Global activity settles into a more modest expansion

Economy Watch

Kia ora,

Welcome to Monday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.

I'm David Chaston and this is the international edition from Interest.co.nz.

Today we lead with news expectations of flatter demand are hurting commodity prices. And that includes some key food prices which are also impacted by healthy supply levels.

But first, this coming week will bring more attention to inflation rates. We will get monthly updates from the US, China, and India. And we will get industrial production data from India. There will also be sentiment data from the US and Australia. The ECB meets again this week and the results will be released Friday morning (NZT). Most see a -25 bps cut coming then, to 4.0%. And locally the focus will be on Wednesday's migration and tourism data.

Over the weekend the data showed the US economy created fewer new jobs in August than expected, adding +142,000 in August, and below market expectations of +160,000. July's increase was revised sharply lower. Most job gains occurred in construction and healthcare while manufacturing employment declined. But their jobless rate edged lower to 4.2% in August from 4.3% in July.

But we do need to note that the +142,000 rise is the seasonally-adjusted number. The actual rise is +263,000 from July which is pretty healthy, it must be said. From a year ago, payrolls are +2.3 mln larger. The economic impact of +2.3 mln more people employed is not insignificant. And that is after the March revision.

Weekly earnings are up +3.5% from a year ago, hourly earnings up a bit more, and that was better than expected.

The US job market is cooling, but not cracking. This fact will give the US Fed more room to maneuver at their meeting on September 19, in ten days time.

Separately, Canada said it added +22,000 jobs in August, a recovery from the small dip in July. Almost all the August increase was for women.

But their local, and widely-watched Ivey PMI fell sharply in August, down to its lowest level since December 2020. However it wasn't matched by the internationally benchmarked S&P/Markit version which reported a stable situation. One of them isn't right.

In China, the end is nigh for struggling developer China Vanke. They reported terrible July metrics, and their liquidity situation worsened notably. Not helping them, China's regional banks are moving faster to quit nonperforming real estate loans. That is leaving the majors holding the bag as the government urges them to lend more to support a weak housing market. It is hard to see how the management of their real estate crisis won't end very badly. China's neighbours are increasingly concerned.

Germany reported a very tough situation for industrial production in July, down -5.3% from the same month a year ago and worse than the June result. But at least exports are limiting the downside. These were up +1.7% from June and that was a gain that was better than expected and one that clawed back its year-on-year dip.

In Australia, home loan activity for owner-occupiers picked up in July, adding +AU$18.9 bln in the month and the most in two years. For investors the rise was +AU$11.7 bln which was an even faster rate of increase and the most since January 2022.

Prices for iron ore, nickel, cobalt, and lithium are all falling, and are all at or near their five-year lows.

World food prices actually dipped in July with declines in cereal and meat prices in the month. (Dairy prices rose.) Overall prices remain their lowest in three years. Good agricultural conditions have persisted for some time now, boosting output. Updated forecasts for global cereal production point to a weather-driven drop in coarse grains offset by expected increases for wheat and rice. So far there is no indication yet that the world can't feed itself, and more than adequately, despite some high-profile pressures.

The UST 10yr yield is now at just on 3.72% and unchanged from Saturday.

The price of gold will start today up +US$4 from Saturday at US$2497/oz.

Oil prices are -50 USc lower at just over US$67.50/bbl in the US while the international Brent price is now at just on US$71/bbl. Both are down -US$6/bbl in a week, or -7.5%.

The Kiwi dollar starts today at 61.7 USc and unchanged from Saturday. That is -¾c lower in a week. Against the Aussie we are +10 bps firmer at 92.6 AUc. Against the euro we are also unchanged at 55.7 euro cents. That all means our TWI-5 starts today at 69.7, unchanged from Saturday, but down -75 bps in a week.

The bitcoin price starts today at US$54,341 and up +1.5% from this time Saturday. Volatility over the past 24 hours has been low at just under +/- 1.0%.

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 tomorrow.