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 there are signs the global rush up of producer prices may be exhausting itself.But first, we start today with better-than-expected jobless claims data in the US. The number of Americans filing new claims for unemployment benefits fell to 256,000 last week, the lowest since March 2020 and well below market expectations of 300,000. The number of new filings remains well above pre-pandemic trends of about 210,000 but is certainly moving closer with 2.17 mln on benefits now and the pre-pandemic level was 1.8 mln. This is all happening as the number of job openings stays close to record high, as workers try to find new jobs with better pay, working conditions, and flexibility.Meanwhile, the Philly Fed factory survey slipped back and by a bit more than was expected. It is still expanding in that key industrial region and at an above average level, but cost pressures are starting to weigh. Also, the skilled labour pressures are seeing firms commit to much higher capital expenditure to lessen its reliance on labour-intensive aspects of their operations.Meanwhile, there was an unexpected jump in existing home sales reported for September. They rose a sharpish +7% to an annual rate of 6.3 mln units in the month to their highest level since January. The shortage of houses for sale is now getting acute, and prices are rising a very fast (for them) +13% year-on-yearIn China, the logistics challenge of getting goods out of the country continues. But it is a uniquely Chinese problem, as freight rates show. Overall however, containerised shipping rates are falling now, only distorted by the ex-China rates. The Baltic Dry bulk freight rates are falling now too. But the logjams at US ports remain severe and are impacting goods availability for the upcoming holiday season. The US is considering deploying the National Guard to provide the resources to clear backlogs quicker at their end.In South Korea, producer prices are still rising at an unusually strong pace - just like in most other countries - but the September data suggests that this trend is probably topping out and not getting worse.Consumer sentiment in the EU remained broadly stable in October, according to the latest survey. It is still mildly negative, but that is 'good' from an historical perspective in the EU.In Australia, it is becoming clearer that the sharp slowdown in China could feed a sustained drop in commodity prices and may in turn mean a period of well-below trend growth for Australia, with a sustained period of weak employment and wages growth. Then there could be fiscal implications that constrain the ability their government to offset the shock. But their exchange rate may cushion the impact - and they may be in a good position with commodities that support the global transition to a low carbon economy - meaning China's stumble may not hurt Australia as much as some think.One mineral in hot demand right now is lithium carbonate. And mining giant Rio Tinto is forecasting a huge shortfall over the next 30 years.And staying in Australia, the head of their tax office, the ATO, has said they are hunting for more than AU$33 bln in "missing tax" from various dodges, including AU$2.6 bln by large corporates, AU$12.5 billion by SMEs, and AU$8.4 bln from wealthy individuals.The UST 10yr yield opens today up +4 bps at 1.68%. The price of gold has slipped -US$6 to US$1781/oz, probably the currency effect of a rebounding greenback.And oil prices are sharply lower, down -US$1.50 to just under US$81.50/bbl in the US, while the international Brent price is also down, now just under US$83.50/bbl.The Kiwi dollar opens today down -40 bps to 71.6 USc as commodity currencies take it on the chin today. Against the Australian dollar we are also a little softer at 95.7 AUc. Against the euro we are lower at 61.5 euro cents. That means our TWI-5 starts today at just on 75, but still well over the top of the 72-74 range of the past eleven months.The bitcoin price has retreated somewhat today, down -5.1% from this time yesterday and is now at US$63,015. Volatility over the past 24 hours has been high at just over +/-3.5%.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 again on Monday.

Economy Watch

Goods inflation surge reaches limits

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 investor risk sentiment continues to improve as the prospect for stronger interest rate rises.More inflation data was reported overnight but it is clear there are two global tracks emerging, depending on the state of the economic recovery.Canadian inflation has been reported at 4.4% and slightly higher than expected. Core inflation is up to 3.7% and also higher than expected. Inflation is running at an 18 year high in Canada now.US CPI inflation has already been reported at 5.4%.They join the EU where inflation was reported at 3.4%, as expected and above August levels. It was held up by Germany (+4.1%) and Spain (+4.0%), and restrained by France (+2.7%) and Italy (+2.9%).India reported almost 4.4%.Australia has reported 3.8%, and New Zealand of course surprised with its 4.9% leap.But not all large economies are getting high levels of price rises at the consumer level - just those where economic activity is expanding at healthy levels.Those where recovery is waning or a bit of a struggle are not getting strong price increases. That includes British inflation slipped to 2.9% and that was not only lower than in August, it was lower than expected. Demand conditions are tough there making price increases hard to stick. That also includes Japan (-0.4%)  and China (+0.7%).China also released its official data on house prices and that recorded a stall in growth, but not the sharp falls others have noted in regional pockets. But it is very noticeable from the city data released, more than half are showing declines in September from August. And 15% of the cities reported now have year-on-year declines in this official data.Separately in China, Evergrande’s plan to sell it's property services division for US$2.6 bln to ease its liquidity crunch has collapsed at the last minute. The whole situation is very opaque in a country where transparency for investors is rare.Meanwhile, China also reported foreign direct investment data and it was healthy, especially from countries linked to it via its Belt & Road initiative. The September increase is off a low base however.Taiwanese exports keep going from strength to strength, up more than +24% from September a year ago and a new all-time record high. And they are now +40% higher than in September 2019.The UST 10yr yield opens today up +1 bp at 1.64%. The price of gold has risen +US$18 to US$1787/oz, a +1% gain mainly because of the depreciation of the greenback.And oil prices are little-changed at still just under US$83/bbl in the US, while the international Brent price is also still just under US$85/bbl.The Kiwi dollar opens today further on the rise and now at just over 72 USc and up another +½c since this time yesterday. Against the Australian dollar we are now at 95.9 AUc. Against the euro we are up again at 61.8 euro cents. That means our TWI-5 starts today at just on 75.4, and now well over the top of the 72-74 range of the past eleven months. We have now appreciated +1.4% since the surprise CPI result on Monday.The bitcoin price has risen a sharp +5.5% from this time yesterday and is now at US$66,429. That is now a new all-time high. And that puts it at NZ$92,225, also a record, and also the first time over NZ$90,000. Volatility over the past 24 hours has been high at just over +/-3.3%. The arrival of derivative products around cryptos is driving this latest surge.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 again tomorrow.

World divides into a fast-track and slow-track set

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 a rising risk mood among investors and that is generally 'helping' commodity producers.But for us, the overnight dairy auction brought mixed results. Overall prices were up +2.2% in USD terms, but with the fast-rising NZD, they actually slipped -0.5% in local currency terms. It is obvious from the results that demand is highest for foodservice commodities with butter up +4.7%, cheese up +2.9%, and SMP up 2.5%. WMP only rose +1.5% in USD terms. This was the fifth straight auction that has avoided a fall in USD prices. Nothing in today's event will change the forecasts of the new season farmgate milk payout.US housing starts in September were little-changed from August, but they didn't push on ahead to the extent expected. And building permit levels were also much softer than expected. Behind both trends are supply-chain woes - no builder needs the weight of partially built houses they can't sell.And speaking of property developers, in China, Evergrande made an interest payment due for some of its local currency debt. But concerns continue to linger about the developer’s huge overall debt load. And foreign holders look like their investment will be worthless.The OECD has updated its long term global fiscal outlook and found that the world has much larger problems that the recent run up of debt to handle the pandemic. Population aging and the related rising demand for public services pose very large funding problems for governments in the period to 2060. But they also say, taxes don't need to rise so long as reforms to boost employment rates and raise retirement ages are put in place soon. The problem of older people quitting the workplace early, as we have seen in the pandemic, is an especially corrosive trend and we are starting on the back foot. Unless it is addressed and soon, much higher taxes will come into play - or much reduced services.In the minerals world, the price of copper it touching record highs in spot markets.Australia's central bank bravely expects their economy to return to growth in Q4-2021 after the Delta outbreak derailed a Q3 recovery which they had also earlier projected. But hedging its bets it still does not expect to raise interest rates until 2024, board minutes showed.The UST 10yr yield opens today up +5 bps to be now at 1.63%. The price of gold has risen by +US$3 to US$1769/oz.And oil prices are up strongly, up +US$1.50 at just under US$83/bbl in the US, while the international Brent price is now just under US$85/bbl.The Kiwi dollar opens today also on the rise and now at just on 71.6 USc and up +½c since this time yesterday. Against the Australian dollar we are now at 95.8 AUc. Against the euro we are up sharply at 61.6 euro cents. That means our TWI-5 starts today at just on 75.1, and now well over the top of the 72-74 range of the past eleven months.The bitcoin price has risen +2.0% from this time yesterday and is now at US$62,955. Volatility over the past 24 hours has been moderate at just over +/-2.2%.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 again tomorrow.

Rising NZD undermines higher dairy prices

Kia ora,Welcome to Tuesday's Economy Watch where we follow the economic events and trends that affect New Zealand.I'm David Chaston and this is the International edition from Interest.co.nz.Today we lead with news of underwhelming data in the top two global economies.First, US industrial production fell September from August in a retreat the market didn't see coming. But two events crimped the result; Hurricane Ida had an outsized impact, and the chip shortage curbed car making severely. As a result, American industrial production fell -1.3% when a +0.2% gain was expected. It is a miss markets have noticed but are largely ignoring. It is still ahead +4.6% year-on-year, which is strong for them.In China, more evidence of a sharper slowdown than expected. The Chinese economy expanded at a +4.9% year-on-year pace in Q3 of 2021, and well below the +7.9% growth in Q2. It was also below market estimates of +5.2%. It was the slowest pace of expansion since Q3 2020, and is due to their electricity problems, widespread supply chain bottlenecks, a faltering property sector, and persistent Delta outbreaks.And it seems likely that this is not yet at its lowest point.But there were also improving signs in yesterday's data. Retail sales rose +4.4% in September from a year ago, better than the weak +2.5% gain in August. But they are still miles lower than the +8% expansion they had been regular pre-pandemic. Yes, they are recovering, but still quite crimped.Electricity production fell in September from August, but it was +4.9% higher than a year ago and almost +11% more than in September 2019. Power woes may be getting the blame for China's slowdown but their problems run far deeper than this.China's industrial production was another disappointment, continuing a slow but relentless atrophy since March with only a +3.1% year-on-year expansion and not enough to drive their economy or employment. Apart from the start of the pandemic, this is actually the smallest expansion in Chinese industrial production in almost 20 years.We all know about China's problems with its property development sector, and the overhang of unsold housing units and ghost cities. Now these impacts are really biting with reports of steep -30% and -40% haircuts for homeowners and investors who need to sell existing properties. This comes at a time when Beijing is also pushing through steep property tax increases in the name of 'reform'.All this is now in sharp contrast with the Indian economy that is back expanding sharply, now larger than pre-pandemic levels. RBI's Economic Activity Index indicates that real GDP grew by almost +10% in Q3 from a year ago (p144).The UST 10yr yield opens today up +1 bp to be now at 1.58%. The Australian Govt ten year benchmark rate is up an unusual +10 bps at 1.76%. The China Govt ten year bond is up an even more unusual +6 bps to 3.06% and its highest in 100 days. The New Zealand Govt ten year leaped by a spectacular +17 bps on the CPI results and is now at 2.35%.These sharp rises probably mean both the NZD and the AUD are now somewhat undervalued.The price of gold has slipped by another -US$1 to US$1766/oz.And oil prices are -50 USc softer at just on US$81.50/bbl in the US, while the international Brent price is now just under US$84/bbl.The Kiwi dollar opens today at just on 70.8 USc and up marginally since this time yesterday. Against the Australian dollar we are now at 95.5 AUc. Against the euro we are still at 61 euro cents. That means our TWI-5 starts today at just on 74.5, and now well over the top of the 72-74 range of the past eleven months.The bitcoin price has changed very little this time yesterday, still at US$61,752. Volatility over the past 24 hours has been high however at just over +/-3.0%.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 again tomorrow.

US and China data underwhelms

Kia ora,Welcome to Monday's Economy Watch where we follow the economic events and trends that affect New Zealand.I'm David Chaston and this is the International edition from Interest.co.nz.Today we lead with news sharply rising commodity prices are being caused by shortages that are undermining economic activity. Inflation with stagnation.First up today, the price of copper is taking off again. Its price hit a record high at the end of last week as surging power prices threaten to curb supply at a time when stocks are at rock bottom. The crunch will hurt China the most, as it consumes more than all other countries combined. However, it controls little production and is on a fast hunt for supplies it can control, especially in Africa.And the price if zinc has risen a spectacular +30% in the past ten days. This is caused by sharply rising European power prices which are forcing smelters to shut down.Prices are in focus this week. Today the New Zealand CPI data will be released for Q3 and it is expected to show prices rising north of 4% and an annual rate, and maybe at a 5.3% annualised rate in Q3.Then China will reveal its Q3 economic growth rate. Commodity prices, supply-chain problems, Evergrande and Delta all may have an impact on the quarter's result.The northern hemisphere winter is approaching and every country from China to the US is struggling with high energy costs that will sharply raise the costs of winter heating this year. In the US, a new analysis shows that those using heating oil will pay more than +40% more than last year; those using propane +50% more.Every country is hungry for fuel, and none more so than China.Globally, future energy use will be dominated by electricity generation, and the big increases required to 2050 will come from solar, it has been forecast. The same estimates also show that while they won't grow, the use of coal and natural gas will still be a big and important fuel sources for electricity generation for the next 30 years at least. These estimates don't see nuclear making any comeback.In China, there has been a rare public comment from Beijing on the Evergrande situation, and it was to squash fears of systemic risk. Their central bank has rebuked the company calling it "poorly managed" and wants Evergrande to step up asset disposals and resume its stalled projects. And the official said most individual financial institutions did not have highly concentrated exposures to Evergrande.Despite these soothing comments, the Chinese Communist Party's anti-corruption unit has dispatched inspectors to 25 financial institutions, including top state-owned banks, in what appears to be a crackdown prompted by the Evergrande debt crisis.In the US, data out over the weekend for September shows retail sales have been stronger than in earlier indications. They increased +0.7% from August, and August was revised up to a +0.9% gain, both beating market forecasts of a small fall. It is another sign of resilience from consumers despite supply constraints affecting vehicles and computers. The biggest increases were seen in sales at sporting goods, general merchandise stores, and at petrol stations.But American shoppers aren't feeling that buoyant. The widely-watched University of Michigan survey slipped back slightly to levels that were as weak in the early stages of the pandemic. Something doesn't quite square between spending freely and feeling apprehensive.Even though the New York Fed's Empire State survey of factories fell back to August levels, they are reporting growth above its long term trend, widespread price increases that seem to be able to be passed on, and optimism about the future.However, American firms generally are finding it almost impossible to pass those rising costs on in their export prices, and are just having to suck it up with sharply rising import prices.Canadian factories have the same cost pressures with producer prices up +15% year-on-year to September, although there has been a small slowing over the past few months.The economic implications of being left out of the global economy are worrying the Australians. Their prime minister looks like he is ready to adopt some sort of soft carbon target, but not because it is the right thing to go for the global climate, but because "climate change is as much about the global economy as the environment, and Australia will be left behind if it does not respond". And it also looks like he has been shamed into going to the Glasgow COP26 climate summit.The UST 10yr yield opens today down -1 bp to be now at 1.57%.The price of gold has slipped by -US$1 to US$1767/oz.And oil prices are another +50 USc higher at just on US$82/bbl in the US, while the international Brent price is now just under US$84.50/bbl. The number of new US rigs in production has now almost doubled in the past year. But despite the recent fast return, it is still only a quarter of what it was ten years ago.The Kiwi dollar opens today at just on 70.7 USc. Against the Australian dollar we are at 95.3 AUc. Against the euro we are at 61 euro cents. That means our TWI-5 starts the week at just on 74.4, up +130 bps since this time last week and now well over the top of the 72-74 range of the past eleven months.The bitcoin price has firmed very slightly from this time Saturday, up +0.7% to be now at US61,771. Volatility over the past 24 hours has been modest at just under +/-1.1%.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 again tomorrow.

Inflation with stagnation

US jobless claims retreat. US PPI stays very high. China PPI still rising. Supply-chain problems get worse. China housing on edge. Aussie jobs shrink.

The producer price problem is getting worse

Kia ora,Welcome to Thursday's Economy Watch where we follow the economic events and trends that affect New Zealand.I'm David Chaston and this is the International edition from Interest.co.nz.Today we lead with news all signals point to high inflation and lower growth, and bond markets are scratching their collective heads.The global economy's recovery track seems to be faltering as the combination of rising inflation and supply chain bottlenecks is undermining consumer confidence in their future buying-power, from Japan to Germany. Delta isn't helping the mood either.In the US it is touch-and-go.American consumer price inflation came in at +5.4% in September, marginally higher than for August and slightly above what was expected. Core inflation - without food or energy costs - was an unchanged rise of +4.0% in the year to September. These rising costs are so far more or less keeping pace with the weekly income gains of +4.6%.It is uncertain whether the US Fed will stay patient, or now get aggressive on how it deals with inflation.The Fed minutes show that the central bank policy makers have plans to begin reducing their bond-buying stimulus program next month and will aim to wrap up these asset purchases entirely by the middle of 2022.China turned in a very strong export result in September, up +28% from August and very much better than expected. It was also a record high. That led to a strong +US$67 bln trade surplus in the month, +US$42 bln of which was with the US. China ran a -US$9.1 bln deficit with Australia and a -US$0.5 bln deficit with New Zealand in September.But new loan growth in China rose in September from a weak August but by much less than expected. Perhaps that is more robust than it first seems as lending to their large property sector is a clear restraint on the overall levels. Property development may make up as much as 30% of China's economic activity, so to get any growth when that sector is under a cloud is actually quite impressive.German inflation came in at the expected high level of +4.1% pa in September, similar to August.EU industrial production slipped in August from July and it looks like it's recovery has topped out - and below the pre-pandemic levels.Japanese machinery orders slipped in August from July, which was a bit of a surprise. But year-on-year the improvement grew and the trend higher is still in place.In Australia, the new incoming NSW premier is signaling that the State is about to go on an immigration bender "to catch up some of those numbers we've lost" over the pandemic. He seems to have eyes on technical, construction, and healthcare skills.The UST 10yr yield opens today down another -3 bps at 1.55% as other markets lack direction.The price of gold has moved up smartly today, up +US$33 at US$1794/oz.And oil prices are essentially unchanged and still at just on US$80/bbl in the US, while the international Brent price is now at US$83/bbl.The Kiwi dollar opens today just marginally firmer at just on 69.6 USc. Against the Australian dollar we are little-changed at 94.4 AUc. Against the euro we marginally softer at 60.1 euro cents. That means our TWI-5 starts today little-changed at just on 73.3, and still in the middle of the 72-74 range of the past eleven months.The bitcoin price has risen +1.7% today from this time yesterday to be now at US$56,948. Volatility over the past 24 hours has been moderate at just over +/-2.8%.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 again tomorrow.

Higher inflation and faltering growth

Kia ora,Welcome to Wednesday's Economy Watch where we follow the economic events and trends that affect New Zealand.I'm David Chaston and this is the International edition from Interest.co.nz.Today we lead with news markets are waiting for some US Fed tapering signals.In the meantime we should note the IMF has trimmed their global growth estimates for 2021. Basically they see the developed world handling the Delta pandemic better because of substantial income and fiscal support measures, and they expect this group of advanced economies to fully recover in 2022. But the story is not positive for the emerging economies, for China, nor the low-income developing world. The rich/poor fault-line is worse now, they say.The IMF's review does seem to be good news for Australia and their minerals sector. It identifies nickel, copper, lithium and cobalt as the top four energy transition metals likely to see surges in prices and production as the world works towards net zero emissions by 2050.The IMF also reappointed its managing director after questions were asked about her role in the now-disgraced World Bank "Doing Business" report.After hitting an all-time high in July, US job openings shrank in August and by more than expected. It was their first decline in eight straight months of expansion.US consumer inflation expectations rose again in September to a series-high 5.3%, the eleventh consecutive monthly increase. This news weighed on Wall Street.The monthly USDA assessment of their agricultural commodity outlook sees higher dairy prices and lower production in the US. And it sees higher beef production but other meat products reducing. They have raised their beef import expectations in this outlook.There were two large US Treasury bond auctions today and both  resulted in higher yields. The three year Note was up to 0.60% median yield and a sharp rise from 0.40% last time. $141 bln was bid for US$62 bln on offer. The ten year Note was up to 1.54% median yield and up from 1.29% the previous time. US$101 bln was bid for the $41 bln on offer. The Fed took only minor volumes from these two events.In China, their car sales tumbled -20% in September to an annualised rate of 18 mln/year, and while that keeps it still the world's largest car market, it is back to 2014 levels. The share of electric vehicles being sold is rising fast. And demand for vehicle recharging is adding to their power crisis which doesn't seem to be going away. They have loosened the ability of generators to charge higher prices, but weather, very low coal supplies, and national policy changes are all conspiring to extend this crisis.The power crisis in India isn't getting better either. Coal supplies are at the center of its problems too.In Germany, business confidence is declining, falling for a fifth straight month. Profitability is being hit by persistent supply bottlenecks for raw materials, and these along with cost increases show no real sign of abating.Meanwhile, business confidence is bouncing back strongly in Australia, at least according to the widely-watched NAB business sentiment survey for September. Early signals in NSW's October 'reopening' suggest a very strong retail rebound is underway.The UST 10yr yield opens today down -3 bps at 1.58% on the re-opening of the US bond markets. The price of gold will start today up +US$5 at US$1761/oz.And oil prices are lower by a minor 50 USc to be just over US$80/bbl in the US, while the international Brent price is now at US$83/bbl.The Kiwi dollar opens today just marginally softer at just on 69.4 USc. Against the Australian dollar we are little-changed at 94.3 AUc. Against the euro we marginally firmer at 60.2 euro cents. That means our TWI-5 starts today unchanged at just on 73.2, and still right in the middle of the 72-74 range of the past eleven months.The bitcoin price has retraced a little today from this time yesterday, down -2.4% to be now at US$55,972. Volatility over the past 24 hours has been modest at just over +/-1.8%.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 again tomorrow.

First world recovering better than emerging economies

Kia ora,Welcome to Tuesday's Economy Watch where we follow the economic events and trends that affect New Zealand.I'm David Chaston and this is the International edition from Interest.co.nz.Today we lead with news all eyes are on China's bond markets today.But first, it is Columbus Day in the US, a Federal holiday but not one observed everywhere and markets are operating on a subdued basis.They have had time to reflect on the 'disappointing' non-farm payrolls report and are coming to the conclusion it wasn't as bad as the headline number suggested. That revision has markets with more conviction the Fed is still on its tapering path.And in turn, some key commodity prices are rising today. Crude oil is up to a seven year high, and aluminium prices are now at a 13 year high. Even chocolate prices are rising fast again.In Japan, their machine tool orders for September came in very strong, up +79% from the same month a year ago, and up +46% from September 2019. By any measure this is a strong pandemic recovery and indicates the world's factories are investing in new equipment. In fact, apart from the peak at the end of 2018/early 2019, this is back at an historically high level and augers well for Japanese technology firms.In China, bond yields are rising fast, even infecting the yields on official Beijing bonds. Driving the ruckus are property firms with it now clear Evergrande will miss a third round of bond payments and almost certainly go into default when the grace periods expire. The Fantasia problems are mounting. Now Modern Land and Sinic have become the latest to scramble to delay bond payment deadlines. As you might expect, none of this is playing out in Chinese media - even the Hong Kong media is ignoring the pressures. But investors know the risks are rising and sharply bidding up bond yields (bond prices are falling, even for Chinese government bonds).And now, suddenly falling house prices are getting some cities to spruik housing again to prevent a run. Distressed developers quitting inventory is very unstable.And we should keep an eye on seasonal flooding in China, especially in the Yellow River basin where local reports talk about peaks "that have not been encountered in many years".The 2021 Nobel Prize for economics has been won by three US-based economists who have developed 'natural experiment' techniques that have spread to other sciences. One labour market economist showed why minimum wage increases in fact hardly ever seem to lead to job losses (among a large body of work recognised). The others pioneered how rigorous conclusions can be extracted from social research.The UST 10yr yield opens today at just over 1.61% and very little-changed while the Americans are on a partial holiday. The price of gold will start today little-changed again at US$1756/oz.And oil prices are up another +US$1.50 in an extended firming trend to just over US$80.50/bbl in the US, while the international Brent price is upd at US$83.50/bbl.The Kiwi dollar opens today just a little firmer at just on 69.5 USc. Against the Australian dollar we have softened to 94.4 AUc. Against the euro we marginally firmer at 60.1 euro cents. That means our TWI-5 starts today just slightly firmer at just on 73.2, but still right in the middle of the 72-74 range of the past eleven months. The bitcoin price is higher again than this time yesterday, up +13.8% to be now at US$57,347. In NZ dollars, it is back over $80,000 and its highest since April 2021. Volatility over the past 24 hours has been high at just over +/-3.1%.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 again tomorrow.

China's property contagion at a key point

Kia ora,Welcome to Monday's Economy Watch where we follow the economic events and trends that affect New Zealand.I'm David Chaston and this is the International edition from Interest.co.nz.Today we lead with news China's services sector is stirring again despite some bumps in the road.But first, the OECD has achieved its big reform of how and where multinational companies will be taxed; their BEPS reform. It is an agreement between 136 countries, and brings a reluctant US on board. The deal included a 15% minimum rate for corporations and the main parameters of how much profits of multinationals would be taxed in more countries: 25% of profits over a 10% margin. The bottom line is it should see countries collect around US$ 150 bln in new revenues annually. That will be massive for many countries, and will be felt in the largest corporate boardrooms. In the US, anti-tax Republicans are already lining up to try and neuter it.And the UN-FAO released its September food price data showing another rise in overall prices globally. In nominal terms prices are approaching their highest ever levels achieved first in September 2011. In real terms, they are the highest since 1974 when droughts, an oil crisis and raging inflation all conspired to hit food at the same time.China is still getting its share of adverse weather. 1.75 mln people have been affected by days of flooding and landslides in the normally arid northern Chinese province of Shanxi and these will have a national impact. 120,000 people have been evacuated and more than 17,000 buildings had collapsed. This in turn has affected important national supplies of coal and other minerals. About 60 coal mines, 372 non-coal mines and 14 chemical factories had been forced to close.Staying in China, their services sector is expanding again, and at a moderate pace, and bouncing back from a weak August. At least, that is according to the private Caixin services PMI released over the weekend. Still, it can't hide the general softer trend evident in 2021. And their 'Golden Week' travel activity is down -40% from last year, suppressing service sector enthusiasm in October.However Taiwanese exports impressed again, rising +29% above year-ago levels when a +25% gain was expected. These are now +37% higher than for September 2019. It is a standout export success story.In the US, the expected +500,000 gain to their non-farm payrolls didn't eventuate for September. The headline number was only a +194,000 gain, the smallest rise in 2021 and a big miss.However we may be the only one noting this, but we need to be extra careful of following the herd and using these seasonally adjusted numbers, when perhaps the pandemic twists are screwing around with seasonal adjustment mechanisms.The actual data is far more positive and more consistent with the falling jobless claims data. There are now actually 147.7 mln people employed in the US as at the end of September, up +654,000 from the end of August, and up +5.7 mln from a year ago. That paints quite a different picture than the seasonally adjusted monthly +194,000 gain. The same distortion happened in August. Actual employment is what is important. By this data, US hiring is actually rising, not slowing.Markets sense the under-reporting and still think the Fed will push ahead with its tapering, undeterred.In Canada they reported very positive employment data for September, with a gain of +157,000, and topping both estimates and for August. In Australia, their central bank issued its latest update to its Financial Stability Review. One aspect stands out: it thinks it is only a matter of time before a large bank is crippled by a cyber attack and "the defences of a significant financial institution will be breached". They are also directly concerned about the "risk of excessive borrowing due to low interest rates and rising house prices".The UST 10yr yield opens today at just over 1.61% and up another +1 bps from this time Saturday and a +13 bps rise in a week taking it to its highest in 20 weeks. The price of gold will start today little-changed again at US$1757/oz. Over the past week, the gold price has also changed very little.And oil prices are up +US$1 to just over US$79/bbl in the US, while the international Brent price is unchanged at US$82/bbl.The Kiwi dollar opens today unchanged at just on 69.3 USc. Against the Australian dollar we are also unchanged at 94.8 AUc. Against the euro we marginally softer at 59.9 euro cents. That means our TWI-5 starts today unchanged and down just on 73, and right in the middle of the 72-74 range of the past eleven months. It is also unchanged over the past week.The bitcoin price is higher again than this time Saturday, up +1.7% to be now at US$55,269. A week ago it was at US$47,496 so it has risen more than +16% in the past seven days. Volatility in the past 24 hours has been modest at just over +/-1.8%.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 again tomorrow.

China's services sector expanding again

Dipping our toes into the world of podcasting, we look at whether it would be possible and/or desirable to engineer a housing market correction.That means a deliberate move by the government, with the cooperation of the Reserve Bank, local government and banks, to push house prices down.Such a move would require a government prepared to see house prices fall by a significant amount.We look at why homeownership is desirable, whether it would be possible to engineer a housing market correction, whether it would be desirable to do so, whether a housing market correction could be controlled, and whether homeowners who would be hardest hit by a correction could be compensated.

Would it be possible and/or desirable to engineer a housing market correction?

Kia ora,Welcome to Friday's Economy Watch where we follow the economic events and trends that affect New Zealand.I'm David Chaston and this is the International edition from Interest.co.nz.Today we lead with news that perhaps there is a 'long covid' problem for economies too.But first, in the US jobless claims fell more than expected last week to +258,900 (actual) and a weekly drop of more than -40,000. That takes the total number of people on these programs to under 2.4 mln, the lowest since the start of the pandemic, and back closer to the 'normal' level before the coronavirus crisis.There was a small uptick in layoffs in September from August, but the quarter end totals were actually the lowest quarter since 1997.All eyes are now on tomorrow's US non-farm payrolls report. Analysts see a rise of +500,000, taking the total employed level to 147.4 mln and a gain of +7 mln in a year, but still -2.3 mln fewer than just before the onset of the current crisis.In Congress, a deal to kick the can along to December relieves their debt ceiling problems for a few more weeks. This involves a US$480 bln increase to the limit.China's FX reserves were pretty stable in September at just on US$3.2 tln even though that was fractionally lower than expected.But Asia’s junk-bond market suffered through another wave of selling, which pushed prices of many Chinese developers’ bonds further into distressed territory.A new study of long Covid found even people who were never sick enough to need hospitalisation are in danger of developing heart failure and deadly blood clots a year later.And now economists are wondering whether there will be a long Covid effect in what they will see as nations struggle to regain what they lost. That is particularly the view from China.For the first time since April, the cost of container shipping freight has fallen, but it is still double what it was back then. Prices from China are now about ten times the rate than prices to China. For bulk cargoes, the Baltic Dry Index continues to rise however and is now at a 13 year high.The UST 10yr yield opens today at just over 1.57% and up +4 bps from this time yesterday. The price of gold will start today little-changed again, down -US$4 at US$1758/oz.And oil prices are firmish today, up +US$1 to just under US$78/bbl in the US, while the international Brent price is just over US$81.50/bbl.The Kiwi dollar opens today firmer at just on 69.3 USc. Against the Australian dollar we are down another -40 bps to 94.8 AUc. Against the euro we firm at 60 euro cents. That means our TWI-5 starts today down just on 73, and right in the middle of the 72-74 range of the past eleven months.The bitcoin price is marginally lower than this time yesterday, down -1.1% to be now at US$54,162. Volatility in the past 24 hours has been moderate at just over +/-2.2%.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 again on Monday.

The long-Covid economic problem

Kia ora,Welcome to Thursday's Economy Watch where we follow the economic events and trends that affect New Zealand.I'm David Chaston and this is the International edition from Interest.co.nz.Today we lead with news energy prices are roiling markets everywhere.But first in the US, the ADP employment report was positive, coming in better than expected with an +568,000 increase in jobs for September and suggesting that the upcoming US non-farm payrolls report will be a reasonable one. There were good gains in every sector in the ADP report. Analysts expect the non-farm payrolls report to show a rise of only +473,000 however.But there were challenging data in the American home loans sector. Applications fell sharply last week, and interest rates rose sharply which probably explains the applications retreat.In Asia, fuel prices are soaring, and not just in China. But China is relenting on its blockade of Australian coal, releasing ships carrying the fuel that have been waiting to unload for months. And India, state-owned Coal India has been ordered to raise output of thermal coal sharply. Everywhere, demand for propane, diesel and fuel oil is very high and prices are rising sharply.In Europe, very high natural gas prices are a very real threat to their economic expansion. But overnight, Russia agreed to increase supplies, taking the top of the sharp increases yesterday at least. Russia has the EU in a choke-hold ahead of their winter season.And staying in Europe, the recovery in retail sales didn't eventuate in August as expected, a disappointment for them.In Australia, their prudential regulator APRA has announced an increase in “the minimum interest rate buffer it expects banks to use when assessing the serviceability of home loan applications.” It has risen +50 bps to 3.0%. APRA estimates that “a 50 basis points increase in the serviceability buffer will reduce maximum borrowing capacity for the typical borrower by around 5 per cent.” This is probably just the first of a series of tightening measures aimed at cooling their housing markets.Also in Australia, their tax office is tightening scrutiny of increasingly popular exchange traded funds (ETFs) amid concerns about the failure to report capital gains from share sales and income from dividends and distributions.The UST 10yr yield opens today at just under 1.53% and little-changed from this time yesterday. The price of gold will start today little-changed, up +US$2 at US$1762/oz.And oil prices are lower today, down almost -US$2 to just over US$77/bbl in the US, while the international Brent price is just under US$81/bbl.The Kiwi dollar opens today noticeably lower at just on 69 USc and nearly a -1% devaluation in a day. Against the Australian dollar we are down -40 bps to 95.2 AUc. Against the euro we soft at 59.8 euro cents. That means our TWI-5 starts today down at 72.9, but still in the middle of the 72-74 range of the past eleven months.The bitcoin price is sharply higher again since this time yesterday, up another massive +9.4% this time to be now at US$54,752. Volatility in the past 24 hours has been extreme at just over +/- 5.3%.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 again tomorrow.

Energy prices have global economy in its grip

Kia ora,Welcome to Wednesday's Economy Watch where we follow the economic events and trends that affect New Zealand.I'm David Chaston and this is the International edition from Interest.co.nz.Today we lead with news the Evergrande contagion seems to have started.But first up today we should note that the overnight dairy auction brought no overall change in prices in USD terms, and a small +0.5% gain in NZD terms as there has been a small depreciation in the Kiwi dollar since the last event. This overall result was less than expected. It seems that food isn't really participating in the current rise in commodity prices. (Although we should also note that the price of palm oil has reached a new record high, giving very unfortunate price signals for an industry that does much environmental damage.)And speaking of economic signals for environment damage, Beijing has ordered its banks to ramp up funding for thermal coal production. Just three days of China's CO2 emissions are more than New Zealand's annual CO2 emissions so by this order they have probably cancelled out any gains we make for the period to 2030. (Interestingly, the renewed focus on building thermal coal reserves does not extend to China buying Australian coal.)China may be on holiday this week, but dominos seem to be falling in the Evergrange saga. Other property development businesses are missing payments, and some lenders are struggling to control the fallout.In the US, the LMI that tracks their logistics and supply chain activity, slipped slightly from a very expansionary level. Keeping it elevated are cost metrics. Weighing on it are inventory metrics, but these are interesting. Demand is emptying the supply chain faster, but supply bottlenecks are restraining goods entering it.The US trade balance for both goods and services worsened in August to a deficit of -US$73.3 bln in the month, taking the annual deficit to -US$817.5 or -3.6% of GDP and up from -3.1% in the same period a year ago. That is a fresh record deficit. The latest survey on the activity in their giant services sector supports the view of a fast expansion, coming in both higher than expected and marginally higher than for August. Activity like this may see Q3 GDP estimates revised higher for the US economy.In Europe, their expansion is coming with very high rises in producer prices. They were up more than +13% in the year to August, the most in a record that extends back to forty years. But it is largely driven by high energy costs.Other prices are starting to rise and flow though supply chains. Cotton prices are spiking. And courier and freight companies essential in the supply chain are raising rates. The latest is DHL, with a +5.9% increase. They followed FedEx with a similar rise.Australia reported a record high trade surplus of AU$15 bln for the month for both goods and services. That was half as much again as analysts had expected. Surging natural gas and coal exports were very much stronger than expected.The UST 10yr yield opens today at just over 1.52% and up +5 bps from this time yesterday. The price of gold will start today softer, down -US$9 at US$1760/oz.And oil prices are up again, up +US$1.50 to just under US$79/bbl in the US, while the international Brent price is just over US$82.50/bbl. These levels are new seven year highs.The Kiwi dollar opens today marginally firmer at just on 69.7 USc. Against the Australian dollar we are unchanged at 95.6 AUc. Against the euro we firm at 60.1 euro cents. That means our TWI-5 starts today at 73.3, and still in the middle of the 72-74 range of the past eleven months.The bitcoin price is higher again since this time yesterday, up another +2.9% to be now at US$50,014. Volatility in the past 24 hours has been moderate at just over +/- 2.2%.And finally, join us at 2pm for the latest update to the Reserve Bank's official cash rate, which is widely expected to rise by +25 bps to 0.50%.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 again tomorrow.

China doubles down on coal production

Kia ora,Welcome to Tuesday's Economy Watch where we follow the economic events and trends that affect New Zealand.I'm David Chaston and this is the International edition from Interest.co.nz.Today we lead with news there is new energy emerging in commodity price rises, driven by the good US and EU economic recoveries.But first, overnight data shows that American factory orders rose at a slightly faster pace than expected in August, confirming the recent strength in their manufacturing sector reported by other measures like the PMIs.This is all the more impressive because their vehicle manufacturing sector is stuck in the slow lane, stifled like everyone else by the shortage of computer chips. Sales in September ran at only 9.7 mln vehicles/year, another sharp drop from August, itself a reduction from the 18.5 mln annual rate they were running at in April.The key problem is that cars use old-style basic chips, the really cheap versions. And chip-makers have moved on and don't want to invest billions in old tech to sort this problem out. And vehicle makers don't want to pay for the new-style chips. It is hard to see when this standoff ends, but almost certainly carmakers will have to reengineer their products to accept updated technologies. It won't be a short process.Meanwhile in Canada, building permit levels really disappointed in August data released overnight. They have been on a downward slide since March. A pickup of +3% was anticipated in August, but another decline eventuated, down -2.1%.In China, they are using their holiday week to ensure the Evergrande collapse doesn't have economy-wide consequences. Almost 30% of China's GDP relies on the property sector, and Evergrande is just one of many drivers in that sector in shaky financial shape. But Evergrande itself, as large as it is, only represents 2% of their GDP. So Beijing's energy is going in to save the rest, not Evergrande. Likely, bond holders will lose all their investment.In Japan, their new Prime Minister has said he doubts China can qualify to be a CPTPP member. This comes as China offers up promises of "unprecedented market access" if it is let in. But China expects some rule-bending for that prize to be won.Commodity prices are rising sharply in October. Yesterday we noted the rise and rise of coal prices. Today it is oil prices. And there may be more to come because OPEC has declined to raise output significantly into a market with rising demand. Prices are now at seven year highs. The inflationary impacts won't be minor. Some American analysts see US$100/bbl oil over this coming northern winter. Natural gas prices are already at 13 year highs and they are just getting started and that has caught some sceptics short.The UST 10yr yield opens today at just over 1.47% and up +1 bp from this time yesterday. The price of gold will start today firmer, up +US$8 at US$1769/oz.And oil prices are up sharply, up +US$3 to just under US$77.50/bbl in the US, while the international Brent price is just under US$81.50/bbl. These levels are a seven year high.The Kiwi dollar opens today slightly firmer at just on 69.6 USc. Against the Australian dollar we are unchanged at just on 95.6 AUc. Against the euro we still at 59.9 euro cents. That means our TWI-5 starts today at 73.2, and still in the middle of the 72-74 range of the past eleven months.The bitcoin price is higher again since this time yesterday, up another +2.1% to be now at US$48,618. Volatility in the past 24 hours has been moderate at just over +/- 2.4%.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 again tomorrow.

Commodity prices resume upward push

We follow the economic events and trends that affect New Zealand.

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Economy Watch

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