Economy Watch

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.

Today we lead with news the slowing Chinese economy is keeping the oil price low, and it might stay that way because supply is rising, and quite quickly.

But first, although there were no surprises in US initial jobless claim levels, they did rise last week to 229,000 on seasonal factors so there are now 1.65 mln people on these benefits, maintaining the low recent levels. No labour market stress signs yet still.

But there are signs of lingering inflation pressures in their producer prices for October with them up +2.3%, a rise from the +1.9% year on year rate in September. The October rise was slightly more than analysts were expecting. Higher prices in their booming logistics sector caused the twist higher.

The August improvement in EU industrial production was not maintained in September and it ended down-2.0% from the same month a year ago.

But despite that disappointment, Q3-2024 EU GDP came in +0.9% higher than the same quarter a year ago, and employment was up +1.0%. These are the expected levels, so no surprises here. While these levels are low and benchmark poorly with other major economies, there are still positive.

The Australian labour market update for October shows employment rising by +16,000 when a +25,000 rise was expected. Their participation rate slipped slightly, allowing their jobless rate to hold at 4.1%. But this also means their employed workforce is +387,000 higher than a year ago, a healthy +2.7% rise. But almost 40% of that rise was for part-time work; a year ago part-time jobs made up only 31%, so the shift away from full-time positions is rising.

And staying in Australia, their largest bank has concluded that the 2024 "stage 3 tax cuts" are not flowing through to more consumer spending, rather being used to build resilience (or build back some capacity) by paying debt down faster, especially mortgages.

Container shipping freight rates were virtually unchanged last week, 2.4 times higher than a year ao, and 140% higher than pre-pandemic levels in early November.

Bulk cargo rates rose +13% last week from the week before in a sharpish move up, to be almost the same as the same week a year ago.

The UST 10yr yield is now at just on 4.40% and down -5 bps from yesterday.

And we should probably note that the share price for Xero hit AU$171 yesterday, a record high.

The price of gold will start today at US$2574/oz and down -US$15 from this time yesterday.

Oil prices are +50 USc firmer at US$68.50/bbl in the US while the international Brent price is now just under US$72.50/bbl.

In its November update, the IEA says that with surging supply, and cooling demand in China, even if the OPEC+ cuts remain in place, global crude oil supply will exceed demand by more than 1 mb/d in 2025.

The Kiwi dollar starts today at 58.8 USc and down -10 bps from yesterday. Against the Aussie we are -10 bps softer at 90.7 AUc. Against the euro we have also slipped -10 bps to 55.6 euro cents. That all means our TWI-5 starts today at just on 68.5, and unsurprisingly down -10 bps from yesterday.

The bitcoin price starts today at US$88,820 and down -4.0% from this time yesterday. Volatility over the past 24 hours has been high at just on +/- 3.2%. Despite the slip, the price in NZ dollars is still above NZ$150,000.

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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 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 China's deflation Pressures keep on coming. And in the US disinflation rolls on, which they hope will end soon.

This coming week will be another one with chunky data releases. The biggest will be on Wednesday, our own CPI result for the Q3-2024 period (Markets expect 2.0%). That that will follow the Tuesday's update of the September REINZ results.

We won't be the only country reporting inflation data; we also get that from Canada, India and Japan this week. At the end of the week, the ECB will be reviewing its policy interest rate. And all week we will be getting American Q3 earnings reports.

China will report its Q3-2024 GDP result on Friday, likely to fall well short of its 5% target.

Over this weekend, China released sets of key data. The tiny bit of consumer price inflation they had disappeared in September, up now only +0.4% from a year ago. Beef, lamb, and milk prices all went backwards again. Their producer prices deflated at a faster rate. And we are now waiting for their new yuan loan data which isn't expected to be very strong (about +¥1 tln, and less than half the June level. So far, debt-induced growth hasn't worked).

Meanwhile Chinese Ministry of Finance officials announced some more modest steps to "support the economy" and signaled much more is to come. It was a much-anticipated set-piece that left observers, and markets, underwhelmed.

Key banks made simultaneous coordinated moves - signaled a while ago to be fair - to cut mortgage borrowing costs, as a practical measure to reduce the pressure on homeowner household budgets. They will come into effect in the last week of October.

And coming up some time this week, the Chinese central bank is expected to signal lower wholesale borrowing costs in its 1-Year MLF announcement.

In South Korea, they have started cutting their policy rates too, although not as aggressively as New Zealand. The Bank of Korea policy rate is now 3.25% after its first rate cut (-25 bps) since May 2020. That came after data showed their GDP shrank in Q2-2024 and their September inflation slowed to 1.6%, the lowest since February 2021.

India's industrial production took a surprise drop in August from a year ago, its first retreat since October 2022. Few saw that coming. And they downwardly revised the +4.7% rise in July.

Interestingly, the Indian currency is under pressure, and outflow levels have been high. The Indian rupee has hit a record low against the US Dollar, (but against the NZD it has been pretty flat since 2020).

In the US, producer prices hardly rose in September. US factory gate prices were flat in the month from August and missing expectations of a +0.1% rise. On an annual basis, PPI inflation eased to a 7-month low of 1.8%.

US consumer sentiment was little-changed in October according to the University of Michigan survey, holding at a level it has broadly been at since May. There was a slight dip from the prior month, something that is probably just related to election uncertainties.

For those who follow such things, we can report no surprises in the October update of the USDA WASDE report. But they...

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 China has dropped the word "prudent" as it changes tack in its approach to economic support. Commodity currencies, including the NZD, got a boost from the shift

But first, US consumer inflation expectations for the year ahead increased to 3% in November from 2.9% in October which was the lowest since October 2020. Inflation expectations also increased for the three-year-ahead (2.6% vs 2.5%) and the five-year outlook (2.9% vs 2.8%).

The same survey shows increasing confidence their pay will increase, driven by those without any college education.

Across that Pacific, Japan's Q3-2024 GDP expansion was revised up, which was a surprise even if it was only a minor gain. The growth was still small however.

China’s annual CPI rate fell to 0.2% in November from 0.3% in the prior month, missing market forecasts. China's producer prices dropped by -2.5% year-on-year in November, following a 2.9% fall in the previous month and a softer decline than market expectations of a -2.8% fall.

Meanwhile, the Chinese Politburo met and told the People’s Bank of China to adopt a “moderately loose” strategy for monetary policy in 2025. The Central Economic Work Conference is about to meet. The move marked an aggressive shift from the previous “prudential” stance since 2011. Along with wording that indicates more fiscal stimulus, they also said they will directly support property and equity markets next year. They are going all-in on new stimulus to try and move their economic needle.

Taiwanese exports continue to rise aggressively, up +9.7% in November from the same month a year ago. We get China's November export data later today and it is also expected to show a sharp rise from a year ago, although that may only to try and beat upcoming tariffs from the US.

In India, the rupee dropped to nearly 85 to the USD and a record low as evidence of fresh capital outflows magnified the impact of dovish monetary policy and signs that their economy is slowing more than expected.

Meanwhile, they are about to change out the Governor of their central bank.

Also in India, the close ties between corruption-accused Gautam Adani and Prime Minister Modi were on full display yesterday.

In Australia, new data out yesterday shows the median weekly earnings of those in full-time employment rose +6.3% to AU$1700/week (AU$88,400 per year). For women the rise was faster, up +6.5%, for men slower, up +5.2%. In 2022, men had a +18% pay advantage over women. By 2024 this had shrunk to +12%. That current advantage is worth AU$191/week (AU$9,900 per year).

The UST 10yr yield is now at just on 4.20%, up +5 bps from this time yesterday.

The price of gold will start today at US$2636/oz and up +US$36 from yesterday.

Oil prices are aup +US$1.50 to just over US$68.50/bbl in the US while the international Brent price is now just on US$72.50/bbl.

The Kiwi dollar starts today at 58.8 USc and up +50 bps from this time yesterday. Against the Aussie we down -30 bps to 91 AUc. Against the euro we are up +40 bps to 55.6 euro cents. That all means our TWI-5 starts today at just und...

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 China is dusting off some unused regulations to shore up its deteriorating financial situation.

But first, at the overnight dairy auction, prices were little-changed, down -0.2% in USD terms but up +2.8% in NZD terms. The dominant WMP price was essentially unchanged, but the foodservice commodities like SMP were down -1.8%, mozzarella down -8.2% and butter down -0.3%. Going the other way, cheddar cheese was up +4.2% and the only bright spot. No farm gate payout forecasts will be changed because of this event.

Last week's US retail impulse survey shows a strong rise of +5.6% from a year ago. And this is not only well ahead of inflation, it is built on a strong +4.6% gain in the same week a year ago.

Meanwhile, American consumer inflation expectations in September were little-changed at 3% for the year ahead. In fact consumer labour market and household finance expectations are largely stable too. Given it is an election period with its share of weirdness, perhaps this is not quite the result you might have expected.

But it is not all good. Business activity contracted modestly in New York State, according to firms responding to the October 2024 Empire State Manufacturing Survey. After climbing into positive territory last month, the headline general business conditions index retreated rather sharply. New order levels fell, and shipments edged lower.

Canada's CPI inflation rate fell to 1.6% in September, from 2.0% in August. It is now at its lowest level since February 2021. Lower fuel costs drove the retreat. It seems more likely now that Canada's central bank will cut its 4.25% policy rate when it next meets on Thursday, October 24 (NZT). Maybe outsized cuts are coming there.

Japan industrial production is becoming quite volatile with big jumps followed by bit dips. The August data revealed a big dip, year-on-year. It is hard to know what to make of this new volatility. But overall it represents a sag.

In a bit of a surprise, EU industrial production jumped in August and by enough to take the year-on-year level above August 2023, a rare event. It was the best month-on-month jump in more than a year. The European service sector is doing better and enabling local factories with more orders.

In China, Bloomberg is reporting that tax authorities there are cracking down on offshore income earned by their wealthy. It has begun enforcing a long-overlooked tax on overseas investment gains. Some wealthy individuals in major Chinese cities were told in recent months to conduct self-assessments or summoned by tax authorities for meetings to evaluate potential payments, including those in arrears from past years, they reported. The move underscores growing urgency in Beijing to expand its sources of revenue as land sales tumble and growth slows.

And we probably should note that those grain commodity price falls we noted yesterday have gathered steam today.

The UST 10yr yield is now at just on 4.04% and down -8 bps from yesterday.

The price of gold will start today at US$2661/oz and up +US$14 from this time yesterday.

Oil prices are down a sharpish -US$3.50 at just on US$70.50/bbl in the US while the international Brent price is now just under US$74.50/bbl.

The Kiwi dollar starts today at 60.8 USc and down -10 bps from this time yesterday. Ag...