US returns from holidays in a grumpy mood

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 that US financial markets are back from holiday and concluding that the tech sector is over-valued and that US public policy is heading into a blind alley. The bond market sentiment we noted in the past month has now spread into the equity markets.

And you can see the rising risk aversion in the gold price, driving it sharply higher today into new territory.

At the overnight dairy auction, prices slumped more than -4.3% in US dollar terms. The situation was 'saved' somewhat by the sharpish recent fall in the NZD, so in local currency terms it was 'only' down -3.5%. Both the milk powders retreated sharply, with SMP down -5.8% and WMP down -5.3%. Most other milk fat commodities fell too with the notable exception of cheddar cheese which was up +3.6%.

Although its only one event, the dominant WMP price is now back to early 2025 levels, and with a bit of a thud. Analysts will be keeping an eye on this, unlikely to shift their farmgate price forecasts but wouldn't want these lower levels to repeat. But good global supply levels won't help future prices especially if demand turns soft and it seems to be doing in some key markets.

In the US, the widely-watched ISM factory PMI was still contracting at a concerning rate in August. And that was despite a small rise in new orders. Both measures were lower than expected. The alternate S&P Global/Markit PMI told a different story however, rising on more production and inventory building. But it was the ISM one that markets took more notice of.

US logistics LMI was little-changed. But the elements like inventory levels and inventory costs are rising at an increasing rate, and these are not good portends.

And the RCM/TIPP consumer sentiment index was quite downbeat as well. In fact it fell when a rise was anticipated.

In Canada, their factory PMI rose from the deepish contraction it has been in for most of 2025, but it is still not expanding. It too was based on rising production, but no rise in new orders.

In Europe, they said their August inflation was running at 2.1%, up marginally from +2.0% in July. Interestingly, energy costs are still retreating but the impact on the overall price level is now much less with food and services prices rising at a much lesser rate now.

A new global report is highlighting that electricity demand is on course to rise by +3.3% in 2025 and +3.7% in 2026, more than twice as fast as total energy demand growth over the same period. According to the report, renewables are expected to overtake coal as the world’s largest source of electricity generation as early as 2025 or by 2026 at the latest, depending on weather and fuel price trends. At the same time, nuclear power output is expected to reach record highs. The steady increase in natural gas-fired power generation is set to continue displacing coal and oil in the power sector in many regions.

The UST 10yr yield is now at 4.28%, up +3 bps from yesterday at this time. The key 2-10 yield curve is up at +63 bps. The last time it was this steep was in February 2022. Long dated yields are on the move higher. The UST 30 year yield is actually closing in on 2007 levels and almost at 5%.

The price of gold will start today at US$3,526/oz, up +US$50 from yesterday and surging to a new record high. Silver has moved higher too but not as aggressively.

American oil prices are +US$1 firmer at just over US$65.50/bbl with the international Brent price holding just over US$69/bbl.

The Kiwi dollar is at just under 58.7 USc and down -30 bps from yesterday and its lowest level since mid-April. Against the Aussie we are down -10 bps 89.9 AUc. Against the euro we are unchanged at 50.4 euro cents. That all means our TWI-5 starts today at just over 66.3, down -10 bps from yesterday.

The bitcoin price starts today at US$110,892 and up +1.8% from this time yesterday. Volatility over the past 24 hours has been modest at just on +/- 1.8%.

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.