Episode Details

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Kia ora.

Welcome to Monday’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 nothing was resolved in the Xi-Trump talks, and nothing is resolved in the US-Iran standoff.

But first, this week will be dominated by the RBA policy rate decision on Tuesday as the next major set piece review in the midst of the global bond sell-off and inflationary pressures. They are widely expected to raise the rate +25 bps to 4.60%, widening the differential to New Zealand. Australia will also release important household spending data, its August CPI update, and building permit data this week.

In New Zealand it will be all about consumer and business sentiment updates, and the usual end of month RBNZ data dump.

The week will end with the US September non-farm payrolls report - expect +100,000, although its cred is being undermined from within. And there will be US data on personal income and spending out this week, other labour market data, and a key PMI report.

In China, the focus will be on the September PMIs, with data from both the NBS and private S&P Global ones expected to point to a modest improvement in manufacturing and services activity. August industrial profits will also be released. Meanwhile, Chinese markets will be closed from October 1 to October 7 for the National Day holidays.

Of course, the global geopolitical mess rolls on chaotically, so we will be watching for either diplomatic agreements or escalatory strikes between the US and Iran.

Over the weekend in the US, August durable goods orders were essentially unchanged from July, which was better than the expected -0.4% decline. From a year ago they are +8.4% higher although we should note that PPI inflation ran at 5.4% in the same period. Non-military capital goods orders are up +5.8% on a year-ago basis, but given the huge surge in data center buildouts this is surprisingly weak.

Late last week, US petrol prices breached the +50% rise since Trump's war on Iran started in early March. Diesel prices are now up +67% in that market.

The University of Michigan September survey of consumer sentiment tracks anxiety of the inflationary pressure these sort of cost increases are bringing and the weekend update is grim reading. Only once since this survey started in 1946 has this reading been as low as it is now - and that was in May. Year-ahead inflation expectations jumped from 4.0% in August to 4.6% this month, the highest reading since June. The current level substantially exceeds the 3.4% seen in February before the Iran conflict began, along with all 2024 levels.

Financial markets are betting that rising inflation will be more important to the Fed than falling sentiment and the US Fed will raise rates at its next meeting on October 29, which is just days ahead of their mid-term elections. This market positioning is more than 2:1 now, and is bolstered by recent Fed speakers who are clearly worried that delays could cause them to lose control of the US inflation impetus.

Over the weekend China was on holiday for Mid A