Struggling for momentum

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 and Chinese economies both seem to be struggling for momentum.

The latest data for durable goods orders in the US for July have delivered mixed results, and at first look somewhat weak. They were unchanged from June, disappointing market expectations of a +0.6% increase and following an upwardly revised +2.2% rise in June. It was the first month in five that orders showed no growth. But a little deeper look shows it is all due to low orders for 'transportation equipment' (read, aircraft). Defence spending was lower too. Outside these lumpy categories, new orders climbed +1.2% which is actually pretty good. Capital goods orders rose +0.4% from June. Year-on-year, overall orders are up +9.4% and capital goods, up +16%.

US mortgage applications fell again last week and are now more than -20% lower than the year-ago period - and to a 22 year low. The benchmark 30yr fixed mortgage interest rate rose +20 bps in a week to 5.28% plus points.

Pending home sales fell for the second consecutive month in July, and for the eighth time in the last nine months. They were down -1.0% from June, and are down nationally -20%. In the Western states, they are down more than -30%. With the volumes easing fast, the real estate industry is expecting prices to follow down soon.

Canadian wholesale sales slipped -0.6% in July from June in a generally weak outturn.

Trapped in current imports of oil and gas, Japan will order new nuclear power plant construction and restart plants that have been idled for more than ten years to shore up some energy security.

In China, major effort is underway to save this year's rice harvest. Extensive engineering is at work diverting dwindling water supplies to where it is very short, some work risking the degrading of future reserves. And water issues generally in China are causing extinction events for many species. Next week, very high temperatures should ease in central China, but that won't means rain - just not so hot. But rains are coming relatively soon.

To help SMEs, China instituted a tax deferral program. But as time has gone on, their economy has gotten worse just as these deferred tax debts become due. It will be fierce bite on a struggling sector soon.

In Europe, another dramatic spike in natural gas prices appears to have ended any hopes that their inflation battle is set to ease, with financial markets now bracing for higher prices, a faster pace of interest rate hikes and a deeper economic downturn. Limited heating and lighting will be on the menu in Germany this winter. Interestingly, China has over-ordered natural gas and is selling some of it to Europe to ease their stress. But of course, that will only last as long as demand stays sluggish in the Chinese economy. Some of that excess is obviously Russian, but some is Australian, even American.

In Australia, the world's largest timber skyscraper has been ordered by software giant Atlassian for their new headquarters at Sydney Central tech precinct.

And of course, central bankers, including Adrian Orr, are now heading to Jackson Hole, WY. All eyes are on a Powell speech set for Saturday morning NZT.

The UST 10yr yield starts today at 3.11% and up +6 bps from this time yesterday and back to levels last seen at the end of June.

The price of gold will open today at US$1749/oz which is up just +US$1/oz from this time yesterday.

And oil prices start today at just under US$94.50/bbl in the US which is small +50 USc rise, while the international Brent price is still just on US$100/bbl.

The Kiwi dollar will open today at 61.8 USc and -¼c lower than this time yesterday. Against the Australian dollar we are little-changed at 89.6 AUc. Against the euro we have slipped slightly to just on 62.1 euro cents. That all means our TWI-5 starts today at 71 and a -30 bps easing.

The bitcoin price is now at US$21,632 and a small +0.9% rise from this time yesterday. Volatility over the past 24 hours has been modest at just on +/- 1.7%.

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.