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.

And today we lead with news the expected glow following the Chinese stimulus signals is surprising in its absence. Markets have turned quite sceptical and the Chinese bond yields have sunk sharply.

But first up today, we can report that the overnight GDT dairy Pulse auction brought slightly lower prices for SMP and WMP, but that the fall in the NZD maintained the results in NZD. SMP fell -1.5% from the prior week's full auction (in USD), and WMP fell -1.6% on the same basis. But in that same week the NZD fell -1.3%, so call it quits in NZD. Although they will have noticed this overnight event, the analysts are unlikely to alter their farmgate payout forecasts based on this recent activity, although the ones who still have forecasts lower than the Fonterra mid-point will be feeling a little safer.

Also overnight, the Redbook index of US retail activity there rose only +4.2% from the same week a year ago, a much lesser rise than the +7.2% gain the previous week. In fact it was the least gain since March. A bit of a levelling off, it seems.

But jumping a lot is the latest survey of small business sentiment. The NFIB Small Business Optimism Index jumped in November to the highest reading since June 2021,and well above what was expected. It is also the first time in 34 months that the reading is above the 50-year average of 98. The election result is said to be the reason for this rise.

The latest USDA WASDE report points out new restrictions of cattle imports to the US from Mexico because of an outbreak of screwworm (NWS) and the ban may be long-lasting. US imports of beef from other sources (including Oceania) are likely to rise. They also note that US milk production will likely turn up on higher milk prices.

There was another very well supported US Treasury 3 year bond auction earlier today, and that resulted in a median yield of 4.07%, very similar to the 4.09% at the prior equivalent event a month ago. No risk-rise signaled here.

In Japan, machine tool orders rose +3.0% in November from the same month a year earlier, slowing from +9.3% growth in October. Local orders were up +5.0%. The larger export order set was up only +2.2% as orders from China dragged.

China's export growth underwhelmed in November. It rose +12.7% in October and an +8.5% rise was expected in November (some thought +10%) due to front-loaded US demand ahead of 2025 tariffs. But in fact the gain was 'only' +6.7% from a year ago. Imports actually fell, a signal about their internal economic activity. Chinese imports from New Zealand are down -8.6% so far in 2024.

Interestingly, China's stimulus announcements have barely registered in international markets yet. Markets do expect them to cut rates and raise spending, but the feeling see