Despite tough news, global PMIs mostly positive

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Kia ora.

Welcome to Monday’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.

Today we lead with news we head into the final week of the northern holiday season with financial markets reacting to tough news on multiple fronts.

US missteps are catching up with them and that is driving higher interest rates and a lower USD, both a which involve an economic squeeze. Then there is the collapse the US-Canada trade relations which has pushed Canada to matching the new US tariffs. This will hurt both countries, Canada as expected, but the US more than they realise. Carney has brought back the Trudeau response, and this time Canadians have rallied around that reaction. Some significant parts of the US are going to get much higher prices. And as Canada supplies the most of its imported oil and gas, if Canada adds tariffs there, the impact on the US will be magnified.

All this will be grist for the Jackson Hole symposium which will be on from Friday to Sunday (NZT). There will be some worried central bankers showing up, and that probably includes Kevin Warsh, likely feeling undermined by Scott Bessent.

The outlook on global interest rates and long-term sovereign yields will again be a key focus this week as investors grapple with rising energy prices, increasing deficit spending, and soaring corporate debt. In the US it will be about personal income and spending, PCE inflation, and durable goods data for July, in addition to the key annual revision to nonfarm payrolls.

Japan will release consumer confidence survey results and its jobless rate, while rate decisions are due in Korea and Thailand which are widely expected to keep their policy rates unchanged at 1% and 2.75%, respectively, while the Philippine central bank could deliver a +25 bps rate hike to 5% as the country continues to face elevated energy and food prices alongside recent wage increases.

Locally it will be about Q2-2026 retail trade outcomes and current employment indicators, some mortgage and KiwiSaver data, and the week will end with the June update to the RBNZ's Dashboard.

And in Australia, investors will watch July inflation data where an easing from 3.8% to 3.2% is expected. And Q2 capital expenditure and household spending figures will also drop this week

In China, investors will focus on the National People's Congress Standing Committee meeting in Beijing from August 25-28, where authorities could signal additional policy support following a string of weak economic data. They will also release July industrial profit results.

Over the weekend, China reported US$11.1 bln in foreign direct investment in July, which was half the US$22.8 bln in July 2025. Year to date, their foreign direct investment is running -8.8% lower than in the same period a year ago.

And also over the weekend China said its forklift sales are going gangbusters in 2026, both for internal use and for export.

CPI inflation rose to 1.9% in Japan in July, their highest since December 2025. (Food prices were up +3.5%.) While the headline rate and the core rate both remain below the Bank of Japan's 2% inflation target, the rising trend may be enough for them to raise their 1% policy rate at their next review on September 18, 2026. They have other reasons to raise their policy rate (like, defending the yen, yielding to the US, needing to get back to 'normal' at some stage, etc.) so this may swing it.

Japanese business activity is expanding at its quickest rate for six months in August, according to the 'flash' PMI data released today. There were good gains for the factory sector, and these were bolstered by modest gains in their services sector. Of not was a steeper rise in new orders. Cost pressures continued to ease from June's recent record, but remained sharp overall, leading to another near-record increase in selling prices. Businesses are finding they can pass on the extra costs.

The 'flash' August PMI's for India show rising activity, especially in their services sector.

In the US, the August 'flash' PMI survey from S&P Global shows factory activity easing and now at a five month low. But the services sector is rising with a marginally stronger expansion. Input cost pressures have remained elevated but mainly due to rising fuel prices. Diesel is up +8.4% from a month ago, petrol up +2.2%.

Consumer price inflation is biting harder now in the US. Trump announced he will temporarily ease beef tariffs to help lower prices. Local beef producers weren't impressed, warning the move would hurt efforts to rebuild herds. And industry observers say the move will have little effect on the high prices. For someone who claims to love free-market capitalism, he acts in a very interventionist, the-government-knows-best manner.

Canada posted a good retail increase for the year to June, up +5.2% although this was a slowing from May. But their July result looks like it will fade somewhat. The weekend USMCA trade deal failure won't help of course.

The EU consumer sentiment survey retailed its July improvement in August. It is still deeply negative, but less so that at any time since February.

And the ECB updated its inflation expectations survey for July and that shows a minor decrease to 2.9% over the next twelve months, from 3.0% in June.

Eurozone business activity continues to rise in August amid stronger manufacturing growth, with their factory PMI now at a 51 month high.

According to the S&P Global 'flash' PMIs for August, growth in the Australian private sector is softer this month as the cost environment becomes more challenging in both the factory and services sectors. But both are still expanding. They are still getting rising new orders (in both sectors), but cost pressures have picked up in August. However the ability to pass those extra costs on retreated to its weakest of 2026.

And in freight news, El Niño is having an impact on Panama Canal traffic volumes. The authority which runs it says it is reducing traffic levels to 32 ships per day from 36 currently, due to the low water levels. That is an -11% reduction.

The UST 10yr yield is now just on 4.74%, unchanged from Saturday, up +5 bps for the week. 

The price of gold is up, now at US$4607/oz, down -US$14 from Saturday at this time, up +US$230 or +5.5% for the week. Silver has dipped -50 USc to just over US$69/oz.

Oil prices are unchanged from Saturday at just over US$87/bbl in the US, while the international Brent price is still just under US$94.50/bbl and up +US$1. From a week ago these prices are +7% higher from then. 

The Kiwi dollar is little-changed from Saturday at just over 59.8 USc, up +90 bps for the week. Against the Aussie we are still at 83.4 AUc. Against the euro we are holding at 51.2 euro cents. That all means our TWI-5 starts today at just over 63.2, down marginally from Saturday on a yen shift, but up +80 bps from this time last week.

The bitcoin price starts today at US$77,147 and down a minor -0.3% from Saturday, but up a whopping +23% jump from last week at this time. Volatility over the past 24 hours has also been modest at just on +/-1.2%.

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

Kia ora. I'm David Chaston and we’ll do this again tomorrow.

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