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 that while oil producers see sharply lower demand, the world's largest economy shows rising retail demand.

But first, the overnight dairy Pulse auction saw SMP dart higher than expected to US$2800/tonne, its highest level since February 2023. The WMP component however slightly undershot expectations at US$3438/tonne, but holding its level of four weeks ago. It is not a serious weakness in over a series of auction events where the WMP price has been a little volatile.

And staying with commodities, OPEC cut its demand forecast - for the second time in two months. That suddenly dropped the price of crude in all markets by almost -5%.

So it might be a surprise to know that US retail demand at physical stores rose last week by +6.5% than in the same week a year ago, far outpacing inflation, and to it's fastest growth since the end of 2022 when it was recovering from the weak pandemic base. Prior to that anomaly, it is its highest growth rate since 2006 !

Away from the business community and the Masters of the Universe crowd, a comprehensive review of US incomes for 2023 revealed a +4.0% rise in the year, and no-change in their poverty rates, which stand at income levels below US$30,900 (NZ$50,000). Their poverty rate was marginally lower at 11.1%.

The NFIB Business optimism index slipped in August, but only off a very high level in the prior month. Even after this slip it is still near its highest since the end of 2022.

There was another very well supported US Treasury bond tender today, this one for their 3 year Note. It brought a 3.40% yield. That is much lower than the 3.75% yield at the prior equivalent event a month ago.

In China, foreign demand for their exports was strong in August. They increased by +8.7% in August from the same month a year ago, the most since March 2023, and to a 23-month high of US$309 bln. That was more than the expected rise of +6.5% and more than July's growth of +7.0%. It was the fifth straight month of expansion. The Chinese factory sector is being held up by international demand, not domestic demand.

New Zealand and Australian demand for Chinese exports is falling however Ditto the EU, Japan and South Korea. Demand from the US is up but only by +2.8%. The countries with the largest demand increases are Brazil, South East Asia, and interestingly, Taiwan.

In China, they are about to require basic military training for high school and university students