Kia ora,

Welcome to Wednesday's Economy Watch where we follow the economic events and trends that affect New Zealand.

I'm David Chaston and this is the International edition from Interest.co.nz.

Today we lead with news of some major divergences between some major economic blocks.

But first, the overnight dairy auction saw prices rise a modest +1.8% in USD terms, but it was the sixth consecutive gain and took overall prices up to their highest since May 2014. (However, in NZD terms they are only back to year-ago levels.) Apart from SMP prices which dipped -1.5% after a strong rise at the prior event, all other products rose strongly with the key WMP price up another +2.3% and taking its price to its highest since December 2016. In NZD terms, overall prices gained another +1.2%. At these new levels there will be upward pressure on farm gate payout prices, limited by the rising Kiwi dollar.

US retail sales last week were still lower on a month-ago holiday-boosted basis, which is pretty understandable, but on a year-on-year basis they are making further impressive gains.

The independent Congressional Budget Office has issued an upbeat assessment of American economic prospects for the next ten years. It expects their economy to grow 'above potential' for the next few years, making back its pandemic losses by as early as next year. It also expects inflation to pick up, along with interest rates, and debt servicing will become a larger burden for them. This is an overall stronger outcome than the one they last released in July 2020.

In China, there is growing evidence that their housing market is in a new and unrestrained surge of demand. Authorities there will likely be stepping in again and soon.

In Hong Kong, they reported very ugly retail sales data for December, down -13% from the same month in 2019 and for all of 2020 retail sales there were down a massive -24%. Pessimism is high in the recently invaded Territory and it is becoming a shadow of its former self.

In the EU, things aren't great either. It is falling further behind. Their Q3 GDP bounceback has faded fast and in Q4, they went backwards by -0.5%. Unless the Q1 2021 result is positive, they are back in recession. Changes aren't great for avoiding this double-dip. On a year-on-year basis, it looks awful. About the only 'good' thing is that the UK is out of their numbers now and no longer another drag on these results.

In Australia, the RBA didn't change the interest rate at its review late yesterday, but it did dramatically extend its QE program. It decided to purchase an additional AU$100 bln of bonds issued by the Australian Government and states and territories when the current bond purchase program is completed in mid April. These additional purchases will be at the current rate of AU$5 bln a week. But the RBA is buying bonds at a faster pace than the government is selling them. The gap will widen to shrink their bond market by -$1.5 bln a week. This is a AU$750 bln market and the RBA already owns 10% of it.

Wall Street is posting another strong rise today with the S&P500 up +1.6% in early afternoon trade. Overnight European markets rose about +1.6% (although London only managed a +0.8% gain). Yesterday, the very large Tokyo market rose +1.0%, Hong Kong was up +1.2% and Shanghai gained +0.8%. The ASX200 rose +1.5% yesterday while the NZX50 Capital Index was the outlier, falling -0.4%.

The latest global compilation of COVID-19 data is here. The global tally is still rising, now at 103,573,000 and up +483,000 in one day.

The UST 10yr yield is up +3 bps at just over 1.10%.

The price of gold will start today down +US$25 at US$1838/oz. Silver is down more than -7%.

Oil prices are up almost +US$1.50 at nearly US$54.50/bbl in the US while the international price is now nearly US$57.50/bbl. ExxonMobil has posted an enormous -US$22 bln loss for 2020.

And the Kiwi dollar will open today little-changed if a little softish at 71.5 USc. Against the Australian dollar we are firmer at just on 94.3 AUc and its highest since early December. Against the euro we are just under at 59.5 euro cents. That means our TWI-5 is up very slightly at 73.5.

The bitcoin price has risen again overnight and by +6.3% and is now at US$34,865.

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

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

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