Economy Watch

Ask Cameron Bagrie how to improve business and rural banking and some words reoccur in his answers. Three of them are "risk", "productivity", and "bankability."With two parliamentary select committees set to hold an inquiry into banking competition, the business and rural banking markets will feature, unlike in the Commerce Commission probe into competition in the personal banking market. In the latest episode of interest.co.nz's Of Interest podcast, Bagrie, now of Bagrie Economics and Chaperon and formerly ANZ NZ's chief economist, speaks about why banks favour housing lending over lending to the business and rural sectors, and whether it would be good to entice them to change this and how it could be done.At the top of the select committee inquiry's terms of reference ought to be balance between the pricing of risk versus the taking of risk by banks, and how that's impacting productivity, Bagrie says."I think we need to have a really good, hard debate about where the money is actually going, the composition of bank lending, whether it's short-term behaviour versus a long-term growth maximising strategy. Let's have a serious conversation about risk going forward, because risk is a big enabler. It's not open season on risk, but risk is an enabler of innovation, driving productivity. It just seems like we've screwed things far too far towards a low risk approach, and ultimately we pay the price for that over time," Bagrie says."I go back to the fundamentals of banking. The fundamentals of banking is pricing for risk and taking risk. And what we're seeing out there at the moment is that SMEs and farmers are certainly being priced for risk... Let's have a look at return on equities out of the banks by segment, not the aggregate top down number. Let's break it down into personal lending, including home lending. Let's have a look at business lending. Let's have a look at farm lending and the institutional [loan] book, and have a look at where those ROEs [returns on equity] actually sit. And I think we're going to be surprised how high those ROEs are for certain segments.""The key here is to go through each segment and look at the risk adjusted returns," he says.Figures from the International Monetary Fund show housing lending at 35% to 40% of total bank lending in some countries, whereas in NZ it's nearer 65%, having risen significantly over the past five years.Bagrie also argues that banks' regulatory capital settings encourage them towards housing lending instead of business and rural lending, when there's "more productivity bang for your buck" when you're lending into the business sector. "We need to have a look at this through the eyes of economic efficiency, economic growth, productivity, innovation. Because when you make banks a lot more safer, there's a price that you pay on the other side.""The whole process of credit intermediation is a pretty critical part of economic development. And I don't think we've got financial system settings right on a whole lot of areas," he says.Financial system settings and banking don't tend to be areas thought of when people think about what to do to make NZ a better place economically in regard to taking risk and driving productivity growth, Bagrie says."We sort of overlook what's a fundamentally essential one and that's that flow, that process of credit intermediation, [it] is absolutely essential. The Prime Minister has been talking a lot about encouraging the taking of risk...Well, yeah, in order for firms to take risk, you need the financial system to be prepared to take risk."In the podcast Bagrie also talks about NZ businesses having a bankability problem and how to rectify this, the role of the Reserve Bank's regulatory capital settings, banks' becoming more vanilla, the rise and rise of bank profits over the past 30 years or so, the low level of banks' non-performing loans, the need for better competition policy across the economy, how housing lending has grown as a percentage of total NZ bank lending over the past 20-odd years, and especially over the past five years, Australian influence at the big four banks, open banking, his thoughts on the idea of a Business Growth Fund, and more.*You can find all episodes of the Of Interest podcast here.

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 of some very large global tensions starting to boil hotter.But first, mortgage applications in the US rose by +0.9% in the second week of June, extending the +16% surge from the previous week, which was the sharpest weekly increase since the start of 2023. Their monitoring of the benchmark 30 year mortgage rate showed it slipped below 7% last week, its lowest since late March.The NAHB/Wells Fargo Housing Market Index in the US fell in June from May, and to below market expectations. It was the lowest reading since December 2023, attributed to mortgage rates remaining around 7%. However it is back at about its average level since mid 2022. The industry also said home builders there are also dealing with higher rates for construction and development loans, chronic labour shortages still, and a dearth of buildable lots.In Japan, their huge agricultural bank, Norinchukin, has said it has made a massive mistake in its bond portfolio, betting that rates would stay down. They haven't and it said it would unwind its position between now and March 31. That will involve selling ¥10 tln (NZ$105 bln) of US and European sovereign bonds and take an expected ¥1.5 tln loss for the year. For perspective its total investment portfolio is NZ$585 bln.Japanese exports surged in May, up from ¥7290 bln in May 2023 to ¥8277 bln in May 2024, a +13.5% jump. The jump was expected, but it came in better than anticipated. Meanwhile Japanese imports rose too but by less than expected.We should keep an eye on the spreading impacts of excessive heat in northern India. Its inability to cool at night is life-threatening for many. The spreading heat emergency has also hit Saudi Arabia, and hundreds have reportedly died in their haj pilgrimage to Mecca.In China, their central bank signaled it will be getting more aggressive in the way it supports the economy, a tacit move that acknowledges the tough spot they are in. They are likely to start trading government bonds in the secondary market, a change of how the central bank injects money into the economy and regulate liquidity. They are also likely to shift to a single short-term rate to guide markets, like almost all other central banks.Tensions near the Philippines in waters claimed by China are getting worrisome with China's forces capturing a Philippines resupply vessel temporarily and forcing it away from a Philippine outpost. China's illegal claims based on their very doggy "nine-dashed-line" sea grab threatens a major international crisis.In Australia, the RBA has been looking at the Buy-Now-Pay-Later and doesn't like what it sees. Their key concerns are not so much on the unregulated credit side, rather on the fee side. That say BNPL fees average 3.5% of the transaction cost, compared to 0.4% for debit cards, 0.8% for credit cards. BNPL makes Visa and Mastercard look good (!). A crackdown is coming, allowing retailers to pass on those costs to customers (until now the BNPL industry has prohibited that). But the RBA needs new powers to make that change.Join us at 10:45am this morning when the Q1-2024 GDP result will be released. Markets are picking we exited recession on an overall basis, but with essentially no growth. (Of course, on a per capita basis, this result is likely to be a bit grim.)The UST 10yr yield is now at 4.23% and up +1 bp from this time yesterday. The price of gold will start today virtually unchanged, up and insignificant +US$1 at US$2329/oz.Oil prices are unchanged at US$80.50/bbl in the US while the international Brent price is now just on US$84.50/bbl.The Kiwi dollar starts today a little softer at just on 61.3 USc. Against the Aussie we are -¼c softer at 91.9 AUc. Against the euro we are marginally softer at 57.1 euro cents. That all means our TWI-5 starts today up +30 bps at just on 71.2.The bitcoin price starts today at US$65,049 and up +0.7% from this time yesterday. Volatility over the past 24 hours has again been modest at just on +/- 1.3%.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 expectations for a rate cut any time soon in Australia have faded significantly after the RBA's MPS yesterday.But first, the overnight dairy auction brought slightly lower prices overall, down -0.5% although they were unchanged in NZD terms. WMP was sold in to weakish demand and ended down -2.5%. SMP fared better, rising a minor +0.7%. But the star of the show was demand for butter, up +6.2% to a new all-time record high in both USD and NZD. Volumes offered and sold at this event were quite low at 16,800 tonnes; in fact a four year low.Moving on, in the US last week's retail sales at physical stores rose to be up +5.9% from year-ago levels, a rise from the prior week. But that was overshadowed by the May official retail sales data that was only up +2.3% from a year ago, up only +0.1% from April. And if it wasn't for good car sales it would have been less.On the other hand, US industrial production rose more than expected in May, up +0.9% from April to end two months of weaker resultsUS business inventory levels were reported for April, and while they rose slightly, they actually fell in relation to current sales to remain at unconcerning levels.Today's relatively small but still well supported US Treasury 20 year bond auction brought a lower median yield, down to just under 4.40%, -19 bps lower than the prior equivalent event a month ago.In China, the wealthy are shipping out, it seems. China saw the world's biggest outflow of high-net-worth individuals last year and is expected to see a record exodus of 15,200 in 2024, dealing a further blow to its economy.And homeowners with mortgages in China are prioritising paying them off faster as values sink. Owning your own home is now perceived as a liability, not an asset.In the EU, CPI for May was confirmed at +2.7%. However, we should note that the ZEW Indicator of Economic Sentiment for the Euro Area surged in June to its highest since July 2021, and firmly above what was expected. That has built into nine consecutive months of rising EU business sentiment.Yesterday's RBA monetary policy review indicated that rate cuts are further away than anticipated. Markets no longer have any cut priced in until mod 2025 now.And the OECD says high school students in Singapore, Korea, Canada, Australia, New Zealand, Estonia and Finland were in the highest-performing education systems in the first-ever creative thinking assessment under the OECD’s Programme for International Student Assessment (PISA). Results of the global 2022 assessment, to understand the skills of 15-year-old students in 64 countries and economies worldwide, show that students in high-performing education systems are not only succeeding in standardised mathematics, reading and science tests, but also in new creative thinking tests.On the other hand we should note that New Zealand doesn't rank highly in the latest World Competitive Rankings, slipping one place in 2024 to 32nd (out of 67 in the survey).The UST 10yr yield is now at 4.22% and down -6 bps from this time yesterday. The price of gold will start today up +US$11 at US$2328/oz.Oil prices are up +US$1 at US$80.50/bbl in the US while the international Brent price is now just under US$84.50/bbl.The Kiwi dollar starts today a little firmer at just under 61.5 USc. Against the Aussie we are -¼c softer at 92.4 AUc. Against the euro we are marginally firmer at 57.2 euro cents. That all means our TWI-5 starts today essentially unchanged at just on 70.9.The bitcoin price starts today at US$64,612 and down -2.6% from this time yesterday. Volatility over the past 24 hours has again been moderate at just on +/- 2.3%.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 the steam seems to be going out of the Chinese economy as their property sector woes just drag on and on.But first, although it is still retreating, the June New York factory survey improved sharply from May, with firms there increasingly positive about the next six months.And Canada reported a much bigger jump in housing starts in May, far above what was expected.However, previously fast-rising Japanese machinery orders fell in April in March, but were up slightly year-on-year.China’s new home prices fell -3.9% year-on-year in May, falling further from a -3.1% drop in the previous month. It marked the 11th consecutive period of declining home prices and the steepest since mid-2015. This is all despite more property market stimulus from the government, which clearly hasn't turned the market yet. There are no major cities reporting any gains in resold houses, with some declines now well exceeding -10% from a year ago. In the new home market only 3 of 70 major cities are reporting year-on-year gains (all tiny) and the rest are all declines.Chinese retail sales eased higher in May, up +3.7% when a +3.0% rise was expected. April rose +2.3% year-on-year, so this May result is an improvement. But you have to say, in the context of recent Chinese history, this is a modest gain. And remember, Chinese official CPI is rising less than +1% year-on-year.Meanwhile, Chinese industrial production fell in May from April to be +5.6% higher than a year ago. Markets were expecting that change to be +6%. April had expanded +6.7% on that basis. Tellingly however, electricity production rose just +2.3% in May from a year ago, up only +0.7% from April, staying at the lowish levels it has for the past year. The Chinese central bank kept its one-year Medium-Term Lending Facility rate unchanged in June at 2.5%.The changed and less outlook for China can also be seen in the benchmark copper price. The February to May enthusiasm has given way to a sharpish retreat.And here's something you may not have expected; wages are rising quite fast in the EU, up +5.5% in Q1-2024 from a year ago, a spurt higher than the already quite good +4.1% rises in Q4-2023. And it may go higher. The huge IG Metal German union is seeking 7% pay rises now.In Australia, stories are swirling that NSW is about to raise its land tax rate. (Land tax is separate from property taxes, and does not apply to the family home, or farm. But it does apply to most other land.) NSW isn't the first to do this.And staying in Australia, data released by their tax authorities shows that more than 40% of their income tax paid by individuals is paid by the 5% who had taxable incomes of AU$180,000 and greater. At the other end of the scale, the 42% of taxpayers earning AU$45,000 or less paid 2.3% of their income tax.The UST 10yr yield is now at 4.28% and up +6 bps from this time yesterday. The price of gold will start today down -US$17 at US$2317/oz.Oil prices are up +US$1.50 at US$79.50/bbl in the US while the international Brent price is now just over US$83.50/bbl.The Kiwi dollar starts today little-changed at just under 61.3 USc. Against the Aussie we are softer at 92.7 AUc. Against the euro we are -¼c lower at 57.1 euro cents. That all means our TWI-5 starts today down -20 bps at just on 70.9.The bitcoin price starts today at US$66,351 and down a very minor -0.2% from this time yesterday. Volatility over the past 24 hours has again been modest at just under +/- 1.4%.You can find links to the articles mentioned today in our show notes.You can get more news affecting the economy in New Zealand from interest.co.nz.Kia ora. I'm David Chaston. And we will do this again tomorrow.

By Gareth VaughanHow seriously is the public sector taking the fight against money laundering and terrorism financing?This question comes up in a new episode of interest.co.nz's Of Interest podcast, featuring barrister and solicitor Fiona Hall and anti-money laundering auditor and consultant Martin Dilly.In a recent article the two raised concerns about impending job cuts to the team at the Department of Internal Affairs (DIA) tasked with supervising compliance with the Anti-Money Laundering and Countering Financing of Terrorism Act (AML/CFT Act). Dilly says the DIA proposal to cut 40% of AML/CFT staff "gives us concern that that's going to affect their ability to enforce and supervise this act." There's concern whether the next evaluation of New Zealand by the Financial Action Task Force (FATF), an inter-governmental body that sets international standards and is considered the global money laundering and terrorist financing watchdog, will show NZ technically compliant with FATF's recommendations, and whether we're effective in supervising the reporting entities who must comply with the law."I have heard some reporting entities clapping their hands with joy if they're supervised by the DIA, but it's not the good reporting entities. And I like to think that most businesses are good businesses that want to comply with the law. And the risk you have is, yes, sure, if there are far fewer DIA investigators, you're less likely to get a knock on your door. But the problem is, if you do get a knock on your door, you now might be being investigated by someone who really doesn't have a good handle on the legislation, let alone a good understanding of your business. And you are going to be in a much worse position," Hall says.Dilly made an Official Information Act (OIA) request to DIA in an attempt to get more information, which he says "shows a pattern of under resourcing of the AML team within the DIA." "They were essentially budgeted to have 55 staff members. That's what they had determined was necessary...The information provided shows at no point did they ever hit 55 staff. They've been consistently below that. In 2022, they only had 37 staff instead of 55... So the question becomes, why is that?""One of the other questions I specifically asked was, has any of the budget been reallocated from the AML team to other areas of the Department of Internal Affairs? And we get some government speak here. So one of the things they talk about is they don't talk about reallocation. They use the terminology 'a permanent reprioritisation of constant underspend.' And my question is, well, what does constant underspend mean? Why would you be underspending your budget in an area where you are tasked with implementing AML and educating and supervising these new entities [lawyers, accountants and real estate agents]?" Dilly asks.Other issues Hall and Dilly cite include different agendas and lack of consistency to AML/CFT Act supervision between the DIA, and NZ's two other AML/CFT Act supervisors, the Reserve Bank and Financial Markets Authority.The two are hopeful that Associate Minister of Justice Nicole McKee's proclamation that reforming the AML/CFT Act is "one of my priorities this parliamentary term," could lead to improvement. They would both like to see a shift to a single standalone supervisor."I think the results from the [DIA] OIA show that if it's within other ministries that you cannot trust them to not reallocate budget, whatever language they want to put on that. The other point I would really like to see is a move back to a more risk based approach. The act itself is risk based, which essentially means that we accept that people have limited resources and you are supposed to direct those resources towards the areas of highest risk in your business," says Dilly.Hall would like to see better supervision of the supervisors.The two also have many tales of frustration and contradiction. Hall gives the example of a client that collects school donations, arranges school lunches, the uniform shop, and sells tickets to school shows, and has been deemed high risk of money laundering."I sat with the Minister and said, 'look, how does buying two pairs of grey shorts from a school uniform shop ever get anywhere near, I mean, this is where I'm going to launder my money?' It is ridiculous."On the flip side she points out the likes of Ticketmaster, selling tickets to shows, aren't considered reporting entities None of those are considered reporting entities, and neither are travel agents who have trust accounts and manage funds."So we have this real disconnect, in my view, even about who is and isn't a reporting entity," Hall says.Meanwhile in the real estate sector, they have to do customer due diligence."Their customer is the vendor, it's not the buyer, which I always find so interesting because that's where the money is. And often a property's been bought years and years before, and suddenly, you know, the vendor's been asked to prove how they purchased this and how they funded it, and there is resistance."There are also personal anecdotes. Dilly says the bank he has been a customer of for more than 40 years asked him about an account he has had for 25 years."They have full visibility of every one of my financial transactions. And I was interrogated as to what my plans were for that account. And my thinking was why? Why would you rely on anything I tell you when you've got 25 years of data on my behaviour? If I was an actual money launderer, why would I give you a straight story?"And here's Hall; "I was at the supermarket checkout and I'd been having a particularly trying day for poor entities [clients] that I didn't think should be captured [by the AML/CFT Act] at all. And I was standing in line and I looked up and I was behind a whole lot of gang members...They were buying lots of meat, lots of alcohol, and out came the wads of cash. And I thought, 'my poor clients who are spending all their money trying to comply, and really there's the money that we probably are looking for right in front of me."Much more is discussed in the podcast including why the public should care about the fight against money laundering and terrorist financing and the impact of it, the purpose of it, concerns NZ could end up on a grey list, concerns over whether the Police Financial Intelligence Unit is reactive and doesn't have the capacity to deal with all the suspicious activity reports they receive, quick wins with asset seizure where there's a lower threshold from a legal perspective, and more.*You can find all episodes of the Of Interest podcast here.

Kia ora,Welcome to Monday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.I'm David Chaston and this is the international edition from Interest.co.nz.Today we lead with news of some slippage in the world's largest economies.However, in the week ahead we will get central bank rate review decisions from China, Norway, the UK, and Switzerland. Of special interest to us will be Tuesday's one in Australia. No change is expected there at 4.35%, but the signals about how they see progress to their inflation targets will be important. There will be a heavy set of data releases from both the US and China this week as well, many of which could move markets. Elsewhere Japanese inflation data, German sentiment surveys, and PMIs everywhere will feature.But first in Japan, their central bank held its new slightly positive official policy interest rate at Friday's meeting. But it did confirm it is working on ways to reduce its bond purchase program. They see Japanese inflation embedding from here, rising modestly over the rest of 2024 above 2%.However Japanese industrial production slipped in April in advance data released Friday, but that was among overall business activity that rose at a modest rate.Indian exports, which are actually modest on the world scale, rose in May to be more than +9% higher than year ago levels. (Australia's exports fell in the same month, but they are still larger than for India. You have to go back to 2018 for India's export levels to be larger than Australia's. Since, the Aussies have made far more gains than India. India may now be the world's fourth largest economy and Australia the 13th, but India is an also-ran as an exporter.)Despite a heady push from Beijing, Chinese banks extended only ¥950 bln in new loans in May, up from the low ¥730 bln in April and well short of the 'recovery' analysts expected of ¥1.3 tln.Also somewhat disappointing were May vehicle sales results in China. They were up only +1.5% from a year earlier to 2.42 million in May, slowing from a +9.3% rise in the previous month. However sales of new energy vehicles surged by a third, accounting for nearly half (47%) of all car sales and a record high share. The modest overall sales result is on the back of surging production (+25%) and the excess is being shipped to export markets, causing trade friction and distortions, and accusations of dumping.And in a massive part of important north-east China, an emergency drought response has been triggered. This will be a very big test of their food security.In Russia, as their central bank expected in its last policy review, inflation jumped to 8.3% in May from 7.8% in April, the highest since February 2023. A year ago it was running at 2.5%. War and the resulting labour market distortions are the cause.In the US, the weekend release of the preliminary University of Michigan consumer sentiment index fell slightly for a third straight month in June, the lowest since November. Overall, consumers perceive few changes in the economy from the May survey. Inflation expectations were broadly stable at just over 3%. (The final results of this survey will come in about two weeks, and these have often come out better than preliminary results.)The UST 10yr yield is now at 4.22% and unchanged from Saturday. The price of gold will start today little-changed at US$2334/oz but up +US$30 from a week ago.Oil prices are unchanged at US$78/bbl in the US while the international Brent price is still just over US$82.50/bbl.The Kiwi dollar starts today still at just under 61.4 USc. Against the Aussie we are start marginally firmer at 92.9 AUc. Against the euro we are unchanged at 57.4 euro cents. That all means our TWI-5 starts today up +10 bps at just on 71.1.The bitcoin price starts today at US$66,514 and up +1.5% from this time Saturday. But that is down -3.7% from a week ago. Volatility over the past 24 hours has again been low at just under +/- 0.7%.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 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 some think the first signs of a labour market in the US are showing.Initial American actual jobless claims "jumped" last week to +235,000, above the expected +225,000 and to the highest level since August 2023. This may be the early signs that their labour market is softening somewhat, although there are only just over 1.7 mln people on these benefits, little-changed from a year ago and much lower than the more than 2 mln in mid-January.Meanwhile American producer prices dipped in May from April to be +2.2% higher than year ago levels. There is no inflationary pressure from this sector, and to be fair there hasn't been any since February 2023. Even a month-on-month dip has happened frequently since mid-2022There was another well supported UST 30yr bond auction earlier today with yields easing lower on the demand. The softer PPI and higher jobless claims may have influenced yields too. Today's median yield was 4.35%, and that compares with the prior equivalent event one month ago of 4.59%.Later today we should get China's bank credit data, an important indicator of investment demand and economic activity.And China is waiving entry visa requirements for New Zealand citizens, as part of the country’s drive to boost inbound tourism. That puts us on a par with Singapore, Malaysia, France and Thailand among others. Scheduled flights between the two nations are already more than before the pandemic and it turns out New Zealand is China's 15th largest source of tourists. Immigrants from China who settled here are making many trips back 'home' it seems.EU industrial production sagged rather badly in April, down -3.0%^ from a year ago in the Euro Area, down -2.0% in the wider EU. A worsening from March was expected (-1.9%), but not by this much. Generally it is southern and eastern Europe doing much better than the northern group (but Denmark is an outier, doing the best of all).Australian payrolls rose by almost +40,000 in May, more than the expected +30,000 rise. Full-time employment rose +41,700 and part-time jobs fell by -2,100. There are now 14.458 mln people in Australian jobs, 31.4% of them part-time and that is their highest level since mid-2021. (The highest ever was in October 2020.) Their actual jobless rate is now 3.9% and their participation rate 67.2%.Although they still rose, international container freight rates were up 'only' +2% last week from the week before and seem to have topped out now. But that puts them +200% higher (three times higher) than at the same week in 2023. Fortunately bulk cargo rates are still holding at their long-term average levels.The UST 10yr yield is now at 4.24% and down -6 bps from yesterday. The price of gold will start today down -US$28 from yesterday at US$2301/oz.Oil prices are unchanged at US$78/bbl in the US while the international Brent price is up +50 USc to just under US$82.50/bbl.The Kiwi dollar starts today -20 bps softer at just under 61.7 USc. Against the Aussie we are +20 bps firmer at 93 AUc. Against the euro we are little-changed at 57.4 euro cents. That all means our TWI-5 starts today little-changed at just under 71.2.The bitcoin price starts today at US$66,888 and down -3.3% from this time yesterday. Volatility over the past 24 hours has again been moderate at just on +/- 2.6%.You can find links to the articles mentioned today in our show notes.You can get more news affecting the economy in New Zealand from interest.co.nz.Kia ora. I'm David Chaston. And we will do this again 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.Today we lead with news the US expansion rolls on, pushing back the timing of when interest rate normalisation will happen.US CPI inflation came in lower than expected for May, slowing to 3.3%, the lowest in three months. In April it was 3.4% and forecasts for May were 3.4%. While this rise was lower than the past three months it is a higher rate than the October to February period. And it is above the Fed's target.Then the US Federal Reserve kept the federal funds rate unchanged at the 5.25% to 5.5% range, as expected. Still, the Fed officials projected only one interest rate cut this year and four cuts in 2025, emphasising their intention to maintain higher borrowing costs for a longer period to get inflation back into range.While all this was going on, US mortgage applications surged almost +16% in the first week of June, the sharpest weekly increase since January 2023. This is a rebound from the -5.2% drop in the last week of May and fully erases the slumps from the two prior weeks.India's industrial production rose +5.0% in April from a year ago, little-changed from recent growth levels. The heady rises of late 2023 seem to be past them now with a more orderly expansion in play. India's passenger vehicle sales had been falling over the past few months after a heady rise and were only +4.3% higher in May than a year ago.India's CPI inflation eased to 4.7% in may from 4.6% in April. But food price inflation hardly changed at 8.7%, a worrying sign for them.China's CPI rate slipped -0.1% in May from April, to be just +0.3% higher than a year ago. Observers were expecting a stronger price gain than that, although not by much more. Low demand seems to be keeping prices close to deflation again. Beef prices were particularly soft, down -3.6% in the month to be almost -13% lower than a year ago. Lamb prices were down -1.2% in May from April, down -7.5% in a year. These are far softer than overall food price changes (-1.0%) for the year). Milk prices were unchanged in May, down -1.7% for the year. Meanwhile, producer prices are still languishing in deflation, but less so. They were down -2.5% in April from a year ago, easing to -1.4% in May.Meanwhile, Japanese producer price inflation is rising, up +2.4% in May from a year ago, a nine month high.The Bank of Japan is about to consider gradually reducing its Japanese government bond holdings, taking a step toward normalising not just interest rates, but the quantitative side as well. They are in the middle of a sea-change shift in monetary policy.The EU has decided to hit EV imports from China with new anti-dumping tariffs taking them to almost 50% for some models. The concerns about the impact of Chinese "over-capacity" are spreading globally now. As you might expect, China isn't happy with this move.The UST 10yr yield is now at 4.30% and down -10 bps from yesterday. The price of gold will start today up +US$16 from yesterday at US$2329/oz.Oil prices are up +50 USc at US$78/bbl in the US while the international Brent price is just over US$82/bbl. However whether they will remain up at these levels seems uncertain. The world faces a ‘staggering’ oil glut by end of decade, the IEA warned overnight.The Kiwi dollar starts today +½c firmer at just over 61.9 USc and jerked around by the two big US forces. Against the Aussie we are slightly softer at 92.8 AUc. Against the euro we are little-changed at 57.3 euro cents. That all means our TWI-5 starts today at 71.2, and up another net +20 bps from yesterday.The bitcoin price starts today at US$69,157 and a bounce-back of +3.6% from this time yesterday. Volatility over the past 24 hours has still been moderate at just on +/- 2.4%.You can find links to the articles mentioned today in our show notes.You can get more news affecting the economy in New Zealand from interest.co.nz.Kia ora. I'm David Chaston. And we will do this again tomorrow.

Kia ora,Welcome to Wednesday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.I'm David Chaston and this is the international edition from Interest.co.nz.And today we lead with news that will all be overshadowed tomorrow by two key pieces of US data, their CPI and the Fed monetary policy decisions.Today, the American Redbook retail indicator came in +5.5% higher than year-ago levels, continuing its track well above inflation and showing a positive retail impulse in the world's largest economy.And the NFIB Small Business Optimism Index rose in May to its highest in five months. So again, no real stress signs there.Canadian building consent levels came in much better than anyone expected in April. The total value of building permits increased by 20% month-on-month, the most since May 2020, after a -12% decline in March. Residential permits were up by 21%. That means they are +30% higher than year-ago levels, a surprisingly strong surge.And staying in Canada, their government is proposing an effective hike in their capital gains tax (by raising the 'inclusion rate' from 50% to 66%), a move that business interests say would hurt investment. But the IMF is now saying that is probably just scaremongering. The IMF wants Canada to go further, also raising its 9% GST rate while raising a related tax credit to shield the poor.In Japan, their machine tool orders were up +4.2 in May from a year ago. While this isn't spectacular, it looks like there is a trend reversal underway from the previous twenty-one months of declines.In Hong Kong the dollar cost of China's security embrace of the once-great financial center is starting to become clear. They are coming up to five years of falling commercial real estate values as the shift out gathers pace. Bloomberg is reporting that those real-estate value losses now exceed -US$270 bln (-NZ$440 bln). Of course, no-one knows where it will settle, but the funk is deepening faster at present, not slowing down.Values are being market down over the past few days on their major stock exchanges too. Over the past month the Shanghai stock exchange has fallen -4%, the Hong Kong exchange is down -5%. Sentiment is certainly leaking away in China's investment community. And China-linked commodity prices are easing lower too, especially mineral prices. Copper, iron ore, and rebar steel are all lower, as are soybeans, for example. The imminent visit from the Chinese Premier (not President Xi) has the aura of representing a fading force in the international trading world.Meanwhile, India, despite a projected slowdown this year, will continue to be the world's fastest-growing large economy, according to the World Bank's latest Global Economic Prospects report.Australian business sentiment isn't improving either. In fact, business confidence there fell back into negative territory in May as conditions continued to gradually soften, suggesting the subdued economic activity seen in the Q1 GDP data has continued into Q2. Business conditions slipped just below average with trading conditions and profitability easing.The overnight dairy Pulse auction had prices retreating somewhat from last week's good full GDT event. But the lower levels probably aren't significant at this stage.The UST 10yr yield is now at 4.40% and down -7 bps from yesterday. The price of gold will start today back unchanged from yesterday at US$2313/oz.Oil prices are still at yesterday's level of US$77.50/bbl in the US while the international Brent price is just over US$81.50/bbl. But they have been volatile in between.The Kiwi dollar starts today at just on 61.4 USc and up about +20 bps from this time yesterday. Against the Aussie we are up more than +¼c at 93 AUc. Against the euro we are also another +¼c firmer at 57.2 euro cents. That all means our TWI-5 starts today at 71, and up +20 bps from yesterday.The bitcoin price starts today at US$66,780 and down a rather large -4.7% from this time yesterday. Volatility over the past 24 hours has still been high at just on +/- 3.0%You can find links to the articles mentioned today in our show notes.You can get more news affecting the economy in New Zealand from interest.co.nz.Kia ora. I'm David Chaston. And we will do this again tomorrow.

Kia ora,Welcome to Tuesday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.I'm David Chaston and this is the international edition from Interest.co.nz.And today we lead with news the EU parliamentary election jolt has everyone's attention.But first in the US, in the four months December to March, consumer inflation expectations held steady at 3%. Then in April they rose 3.3%, and this latest NY Fed survey shows them easing somewhat to 3.2%. They were unchanged at the three-year horizon at 2.8%, and increased at the five-year horizon to 3.0% from 2.8%. So its a mixed picture where these expectations are holding higher than where they need to be.In a well supported 3 year US Treasury bond auction (US$140 bln was bid for the US$58 bln available), the median yield achieved was 4.59%, and that was marginally higher than the 4.55% at the prior equivalent event a month ago.Wall Street is in a bit of a lull at present as they await the combination of the May CPI result and the US Fed monetary policy meeting outcomes.In Canada, consumer sentiment is beginning to improve, especially after their central bank made a cut to its official interest rate last weekIn Europe, like many others, markets are recoiling at the EU parliamentary election results. And even more so, 'surprised' by the French reaction of calling a snap national election. But to understand both, you need to know that the EU parliamentary election featured low turnouts, some very low. That allowed motivated extreme parties to make some spectacular headline gains. But it wasn't all one-way traffic. Macron is gambling that a normal turnout in national elections will overwhelm the right-wing votes with more normal voting patterns as voters who sat out the EU version are 'shocked' into returning. We'll see.In Australia, major supermarket Coles has imposed limits of how many eggs customers can buy after hundreds of thousands of chickens have been destroyed after bird flu was found at five large poultry farms. Prices are likely reflect these shortages, although the normal 'don't panic' notices have been issued.The UST 10yr yield is now at 4.47% and and up +4 bps from yesterday. The price of gold will start today back up +US$20 from yesterday at US$2313/oz.Oil prices have risen +US$2.50 from yesterday and are now at just on US$77.50/bbl in the US while the international Brent price is just over US$81.50/bbl. So they are back to week-ago levels.The Kiwi dollar starts today at just on 61.2 USc and up less than +¼c since this time yesterday. Against the Aussie we are little-changed at 92.7 AUc. Against the euro we are +¼c firmer at 56.9 euro cents. That all means our TWI-5 starts today still at 70.8, and up +20 bps from yesterday.The bitcoin price starts today at US$70,043 and up +0.6% from this time yesterday. Volatility over the past 24 hours has still been low at just on +/- 0.7%.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.