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 it remains unclear what happens next after the chaotic round of US tariffs on their closest trade partners, and then their unexpected suspension.

But first up this morning, we can report a strong dairy auction result, with prices up +3.7% in USD terms and up +4.0% in NZD terms. The key WMP price was up +4.1% in USD terms and is now sitting much higher than the anticipated US$4000 level. There were a couple of key factors at play today. First, despite rising NZ production, the volume of product on offer was down, and along with lower US and Australian milk production, there is a supply squeeze. And secondly, there was strong pre-Ramadan buying although not so much from China as anticipated. Where each component has landed can be checked in our dual-currency charts that also interleave the Pulse results for SMP and WMP as well. There are some new high benchmarks achieved today, especially the WMP price in NZD.

And, yes, the strength of this auction will have analysts reassessing their payout forecasts. But they will probably hold back because of where we are in the season. However, the base is now quite strong.

US job openings fell by -556,000 to 7.6 million in December, to a lot less than anticipated and indicating a definite cooling of the American labour market. Clearly employers were uncertain about how the post-election landscape would play out. And this came well before the aggressive purging of Federal government jobs now underway.

Perhaps worse, new orders for manufactured goods sank -0.9% in December from November, extending the revised -0.8% drop in the previous month, and firmly below market expectations of a lesser decline. It was the sharpest monthly drop since June.

But retail sales were up +5.7% last week from the same week a year ago on a same-store basis and that was an improvement. However you have to wonder whether this rise was motivated by buying ahead of expected price rises flowing from the signaled tariff increases.

Surging inventory levels has seen the US Logistics Manager’s Index jump in January from December to its fastest expansion of the logistics since June 2022. Underlying growth and the uncertainty surrounding trade regulations, particularly the tariffs on Mexico, Canada, and China, drove the defensive inventory moves.

On the trade war front, the US delayed its tariff imposition in both Mexico and Canada by a month, but China set in motion is retaliation, a mixture of its own countervailing tariffs especially on coal, oil and natural gas, plus major 'investigations' of Google, Nvidia and Intel. It also banned exports of some key minerals. But analysts thing there is more symbolism here than hard penalties. They are being saved for later in the game.

In Canada, consumer boycotts may have a bigger effect than official retaliation. Other major economies are also readying their retaliation, including Japan and the EU. If all of them act in unison, the impact of just these five big trading blocs will be substantial for the US (and themselves of course).

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