Kia ora,

Welcome to Tuesday'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 the bond markets seem to have concluded the Fed's new inflation settings won't work.

But first, the latest regional Fed factory survey is out from the Texas region and that shows a good recovery in new orders and an even better recovery in employment. It was an outcome market observers weren't expecting.

In Canada, the number of residential building permits issued in July fell -5.8% and that was a surprise which exposed the good June gain as an outlier

Indian Q2 GDP was reported overnight and it fell much more than was expected, shrinking at the rather startling rate of -24% pa when a -18% retreat was expected. That is a record decline. That is on track for a -10% fall in all of 2020, and as the pandemic is still gripping the country, a similar fall is expected in 20201.

In Japan, the recovery of consumer confidence, which wasn't strong in the first place, seems to have run out of steam before getting anywhere near last-year levels. And last-year levels were depressed anyway.

So it is no surprise that Japanese retail sales stumbled in July from June and recorded a -2.8% year-on-year change and worse than expected.

And Japanese industrial production fell -16% year-on-year in July but that was much less than the June result. Month-on-month it was up +8% in a good recovery.

South Korea retail sales slumped -6% in July from June, and erasing the good year-on-year gains that had, dragging that metric back to just +0.5%.

South Korea industrial production also came in much worse than expected in July, taking it into reverse and down -2.5% year-on-year.

China's official factory PMI for August has held its small expansion level and came in at almost the expected level. But their services PMI is showing a clearer expansion. New factory order growth is now at its best level in a year, even if it is an expansion that is modest. New export orders are now hardly contracting after a horror run, so that is a major improvement. New orders in the service sector are expanding well now. Expected future activity has turned quite enthusiastic in both sectors. In recent months, these official readings have proven conservative compared to the private PMI surveys.

And retail beef prices in China are rising again, up week-on-week to be more than +14% higher than the same time a year ago. The shift from pork is growing and there have been disruptions in imports (including from Australia) so prices there have been on a 10 week surge to now average NZ$18/kg.

In Australia, their muscular challenge to China's bullying is not working out for them so far. Few other countries are brave enough to join them, the Americans may let them hang out to dry, and China is doubling down on its wine restrictions.

Airlines are remaking themselves as air cargo carriers now that the passenger market has collapsed. Globally, air cargo is down -14% year-on-year in July, and that is a good recovery from the February to June period. And airlines are watching the new export order growth data and seeing further upside.

In New York, the S&P500 hasn't managed any gain today, and is flat in afternoon trade. Overnight there were falls of about -0.8% in Europe. Yesterday, Shanghai closed down -0.2%, Hong Kong closed down -1.0%, but Tokyo closed up more than +1.0%. The ASX200 ended down -0.2% and the NZX50 Capital Index was down -1.3% in a difficult day of trading again marked by DDoS attacks.

The latest global compilation of COVID-19 data is here. The global tally is 25,300,000, up +231,000 since yesterday.

Just under a quarter of all reported cases globally are in the US, which is up +32,000 in a day to 6,190,000 and a relentless rise

In Australia, there have now been 25,746 COVID-19 cases reported, and that is only +76 more than yesterday. Although most are in Victoria, it is definitely abating there.

The UST 10yr yield is down -3 bps today at 0.69% and a reality check for the Fed and its new policy shift.

The price of gold is up a modest +US$4 today to US$1,968/oz. But the price of silver is up a strong +2.8% and outshining the yellow metal today.

Oil prices are little-changed again today at just under US$43/bbl in the US while the international price is just on US$45.50/bbl.

The Kiwi dollar marginally higher again today and now at 67.5 USc. Against the Australian dollar we have slipped marginally to 91.3 AUc. Against the euro we are back to 56.5 euro cents. That means our TWI-5 is unchanged at 70 and the currency-depressing impact of the last MPS has all been unwound.

The bitcoin price is up +0.7% from this time yesterday at US$11,736.

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.