Episode Details

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 the US Fed is setting the scene for rate cuts down the track. When remains uncertain but financial markets have priced one in fully by November. The next big piece of relevant US data is Friday's CPI release.

But first up today, even though futures markets indicated WMP would hold in this week's GDP Pulse event but there would be downside risk to SMP, in fact both fell. In the event, WMP slipped -1.2% from last week's full auction, and SMP fell -1.4%. That puts both back to late April levels. The lack of gains might worry some of the analysts who forecast next season' farmgate payout levels.

American retail sales are rising faster now. The weekly Redbook report on sales activity at physical stores was up an impressive +6.3% from the same week a year ago. Obviously that is a way faster rise than inflation. We haven't seen a surge since more than that since the end of 2022 when the base was very weak.

And that is reflected in SME business attitudes. The NFIB Small Business Optimism Index rose in June to its highest level of the year, although to be fair it is only back to 2023 levels again, and in a longer context current levels are not high.

In his semi-annual monetary policy report to Congress, Fed boss Powell told the Senate Banking committee that the central bank does not expect it will be appropriate to reduce interest rates until it has gained greater confidence that inflation is moving sustainably toward 2%. He said data in the first quarter did not support a rate cut. But he did note that the more recent inflation readings have shown some modest progress. He said reducing policy restraint too late or too little could unduly weaken economic activity and employment while doing it too soon or too much could stall or even reverse inflation progress to date. His core message was however that the US economy is no longer overheated.

Today's UST 3yr bond auction was very well supported again, delivering a median yield of 4.35%. That compares with the prior equivalent event a month ago at 4.59%.

Taiwan reported surging exports overnight, up more than +23% from the same month a year ago. It was their strongest growth in export demand since 2022, on the back of technology products. Analysts had expected an +11% rise which itself would have been strong. Twice that is something special.

China might also be about to report a surge in exports, but that will be more about trying to get ahead of new American tariffs - after which a shadow will follow.

In China, giant property developer Vanke warned that its losses grew sharply in Q2-2024, saying that investment in some projects