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 of a settling of the global economy after some big announcements by China. So far, little seems to have changed, other than investors now think they can't lose with Chinese equity investments.

But first, the surge in American mortgage applications we noted last week has extended. Last week they soared +11% from the prior week, extending the earlier +14.2% gain to lift mortgage application volumes to their highest since June 2022, and now above year-ago levels. It's been a sudden shift. In fact this is the best two-week period in their housing market since late 2015. The upswing in home loan demand came as benchmark mortgage rates fell to a two-year low of 6.13%.

So far it has not shown up in the purchase of new homes. Sales of new single-family homes fell -4.7% in August to an annual rate of 716,000 units. While this drop partially offset the revised +10.3% surge from the previous month, it was still marginally more than market forecasts. This market has been on a slow recovery since August 2022. But the mortgage application surge may well change this momentum in September.

There was more evidence today that the US Government is having no problem attracting investors for its debt. The Treasury 5 year Note was well supported again with US$100 bln more in bids than available and the median interest rate came in at 3.46%, down from the 3.59% at the prior equivalent event a month ago.

Taiwanese retail sales were subdued in August, rising only +1.1% from the same month a year ago. But their industrial production was up more than +13% on the same basis.

After China's big signals of substantial monetary stimulus (and yesterday's follow-through of a -30 bps cut to the MLF rate to 2.0%, its biggest cut ever) you might have thought that commodity prices would have risen in anticipation of a meaningful market reaction. But they haven't - yet anyway. The copper price rose prior to the official announcements, but haven't kicked on today. Iron ore has stayed subdued. Other key metals have had conspicuously little reaction. This may all mean markets have been quite unimpressed with the scale of this stimulus effort. No-one is actually gearing up for 'the recovery'. Local investors still think they are however. But Aussie investors are very sceptical.

Staying in China, an overnight announcement revealed a one-off cash handout to the poor will happen early next week. The amount of the gift wasn't revealed however.

Overnight the Swedish central bank

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