Episode Details

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 two big central banks have been active in their signaling over the past 24 hours.

First up today, as many expected the US Fed sent a clear signal that they are more open to a September rate cut. That first came from changed wording in their no-change statement that was more balanced between the two aspects of their mandate: inflation and jobs. Powell then confirmed a potential September rate cut at his press conference.

Because this was largely what was assumed in advance, there has been no major financial market reaction, but the reactions there were, were 'positive'.

The US dollar slipped marginally on the news, the S&P500 rose after already being up sharply. The benchmark UST 10yr fell -3 bps.

The US ADP jobs report came in lower than the expected +150,000 gain. It reported a gain of just +122,000 in July. This is the precursor report to the official non-farm payrolls report which is expected to show a +175,000 gain when it is reported on Saturday (NZT). The ADP Report slowing is consistent with the Fed's expectation that the labour market is not pushing undue labour market pressure on the US economy.

The Chicago PMI also came in very much as expected, also not putting upward pressure on inflation from the heartland factory sector.

And neither are American pending home sales. They may have risen in June from May, but they are still lower year-on-year.

However, mortgage applications are still shrinking, despite mortgage interest rates staying well below 7%.

The Bank of Japan actually has raised its official policy rate, and from 0.1% to 0.25% with a +15 bps hike late yesterday. They also said they will cut their bond buying activity. This has been seen as an aggressive move that signals the central bank's growing confidence in the recovery of the domestic economy and its concern about the sharply weaker yen.

The yen appreciated significantly. Equities rose. Their benchmark bond yields rose.

Taiwan's GDP expanded +5.1% real in Q2-2024, high, but less than the very high +6.6% rate in Q1-2024. Both were the best results since the pandemic recovery, and back to their long golden economic expansion between 1994 and 2008.

China's official July factory PMI fell slightly into a further contraction. Their official services PMI fell to a very minor expansion. Both were about what was expected, but neither is very promising.

In Europe, their Euro Area inflation rate unexpectedly edged up to 2.6% in July from 2.5% in June, when forecasts