below levels last seen in the GFC to the lowest since 2003, driven by bets on aggressive policy easing and demand for haven assets. The yield on one-year government debt plunged 17 bps yesterday to just 0.85%. The ten year is down to 1.69%. While it might be too harsh to call it 'panic mode' there is certainly a hard edge here, in fear of where the Chinese economy is headed.Japan reported November CPI inflation, and that rose again, now at 2.9%, with the widely-watched core inflation rate at 2.8%.Japan also said its population fell to just under 124 mln, a fall of -325,000 in a year, and -3.1 mln in a decade. Now 29.3% of that population is 65 year and older, with only 11.1% under 15 years. In China, which is also thought of as having a similar demographic problem, those spread details are 14.3% over 65 years and 16.8% under 15 years.Following the recent +200 bps out-of-cycle interest rate rise in Russia and the central bank guidance then, they were expected to raise their policy rate by another +200 bps again overnight to 23%. But they didn't. Apparently the Kremlin isn't keen on the independence of the Russian central bank governor any more.And perhaps we should note that nickel prices have hit a four-year low, on the combination of low demand and surging Indonesian supply. Russia is no longer a force in nickel supply. Prices for rough-cut diamonds are also plunging, this time on low demand out of China and their acceptance of artificial alternatives.The UST 10yr yield is now at just on 4.53%, and up +2 bps from this time Saturday but that is a net +16 bps rise for the week. The price of gold will start today at US$2622/oz and down -US$3 from Saturday. But that is down -US$36 from this time last week.Oil prices are unchanged at just on US$69.50/bbl in the US while the international Brent price is still just under US$73. A week ago these prices were US$71 and US$74.50 respectively.The Kiwi dollar starts today just on 56.7 USc and unchanged from Saturday. But that is down almost -1c from a week ago (57.6c USc). Against the Aussie we are holding 90.4 AUc. Against the euro we are still at 54.3 euro cents. That all means our TWI-5 starts today at just on 67.1 to be unchanged from Saturday at this time but down -50 bps from a week ago.The bitcoin price starts today at US$95,659 and down another -1.5% from this time Saturday. A week ago it was at US$101,536, so down -5.8% from then. Volatility over the past 24 hours has been modest however at +/- 1.5%.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.

Stats NZ’s final data release for the year revealed the economy has been shrinking at its fastest rate in three decades. While this may not be a very Merry Christmas, there is still hope for a Happy New Year.Treasury, the Reserve Bank, and most economists expect growth to resume in 2025 as interest rates fall. Consumer spending should pick back up and cheaper credit should make business investments more worthwhile. But while private New Zealanders open up their wallets, the Government will continue to tighten its belt. Core Crown expenses are predicted to fall from almost 34% of GDP in 2025 to 31.5% by the end of the decade.This would be enough to balance the books—if you ignore annual losses at the supposedly self-funded Accident Compensation Corporation—and halt net core Crown debt at 45%.But Finance Minister Nicola Willis told Interest.co.nz this wasn’t her top priority. “Our view is you can never ignore sensible fiscal policy, and it's irresponsible to indebt future generations to an extent that they won't be able to have the services that we have today,” she said in an interview.“But at the same time, you also need to make sure that you're maintaining today's services, that you're keeping the foundations for productivity, and that you are ensuring that your measures make sense—not just in the short term for coloring the books and making them look pretty—but will actually generate a sustainable basis for growth in the medium term”.Many left-leaning critics of the Finance Minster would like to see greater Government investment to support the growth forecasts next year. They worry a withdrawal in spending will hamstring the recovery and leave the economy less productive in the future.It may surprise you to hear that Willis agrees with them. She says it is “factually incorrect” to accuse her of austerity, as the Coalition’s fiscal policies are still stimulating demand.   “We have a government that is actually continuing to increase its overall levels of spending, both in absolute terms, but also as a proportion of the economy.  And actually, the fiscal impulse will be positive.”“But the point that we are making is this does need to unwind over time, and so we've set out a path of gradual fiscal consolidation, which we think is the responsible way to go”.She says policies which deregulate the economy, open New Zealand up to more foreign investment, and crack down on uncompetitive industries will be more important to future growth than fiscal stimulus. Banking is one of these uncompetitive sectors in which she wants reform. She's already told Kiwibank to raise $500 million and the Reserve Bank to put more weight on competition when setting regulation policies, and is more than willing to go further. “When I read through the Commerce Commission report on our banking sector, it couldn't have been any clearer to me that we have a major problem,” she said.“I have put the banks on notice and made it clear that if they want to do more of their nice talk about how they're going to be really good … that won't wash with us. They need to be acting or we will take further action, and there are a lot of options for what we can do there”.  She’s open to charging banks a special levy or tax, like in the United Kingdom and Australia, which recognises they benefit from an implied Crown guarantee and earn very high risk-adjusted returns as a result. Big banks beware!

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 of deliberate chaos being constructed in Washington DC with a much higher prospect of a US Federal Government shutdown likely. Authorised funding expires later today / Friday, US time. Financial risks are sharply elevated today, and markets are pricing these in.Elsewhere, US jobless claims fell sharply last week and by more than can be accounted for by seasonal factors. There are now a bit less than 1.9 mln people on these benefits.The PhillyFed survey of factories in America's traditional rust belt turned very negative, the worst result since April 2023. Soft demand was behind this shift. Optimism about the future took a hit too.The Kansas City Fed's equivalent survey in its region wasn't so negative, but it wasn't positive either. Optimism was a bit better there however.American existing home sales in November rose, but to be fair it is still stuck in the very low range it has had post-pandemic which is even lower than the post-GFC range, and back to levels first seen in 1995. So the November rise in that perspective is kind of irrelevant, no matter what the industry peak body says.The US Conference Board leading index tracking rose in November. Higher building permits, high equity prices, rising average hours worked in manufacturing, and fewer initial jobless claims boosted the November result. But the December result will no doubt take a hit from the current Washington shenanigans.The final estimate for US Q3-2024 GDP raised the expansion to +3.1% and extending the good run they have had since mid-2022. The US economy delivered US$29.4 tln of economic activity in the past year, with the expansion of +US$1.4 tln and the most ever. And that describes what is at risk from bad policy.Elsewhere there were many central bank rate reviews.In Japan, the Bank of Japan held its key short-term interest rate unchanged at 0.25%, keeping it at the highest level since 2008. That was what financial markets expected. But the vote was split 8-1, with one board member wanting a +25 bps increase. Essentially they are waiting to see how destabilising the incoming American Administration will be. But the bank boss seems to have turned dovish in the circumstances, and that turn moved markets.In Taiwan, they kept their policy rate unchanged at 2%In the Philippines, they cut their rate by -25 bps to 5.75%.In Sweden, they cut by -25 bps to 2.5%.In Norway, they held at 4.5%.In England, they held unchanged at 4.75% with a split 6:3 vote with the dissenters wanting a cut. This is a pause as inflation starts to rise there again.In something of a surprise, Australian inflation expectations rose to 4.2% in December, ending their encouraging falls that started in September. It is not a result either the RBA or the Australian Treasury would have wanted.Container freight rates rose +8% last week but to be fair that was only because of a +26% rise in teh China-to-USWC route and a +17% rise in Chin-to-New York as traders raced to get ahead of the impending tariff threat. Other routes saw small declines. Bulk cargo rates fell another -7% last week to be less than half what they were a year ago and back to levels last seen in July 2023.Many mineral commodities are retreating in price in expectation 2025 will be tough, with copper down -2%.The UST 10yr yield is now at just on 4.59%, up a very sharp +19 bps from this time yesterday as markets digested the Fed's move and the deliberate mess being created by the incoming President.The price of gold will start today at US$2592/oz and down -US$42 from yesterday.Oil prices are down -US$2.50 to be just on US$69.50/bbl in the US while the international Brent price is now just under US$73.The Kiwi dollar starts today just on 56.5 USc and down -60 bps from yesterday. Against the Aussie we are down -40 bps to 90.3 AUc. Against the euro we are also down -10 bps to 54.5 euro cents. That all means our TWI-5 starts today at just on 67.1 to be down another -25 bps from yesterday at this time.The bitcoin price starts today at US$100,994 and down -3.1% from this time yesterday. Volatility over the past 24 hours has been high at +/- 3.1%.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 on Monday.

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 all markets have been waiting for the US Fed decision.And as expected, they have cut their key policy rates by -25 bps with the targeted range now 4.25%-4.50%. Progress on taming inflation gets the main credit from them. As we publish, Chairman Powell has yet to hold his press conference, so more about their thinking will be revealed then. But this move takes their rollback to -100 bps since August, and back to the level they had at the start of 2023. A slower pace of cuts are expected in 2025.Meanwhile US mortgage applications slipped slightly last week, ending a run of five straight weeks of gains to be +6% higher than year-ago levels and a bit more activity on the purchase side.US housing starts however unexpectedly fell in November and by -1.8% to an annualised rate of 1.3 million units, the lowest in four months. Only in one month since the pandemic has it been this low. American consumers may say they are feeling more optimistic, but they aren't showing it in their housing markets.Japanese exports rose in November and by more than expected to be at the upper end of the monthly range in 2024. It was a rise that beat expectations. But imports fell, and by much more than expected, to a three-month low, and about the average level in 2024.In Malaysia their exports also rose much more than expected, and like Japan their imports, which were also expected to surge, didn't. Obviously not every country can have rising exports and falling imports but those that do count themselves 'winners' in the international trade arena. For Malaysia however, this is a rare monthly result, a small balance for a long period when imports exceeded exports.The Indonesian central bank kept its policy rate unchanged at 6% in a meeting late yesterday.In Hong Kong, major builder New World Development, which recently posted a large and unusual loss, is reportedly trying to renegotiate its loan obligations with banks. Not a great sign for them, and indications China's property sector woes are impacting Honk Kong directly now (rather than juts Chinese companies listed in Hong Kong).And in Australia, a major builder there, APH Holdings, has gone under. This notable because it too is Chinese-owned.Staying in Australia, ASIC is suing crypto company Binance Australia Derivatives for consumer protection failures. More than 500 retail clients of Oztures Trading, trading as Binance Australia Derivatives, were denied important consumer protections after being misclassified as wholesale clients, ASIC alleges in documents filed in the Australian Federal Court.And still in Australia, their Mid-Year budget update by the federal government shows a slightly smaller deficit in the 2024-25 financial year than what was presented in May, but larger deficits over the next three years. All up, that is a cumulative deficit increase of A$22 bln.In Brazil, their currency, the real, depreciated to a record low of 6.16 to the USD, as mounting fiscal concerns, inflationary pressures, and political uncertainty drove an investor loss of confidence. Investor confidence has been shaken by fiscal measures deemed insufficient to stabilise Brazil’s rising debt trajectory, as President Lula’s tax breaks and modest spending cuts prioritise growth over fiscal discipline. The central bank aggressively tightened monetary policy, raising the interest rate to 12.25% from 11.25%, with two further hikes signaled.The UST 10yr yield is now at just on 4.40%, up +1 bp from this time yesterday.The price of gold will start today at US$2634/oz and down -US$7 from yesterday.Oil prices are back up +US$1.50 to be just on US$71/bbl in the US while the international Brent price is now just on US$74.And the IEA says coal consumption hit a record high in 2024, led by China and capping a 30 year surge. They also say this is probably 'peak-coal' and that the transition to renewables. But that is not certain, because India's use is rising fast. In the meantime, Australia is set to become the fourth largest producer by 2027, surpassing the United States and Russia.The Kiwi dollar starts today just on 57.2 USc and down -40 bps from yesterday. That makes it the lowest level in more than two years. Against the Aussie we are down -20 bps at 90.7 AUc. Against the euro we are also down -20 bps to 54.6 euro cents. That all means our TWI-5 starts today at just on 67.35 to be down -25 bps from yesterday at this time. And that is also more than a two year low, since October 2022.The bitcoin price starts today at US$104,225 and down -2.5% from this time yesterday. Volatility over the past 24 hours has been moderate at +/- 2.1%.Today is the final day our Auckland office is open in 2024. It will be our holiday service until then. Our daily and weekly free email newsletters are taking a break until then. But our databases and rate tables will continue to be updated as changes are reported. And this podcast will continue through the holiday period. We wish you all a fun, safe, and relaxing break.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.