Low growth, high inflation settles in

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 the world seems to be settling in to a low-growth high-inflation period, not quite stagflation but disarmingly close.

In the US, retail sales last week on a same store basis were up +5.3% from year-ago levels, unchanged in a week, and hardly accounting for inflation.

American inventories were little-changed in January from December. But that can't hide the fact that retail stocks of goods are +12% from year-ago levels and wholesale stocks are up +16% on the same basis. Still, it is probably good that that expansion seems to have stopped, and that some of it is "just inflation".

Meanwhile, American exports slipped in January from December to be up less than +12% in a year. But imports rose marginally on the same basis but are only up +2% year-on-year. That means their merchandise trade deficit rose to almost -US$89.3 bln in the month from December, but is actually -US$11 bln less than the same month in 2022.

The Chicago industrial heartland isn't in its best shape, with declining activity, according to the ISM Chicago PMI for February. It is contracting at a pace that is uncomfortable for them but at least there is light ahead - New Orders, Order Backlogs, and Supplier Deliveries increased.

The situation is similar in the Richmond Fed district's factory survey in the mid-Atlantic states region. New order levels are quite weak here, but those firms surveyed expected them to pick up soon.

Consumers are less optimistic than expected. The Conference Board consumer sentiment survey was expected to improve from a modest net positive. But it actually slipped back in February - still positive, but less so than expected. It was their view of business conditions that lagged. Their view of the American labour market was more positive.

The Canadian economy was unchanged in Q4-2022 from the prior quarter, putting an end to five consecutive quarters of growth and following a +2.3% pa expansion in Q3. That was a disappointment. Markets had expected a modest +1.5% Q4 boost.

India said they ended 2022 with less of a tailwind. Their Q4-2022 GDP data shows their economy expanded +4.4% from year-ago levels, well below the +6.3% in the three months to September. Analysts expected +4.6%. Private spending which accounts for almost two thirds of their GDP slowed sharply. Still, India's expansion is outpacing China at present.

In Japan, their retail sales came in very strong in January, up +6.3% when a +4% rise was expected, and compared with a +3.8% rise in December. But things were not so great for their industrial production, which fell a sharpish -4.6% in January.

Both Spain and France reported February inflation levels overnight and both came in higher than in January. Bond markets noticed.

In Australia, it is becoming clearer that their immigration surge is turning the housing market prospects around from 'negative' to 'balanced', according to Westpac. They report a material tightening in rental markets. Continued net inflows and subdued levels of new building mean a sustained further tightening across the wider market is likely in coming years. These forces are likely to push the current focus on inflation and interest rates into the background there.

Even though retailer Harvey Norman said its sales were down -10% in January, national Australian retail sales surprised on the upside, coming in up +1.9% from December and up +7.5% from a year ago. These rises are not inflation adjusted however. But they do follow a sharp retreat in December. Yesterday the share market was not kind to the Harvey Norman share price which was down -12.5.

Staying in Australia, regulator ASIC has launched its first court action against alleged greenwashing conduct, commencing civil penalty proceedings in the Federal Court against Mercer Superannuation for allegedly making misleading statements about the sustainable nature and characteristics of some of its superannuation investment options. ASIC alleged Mercer, which oversees A$27.5 billion in assets, misled members of its Sustainable Plus fund by claiming it excluded companies that were involved in carbon intensive fossil fuels but then heavily invested in 15 stocks from the sector including AGL Energy, BHP, Glencore and Whitehaven Coal.

The UST 10yr yield starts today at 3.93% and up +1 bp. 

The price of gold will open today at US$1828/oz and up +US$11 since yesterday.

But oil prices start today up +US$1.50 at just on US$77.50/bbl in the US. The international Brent price is just over US$83.50/bbl.

The Kiwi dollar is up almost +½c at just under 62 USc. Against the Aussie we are firmer at 91.8 AUc. Against the euro we are firmish at 58.4 euro cents. That all takes the TWI-5 to 70.3 and up +30 bps.

Bitcoin is still within its recent narrow range, now at US$23,450, up +0.3% from this time yesterday. And volatility over the past 24 yours has remained quite modest at +/-1.0%.

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.