Consumers in both China and the US display fragility

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.

And today we lead with news consumer hesitations are showing up the world's largest economies.

But first, our week ahead will be dominated by Wednesday's RBNZ OCR rate review, one that is widely expected, by both analysts and financial markets, to deliver a -25 bps cut. That will flow though to floating mortgage and savings rates, but it is far less clear it will affect fixed home loan rates given we have had a full range of cuts last week.

In Australia this week it will be all about consumer inflation expectations and consumer sentiment.

Elsewhere, in the shadow of northern hemisphere vacations, Canada and Japan will release updated CPI data, and there will be a focus on the US Fed, who with guests, will be huddling in Jackson Hole, WY, again. This time the comments from the two Trump-aligned board members will no doubt hog the limelight.

All the while, PMI releases will ground us in the real economy.

And in the real economy, Chinese retail sales rose +3.7% in July from a year ago, slowing from a +4.8% expansion in June. Markets were expecting a +4.6% gain in July, so this is a disappointment. This latest result is their weakest growth since December 2024.

Meanwhile, China's industrial production expanded by +5.7% in July from a year ago, slowing from June’s three-month high of +6.8%. Expectations were for a 5.9% gain so this miss is small. But it is the softest increase in industrial production since last November. That comes after capacity curbs caused by unusually high temperatures and heavy rainfall in some regions.

The more important metric of Chinese electricity production saw it rise +3.1% in July from a year ago, a faster expansion than in June. Hydro power was down -9.8% on the same basis, coal power up +4.3%, and nuclear power up +8.3%. The smaller renewals sector's rise was much faster than all of these.

And China’s new home prices in the 70 major reference cities dropped by -2.8% in July from a year ago, easing from a -3.2% decline in the previous month. It was the 25th consecutive month of contraction, the softest pace since March 2024. Only five of those 70 cities had any increase, and those were all marginal at best. But then again, so were the dips. For resales, there were no cities showing any year-on-year gains and only one (Taiyuan, in Shanxi province) with a monthly gain.

Overall, it’s a picture of a slightly slowing Chinese economy across all sectors and that will tell Beijing that its stimulus efforts so far are insufficient to keep up with the forces that are dragging it slower. But Beijing is calling the economy 'steady'.

And staying in Asia, Malaysia’s economy expanded by +4.4% year-on-year in the June quarter, matching the pace in Q1 and slightly below the initial estimate of +4.5%.

In the US economy, retail sales rose +0.5% in July from June, as expected and following an upwardly revised 0.9% rise in June. This was largely due to car buying. They are up +3.9% from a year ago but that gain has been falling from the recent +5.1% peak in March. Although tariff-taxes account for most of the gain, overall there is a small real gain here. However without cars, this would look quite negative.

In the New York region, they saw a modest rise in business activity in their factories in July based on rising new orders.

And that is supported by national industrial output data. While American industrial production edged down -0.1% in July, missing forecasts of a flat reading and following an upwardly revised +0.4% rise in June, the decline was only because the mining sector was weak. Factory output, which makes up about 78% of total industrial production, edged up +0.1% in July, after increasing +0.3% in June. From year-ago levels it is up +1.4%, similar to most of 2025.

Not so positive is American consumer sentiment and they don't like what they see ahead. The University of Michigan consumer sentiment August survey fell sharply from July and well below what was expected. It was the first fall in four months, mainly due to growing inflation concerns and sharply worse buying conditions for durable goods. Those surveyed anticipate worsening inflation and unemployment ahead. Overall this survey is more than -13% worse than year ago levels.

And in Europe, data released over the weekend shows that Ireland's exports to the US dropped by almost a quarter in June compared to a year ago. Tariffs got the blame. (But they were able to reorient about half of that drop to the UK.)

More globally, we should note that international shipping costs are starting to be roiled by the new Trump rule of tariff-extras/extra port fees for Chinese-made ships that dock there that comes into effect in five weeks. That will raise freight costs for Americans, and with extra capacity in other trades, probably bringing lower costs elsewhere.

The UST 10yr yield is now at 4.33%, up +1 bp from Saturday at this time, up +4 bps for the week.

The price of gold will start today at US$3,334/oz, unchanged from Saturday, but down -US$61 for the week.

American oil prices have firmed slightly to be just over US$63/bbl with the international Brent price over US$66/bbl.

The Kiwi dollar is at just over 59.2 USc and unchanged from Saturday. But it is down -40 bps from a week ago. Against the Aussie we have dipped -10 bps to 91 AUc. Against the euro we are holding at 50.6 euro cents. That all means our TWI-5 starts today at just on 66.8, down -10 bps from Saturday and down -½c for the week.

The bitcoin price starts today at US$117,422 and down -0.3% from this time yesterday. But up +0.5% from a week ago. Volatility over the past 24 hours has been low at just under +/-1.0%.

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.