Episode Details

Kia ora,

Welcome to Friday’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 global bond market is rallying (prices up, yields down) with traders now pricing in three US Fed rate cuts before the end of the year. There is a sudden risk-off mood appearing today.

We should remind ourselves that the Northern Hemisphere is well into its summer vacation season. Markets are relatively thin, and this is when changes can get amplified. "Silly season" news is usual fare (food scares, catastrophes, etc.) although this year it is rather dominated by the Olympics.

First up today, we should note that American initial jobless claims came in slightly higher than expected, +249,000 on a seasonally adjusted basis. This 'rise' attracted the headlines. But on an actual basis they were in fact lower at 215,000 and a decrease of -10,000 from the prior week. There are now 1.94 mln people on these benefits.

Their July job cut tally was unusually low at just over 25,000. However the same report suggested new hiring activity was low too.

Tomorrow's July non-farm payrolls report is still expected to reveal a +175,000 expansion.

Also low was the widely-watched ISM factory PMI for July. The extent of the retreat was more than expected, the sharpest contraction since November 2023. Shrinking new order levels was a key cause. Falling new orders were also a feature of the internationally-benchmarked S&P/Market PMI version although they do not see the American factory sector contracting. Both versions reported lower inflation pressures.

These reports have pushed Wall Street sharply lower today.

Globally, there were a number of factory PMIs released today. In Europe, the contraction was unchanged. In Japan, their marginal expansion slipped back into a marginal contraction in July. In India, their strong expansion continues but now features very frothy inflation.

South Korea they are holding a good expansion.

In Taiwan they are getting a good, sustained expansion. In China, it is back to [minor] contraction as new orders fall away.

And the fierceness of the housing falls in China was on full display again in July. The value of new homes sold by the top 100 developers fell -20% in July from a year ago. Sales fell -16% in June on the same basis. The declines in prior months were in the orde