Kia ora,

Welcome to Tuesday’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 Australia seems to have avoided American ire when Prime Minister Albanese visited Washington overnight. They ended with a rare earths agreement, confirmation of the AUKUS submarine deal, and unchanged 10% tariff rates into the US.

Albanese also seems to have avoided being forced into an overt anti-China position, and has resisted committing to defence spending above 2% of GDP. Trump wanted 3.5% but that seems sidelined.

It is also pretty clear that having US support can be a toxic advantage - for the US. Despite the US committing more than US$20 bln of US taxpayer funding to bolster its currency, Trump support of Argentina is leaking those funds fast with traders taking the support funds as fast as they can (the peso is still weakening fast), and Argentina rushing to sell China soybeans to replace American farmers. You couldn't make this stuff up.

In Canada, producer prices rose 4.0% in September from a year ago, the most since January, and prior to that the most since January 2023. But this strong rise was mostly caused by the rise in precious metals, especially gold.

Meanwhile, the latest Business Outlook Survey for Canadian businesses undertaken for their central bank shows a modest recovery in sentiment, but conditions remain quite subdued.

In China, their central bank kept their key lending rates at record lows for a fifth consecutive month in October, as was expected.

The rate of fall in China's new house prices mellowed in September according to official data. They were down overall by -2.3%. Shanghai remained the outlier with a +5.6% rise, slightly below August’s +5.9% increase for that city. But for resales, it is still tough, with none of their 70 largest urban areas reporting a gain, either month-on-month or year-on-year, not even Shanghai. If you buy new, you can only still sell into a falling market.

In a surprise to no-one, China said its Q3-2025 GDP was up +4.8% from a year ago. But that showed weaker than expected consumer demand. They also reported that retail sales were up only +3.0% in September (and a one year low, compared with +3.4% in August) whereas industrial production was up +6.5% in September (+5.2% in August. Regular readers will know that we also track electricity production as a hard check against these other top-line claims. That only showed a +1.5% rise from a year ago. It regularly trails claims of big industrial output and is a core reason we are sceptical of those outsized official claims.

The latest trade and tariff threats from the US is causing trans-Pacific freight rates to spike again as goods are rushed to beat the threatened imposition. But this spike is much more muted this time as most Chinese firms have transitioned away from US supply in a significant way.

On the import front, some decoupling by China is stark. China's monthly soybean imports from the US have fallen to zero for the first time in seven years. They were replaced by mostly South American sources. China is also strangling rare earth magnet exports to the US, which could be serious for some American companies, including defence contractors.

In France, after a tense political week, S&P downgraded France's credit rating in a rare, unscheduled adjustment, citing political instability that threatens the government’s efforts to repair its finances. Basically their public purse can't afford their generous retirement benefits, but the population insist they be kept irrespective of the damage to the State.

In Germany, producer price deflation stayed well embedded, with prices falling -1.7% in September from a year ago, although this was less than the -2.2% retreat in August.

The UST 10yr yield is now at 3.99% and down -2 bps from this time yesterday.

The price of gold will start today at US$4346/oz, up +US$95 from yesterday, a +2.2% surge to start the week. Silver hasn't had the same surge.

American oil prices are -50 USc lower at just on US$57/bbl, with the international Brent price now just on US$60.50/bbl.

The Kiwi dollar is at just on 57.5 USc, and up +10 bps from yesterday. Against the Aussie we are down -10 bps at 88.2 AUc. Against the euro we are up +10 bps at 49.3 euro cents. That all means our TWI-5 starts today at just under 62, up +10 bps.

The bitcoin price starts today at US$110,505 and up +1.6% from this time yesterday. Volatility over the past 24 hours has been modest at just on +/- 1.7%.

You can get more news affecting the economy in New Zealand from interest.co.nz.

Kia ora. I'm David Chaston. And we will do this again tomorrow.

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