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 is not good. Markets are suddenly gripped by extreme fears of where the world's largest economy is heading.

But first up today we can report that the overnight dairy Pulse auction has seen milk powder prices fall. The big fall expected for WMP didn't happen but it was a retreat all the same. The small fall expected for SMP actually came in more pronounced than expected. Both shifts have ended the recent run up in these prices although they probably don't necessarily end the higher trending. Neither correction was enough to unstitch that at this event. But uncertainty is back all the same.

US data releases overnight remained resilient. The US retail impulse, as measured by the Redbook survey, held strong, unchanged and up +6.2% from the same week a year ago.

The next Richmond Fed factory survey moved up a bit but is now showing an expansion, its most since October 2023. This was a better result than anticipated and in complete contrast to yesterday's Texas survey.

The Dallas Fed's services survey eased back, but is still expanding although the trend has turned down mainly because the outlook uncertainty is rising.

But none of this data trumped the fast-rising doom mood in the US. The latest Conference Board survey of consumer sentiment was particularly negative. Its reading of consumer confidence registered the largest monthly decline since August 2021. Although other similar surveys like the PMIs and the University of Michigan one showed the same trend, this latest one was worse and has just compounded the negative mood.

Risk aversion sentiment is gripping financial markets today. Wall Street is lower, the US Treasury bond prices are surging (yields falling), yield inversions are returning, and the USD is rising, in the normal reaction to a risk-off mood. Everyone from consumers to the financial market professionals know the US is going the wrong way with its public policy.

And we should probably note that the Tesla share price is down more than -8% so far today, down -14% in a week and down -20% since the start of the year. The "move-fast-and-break-things" strategy isn't proving to be a good business practice.

There was another US Treasury 5yr auction today and the well-supported event delivered a yield of 4.07%, lower than the the 4.29% at the equivalent event a month ago.

Elsewhere, Taiwanese retail sales are on the rise, up +5.3% in January from a year ago in a strong showing, much better than expected. Meanwhile, Taiwanese industrial production growth eased, but only back to the levels expected.

South Korea's central bank cut its policy rate by -25 bps to 2.75% yesterday. This was as expected. It is their third cut since this rate peaked in January 2023 at 3.5%. Their cutting cycle started in October 2024.

In China, exports through Hong Kong fell to a one year low in January, and a sharp retreat from December. This is the weakest growth in exports activity after sharp reversals for exports of electrical machinery, and household appliances.

In Australia, regulator ASIC is warning of the risks of investing in private markets, a growing trend recently. The opacity of valuations, liquidity and governance has them worried.

And as the Aussies get ready for a probably May election, it has been standard to expect the ruling Labor Party to lose, mainly because incumbents are losing elsewhere. But a new poll suggests a change may in fact not happen there. No doubt they are encouraged by the German election where essentially the center held.

The UST 10yr yield is at 4.31%, down -10 bps from yesterday at this time.

The price of gold will start today at just under US$2894/oz and down -US$48 from yesterday.

Oil prices are down -US$2 at just under US$69/bbl in the US and the international Brent price is now just under US$73/bbl.

The Kiwi dollar is now at 57.2 USc and down -20 bps from yesterday. Against the Aussie we are unchanged at 90.3 AUc. Against the euro we are down -40 bps at 54.4 euro cents. That all means our TWI-5 starts today just on 66.9, and down -30 bps from yesterday.

The bitcoin price starts today at US$87,309 and down a massive -7.7% from this time yesterday. Bitcoin has dropped about 20% since Trump’s January inauguration, as initial optimism over his crypto-friendly stance fades. Bitcoin wasn't the only crypto to drop. Volatility over the past 24 hours has been very high at +/- 4.8%.

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.

Risk appetite in sharp reversal