The US gifts China global opportunities

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 the dominated by Trump's shows of 'power' and theatrics. Toxic tech-bro masculinity is on full display. Senior female leaders are getting the chop or side-lined. But so far, also backtracks on trade threats. So we will stand back to await any real impacts.

But first up today, there was another full dairy auction today and it was a modestly positive one, although volumes sold were seasonally lower, the least since July 2024. Overall prices rose +1.4% from the last full auction two weeks ago, and perhaps the detail is more interesting than the overall result. WMP was up +5.0%, SMP was up +2.0%, and both butter and cheddar cheese had better than +2% rises from that last full auction. That takes the WMP price to its highest since June 2022. Stronger demand from China is part of the reason for today's rise, but better demand out of Europe helped too. In NZD terms, overall prices were up only +1.0% as the NZD rose and is higher than two weeks ago.

From the US, the flurry of Presidential executive orders is creating an opening for China to lead some key global initiatives, from health and the WHO, to climate change. While the US is becoming more isolationist, China is finding openings to be less so. The world's power blocs are getting new boundaries.

In Canada, their December CPI data brought few surprises, up 1.8% when a 1.9% rise was expected. But overall December prices actually fell from November and by slightly more than anticipated. Some sales tax relief had a part to play as well. With this result, inflation remained within or below the Bank of Canada’s midpoint target 2% for the fifth consecutive month, adding to current expectations of further rate cuts this year. They next review that official rate on Thursday next week NZT and their current rate is 3.25%. But trade relations with their suddenly unfriendly southern neighbour will dominate how they approach this.

In China, 15 of their 31 regional governments have set growth targets for 2025 less than they had for 2024. Only one raised its target. Basically soft domestic demand and an uncertain global trade outlook is motivating the pullbacks.

In Germany, any green shoots they may have been seeing have been snuffed out by households in defensive mode. The ZEW Indicator of Economic Sentiment fell in January from December, and by more than expected as inflationary pressure perceptions persist. But to be fair, this sentiment index is still positive, and has been since October, just less so.

Later this morning, we will get the December REINZ results, and the Q4-2024 New Zealand inflation result. The RBNZ's February 19 OCR review will be influenced by that.

The UST 10yr yield is now at just on 4.58%, and unchanged from this time yesterday.

The price of gold will start today at US$2740/oz and up +US$33 from yesterday.

Oil prices are unchanged at just over US$76.50/bbl in the US although the international Brent price is down -50 USc to now just on US$79.50.

The Kiwi dollar starts today just under 56.6 USc and unchanged from this time yesterday and holding its recent gain. Against the Aussie we unchanged at 90.4 AUc. Against the euro we are also unchanged at 54.4 euro cents. That all means our TWI-5 starts today just on 67.1 and again unchanged from yesterday.

The bitcoin price starts today at US$105,307 and down -1.3% from this time yesterday. Volatility over the past 24 hours has been high at +/- 3.3%.

You can find links to the articles mentioned today in our show notes.

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.