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.Today we lead with news both China and the EU seem to be facing banking & debt pressures, different of course, but each challenging in its own way.But first in the US, mortgage applications edged slightly higher last week from the week before to be -30% lower that at the end of September and about the same weak level as a year ago. Rising mortgage interest rates are holding them back with the latest rise to 6.90% the fourth week in a row and the highest since early July. Trump and market expectations that the new Administration policies will be inflationary, is getting the blame for the higher interest rates.Yesterday we noted the bullish outlook for Walmart, as part of stronger American retail activity. But today we also need to note the downbeat assessments from another major retailer, Target.After the unexpected September dip, Japanese exports rose again in October even if the rise of +3.1% from a year ago was less than the rises they had in 2024 to August. Imports rose too, but even more modestly (+0.4%).Taiwanese export orders remain very buoyant, up +4.9% in October from a year ago and a rising pace. The ris was mainly driven by increased export orders for electronic products.The Chinese central bank left its November Loan Prime Rates unchanged at the new lower October levels of 3.10% for the one year LPR, and 3.60% for the five year LPR.And chickens are coming home to roost for Chinese banks that went along with emergency lending during the pandemic. A government-encouraged surge in lending designed to be a lifeline for small businesses during the pandemic has started to worry their banks, as misappropriation has caused the loans to go bad at an increasing rate due in part to China’s stubborn real estate slump. The official response to the problem? ease back on lending standards.The Indonesian central bank reviewed its policy rate yesterday and left it unchanged at 6%, as expected. Although they trimmed -25 bps in mid-September, they haven't really started their easing cycle yet. Inflation is running at a very low +1.7% pa, and within their policy target band so they must be close. But a big factor for them in currency stability and a high real interest rate is keeping the rupiah from depreciating at a faster rate. Global tensions, both trade and geopolitical tensions, are the main factors here.In its latest financial stability review the ECB is warning that the combination of low growth and high debt is about to play out there with some severe economic stress.In Australia, employers paid more than AU$103.7 bln in wages and salaries in the September month, up +6.3% from a year ago, and the first time it has exceeded AU$100 bln an any month. It part of a longer trend and is up +14.1% from September 2022 levels.The UST 10yr yield is now at just on 4.41% and up +2 bps from yesterday at this time.The price of gold will start today at US$2649/oz and up another +US$26 from this time yesterday.Oil prices are little-changed, still just over US$69/bbl in the US while the international Brent price is still just over US$73/bbl.The Kiwi dollar starts today at 58.7 USc and back down -30 bps from this time yesterday. Against the Aussie we are -10 bps lower at 90.4 AUc. Against the euro we unchanged at 55.8 euro cents. That all means our TWI-5 starts today at just over 68.5, and down -10 bps from yesterday.The bitcoin price starts today at US$93,816 and up +1.6% from this time yesterday. Volatility over the past 24 hours has again been modest at +/- 1.9%.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 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 dairy prices are still rising.We got an increase in dairy prices at the overnight GlobalDairyTrade auction from the prior event, but it was a small pullback from prices at last week's Pulse event. Overall prices were up +1.9% in USD terms, up +3.6% in NZD terms, so a good result. WMP let the rises with a +3.2% gain, but the main pullbacks were in the cheeses with cheddar down -3.1% and mozzarella down -6.6%. SMP rose +0.9% from the prior full event but was down -1.1% from last week's Pulse event.This is still a good result and will probably encourage some analysts to update their new season payout forecasts, just as BNZ analysts did last week. The possibility of a $10/kgMS payout is still in play after these results.Holding the WMP prices up is the unexpectedly sticky fall in Chinese milk production (due to low profitability) and a rather steep and unexpected fall in their WMP inventories. This will underpin WMP demand for a while and rising New Zealand production will bring a virtuous tone to the party as well.In the US, although the average American voter may have voted 'negative', they are acting 'positive' in their spending with the Redbook retail sales growth up +5.1% last week from the same week a year ago. And those sort of gains are what giant Walmart is racking up. (Presently, these gains are essentially volume gains. But of course, if the US gets aggressive tariffs, price rises will drive these numbers higher with inflation.)US housing starts hit a bump in the road in October, down -3.1% to just over a +1.3 mln starts (annualised rate), but the fall was because construction activity fell sharply in the South due to their hurricanes. Obviously that will recover soon for the same reason. But in the background it is generally challenging for house builders because mortgage interest rates are remaining high. Still, sales at a 1.3 mln is about average for 2024.A big question hangs over the US housing markets, both for new and used houses. The incoming Administration seems committed to quitting the two big institutions that make the market for 30 year fixed mortgages, Fannie Mae and Freddie Mac. They tried in the last Trump Administration and were thwarted by Congress, but they seem more determined this time. If that happens it will be an earthquake for housing finance in the US, and probably be the demise of their unique long-term fixed rates.September data released yesterday by the US Treasury shows a huge inflow of foreign funds into the US. There was +US$341 bln of private net flows in the month, plus another +US$57 bln by "official" (government) transactions. This is easily the largest single monthly inflow ever. (For reference, the US Federal Government deficit averaged -US$153 bln monthly in the year to September.)Canadian CPI inflation was up +2.0% in October, a blip up from September's +1.9%. Their food prices were up +2.7% within that, rents up +7.3%. But these were offset by much lower energy costs.After growing rather well in the April to August months, Malaysian export growth as pulled back in September and October with only modest changes. Malaysian import growth is pulling back too, but it this is still expanding at twice the export growth rate.In Hong Kong, the clampdowns on freedoms of expression are getting fiercer. And it is no longer 'legal' to mention Jimmy Lai, let along the umbrella freedom protests.And China is moving to make it an offense to operating in financial markets unless pricing is "rational".In India, they are again battling seasonal air pollution, and it is particularly bad this year, especially in the north.The UST 10yr yield is now at just on 4.39% and down -6 bps from yesterday at this time.The price of gold will start today at US$2623/oz and up another +US$13 from this time yesterday.Oil prices are little-changed, still at US$69/bbl in the US while the international Brent price is still just on US$73/bbl.The Kiwi dollar starts today at 59 USc and up +30 bps from this time yesterday. Against the Aussie we are unchanged at 90.5 AUc. Against the euro we up +20 bps at 55.8 euro cents. That all means our TWI-5 starts today at just over 68.6, and up another +10 bps from yesterday.The bitcoin price starts today at US$92,318 and up +0.3% from this time yesterday. Volatility over the past 24 hours has been modest at +/- 1.7%.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.Today we lead with news that long term benchmark bond interest rates are still rising, even if the rising trend is variable.It is a quiet economic data day in the US, with a housing building confidence index the only release of note. The NAHB/Wells Fargo Housing Market Index rose in November to it highest level in seven months, as its gets an election relief rally of sorts, modest to be fair.In Canada, housing starts rose back to their 2024 average level but it was a three-month high for them.Across the Pacific, Japan's core machinery orders, which exclude those for ships and electric power companies, slipped by -0.7% in September from August, in the red for the third straight month and missing market expectations for a +1.9% gain. Year on year, these are -4.8% lower. Export orders held up relatively well, however.Singaporean exports turned down in October. The fell by -4.6% from the same month a year ago, reversing from a downwardly revised +0.9% rise in September. It marked the first decline in since June, due to a fall in non-electronic exports. Non-electronic shipments slumped -6.7%.In China, new Bloomberg analysis shows more detail on their population problem. Within 20 years, deaths are set to be double the number of births. The old-age dependency ratio may reach 52%, meaning there would be just two working-age individuals for every person over 65 years. The rapid aging and falling birth rate has the United Nations projecting China's population could shrink to half its current size by the end of the century - that's 700 mln people less, a decline double the current size of the US population. Even Japan's population isn't shrinking like that (although it may do in time).In Australia, regulator ASIC has taken NAB (BNZ's parent) to court alleging it ignored hardship support for 345 "vulnerable customers" between 2018 and 2023 (about 60 per year), saying the failure to respond broke the Australian credit code. NAB has about 10 mln customers and about 35,000 staff. The chances it got something wrong for 60 of their customers in a year is almost a certainty.The UST 10yr yield is now at just on 4.45% and up +1 bp from yesterday at this time.The price of gold will start today at US$2610/oz and up +US$47 from this time yesterday.Oil prices are +US$2 higher at US$69/bbl in the US while the international Brent price is now just on US$73/bbl.The Kiwi dollar starts today at 58.7 USc and up +10 bps from this time yesterday. Against the Aussie we are down -30 bps at 90.5 AUc. Against the euro we unchanged at 55.6 euro cents. That all means our TWI-5 starts today at just over 68.5, and up +10 bps from yesterday.The bitcoin price starts today at US$92,065 and up +2.0% from this time yesterday. Volatility over the past 24 hours has been moderate at +/- 2.2%.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 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.Today we lead with news the focus is turning to Q1-2025 now and the twists & turns the world's largest economy will deliver. It is probably no coincidence that post-election, Warren Buffett is selling.But first, in the week ahead we will get data on our producer price inflation, and an update on our population, not to forget a full GDT dairy auction on Wednesday which should confirm the recent higher USD prices are extending. And remember, in a week from Wednesday, the RBNZ will review the OCR for the final time in 2025. This review has to hold them until February 19, 2025, so the look ahead will dominate.We have had a 4% one year swap rate, essentially unchanged, for seven straight weeks now. The 90 day bank bill rate has been stable at about 4.5% for three straight weeks. On one hand OIS pricing sees a -50 bps OCR cut coming. On the other, some short markets aren't flagging any change. Our longer rates have been rising (in response to expected Trump inflation), so our 1-5 swap curve is suddenly no longer inverted. And our 1-5 NZGB curve has also turned positive for the first time since 2022. It isn't known what the RBNZ thinks of the ending of inverted rate curves although it is unlikely they will be disappointed.In Australia, expect their 'flash' November PMI on Friday, but not much light is expected in that.This week will also deliver more US regional activity updates. China will review its official interest rate benchmarks. Japan will get some flash PMI data too, as well as its export data. And there will be a range of rather meaningless European data out too.And financial markets will continue digesting what Trump 2.0 will mean for them. They seemed to have a reality check on Friday; coming inflation, sharp job losses, and a capture of the regulatory rules for a few in their favoured elite isn't a recipe for the current healthy American economy to continue.And in the US, it seems the Fed is in no hurry to cut interest rates. “The economy is not sending any signals that we need to be in a hurry to lower rates,” Powell said on Friday in Dallas. “The strength we are currently seeing in the economy gives us the ability to approach our decisions carefully.” And NY Fed boss Williams said essentially the same thing.Retail sales in the US rose +4.6% (actual) in October from year-ago levels, following a +0.2% rise in September. Reported seasonally adjusted levels were less that these. Rising car sales (+6.6% actual) were a large part of this gain.But US industrial production actually decreased -0.3% in the same year to October. This is a volume-based survey. The Boeing strike got most of the blame for this, and was expected in the data.In the New York region, the Empire State factory survey surprised analysts with strong new order flows, and rising optimism, far greater than expected. Factory activity rose sharply too.In Canada they also released factory data but it was for September and the Boeing strike squished its data too. But Canadian car sales rose +2.6% in volume and +5.7% in value in the same periodIn an economy that faces slowly rising central bank interest rates, Japan reported Q3-2024 GDP growth of just +0.9% and down from a +2.2% annualised rate in the previous quarter, which was itself revised down from the previous +2.9%.In China, average house prices for new homes fell -5.9% in the year to October. That's this official data's largest drop in nine years. But for the first time in a while there were a few cities where they actually rose. For used house sale transactions the October price change was -8.8% lower from a year ago. Interim November data indicates sales volumes will be lower than October. Construction of housing is still deeply negative, even if marginally less so in October.China reported slightly lower industrial production growth for October, but it was still good at +5.3% even if it was less than the expected improvement from September. However, electricity production only rose +2.1% in October from a year ago, undercutting the veracity of the industrial production data. They reported better than expected retail sales growth at +4.8% from a year ago, suggesting some of their stimulus moves are working. But much of this is the previously noted rise in car sales (which involved incentives).Aluminium prices surged on Friday after China said it would cancel export tax rebates on this and other commodities, raising the prospect that their heavy flow of subsidised export shipments abroad may quickly fade. Also falling were copper, zinc, nickel (to a 4 year low), and tin. Aussie mining shares tumbled too, its largest one-week fall in a year. Layoffs are underway and some mines are closing. None of this would be happening if the view was that the US economy will still be booming in 2025.The UST 10yr yield is now at just on 4.44% and up +2 bps from Saturday, up +17 bps for the past week.The price of gold will start today at US$2562/oz and down another -US$4 from Saturday. But that is down more than -US$120 or -4.5% from a week ago.Oil prices are -50 USc lower at US$67/bbl in the US while the international Brent price is now just on US$71/bbl. These levels are about -US$2.50 lower than week-ago levels.The Kiwi dollar starts today at 58.6 USc and down -10 bps from Saturday. A week ago it was at 59.7 USc so a full -1c drop since then. Against the Aussie we are little-changed at 90.8 AUc. Against the euro we unchanged at 55.6 euro cents. That all means our TWI-5 starts today at just over 68.4, and down-10 bps from Saturday, but down -40 bps in a week.The bitcoin price starts today at US$90,296 and up +0.7% from this time Saturday. A week ago it was at US$76,099, so a sharp +18% rise since then. Volatility over the past 24 hours has been modest at +/- 1.1%.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 tomorrow.