Better news but bad decisions

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 world is awash in better economic news today in many of the world's largest economies.

First, the overnight dairy Pulse auction of the two key milk powders brought more weakness. The SMP price fell another -0.5% from last week's full auction, but as the NZD is rising, it was actually down -1.6% in NZD terms. The WMP fared worse, down -3.6% on the same basis in USD, down -4.2% in NZD. It is not a good trajectory.

In the US there were some key labour market reports out today. First the weekly ADP private payrolls update for last week recorded a small +5000 gain which follows five consecutive weeks where they recorded more than a -27,000 loss of jobs (which was consistent with what they reported for the November month).

And the catch-up JOLTS report for October showed little-change from September, but job openings were a little higher than anticipated for both months.

And the widely watched SME sentiment survey from the NFIB was marginally better than expected, up slightly from October, but just back to the levels it has been at since May although that still leaves it at a slight net negative. Interestingly, the retail Redbook survey eased back a bit last week to the average rise it has recorded since later 2023, which mirrors retail inflation that is juiced by tariff-taxes. It is perhaps an indicator that the Thanksgiving seasonal retail was not as strong as hoped.

There is more evidence that Trump is just plain dumb. After his failure to get the Chinese to buy US soybeans at scale, he is rolling out US$16 mln in taxpayer support for some farmers which will actually be very little for most. Now he is threatening swingeing tariffs on Canadian fertilizer imports of potash, oblivious that even if that blocks cheap Canadian imports, it will leave high-priced local product, with a net loss for farmers, probably exceeding US$15 bln. Even a high school economics student can see the flaws in his approach, which embeds higher costs on Americans.

Trump has also handed China a huge AI chip win, agreeing to let Nvidia sell its best stuff to China. This will allow China to close the gap on the US AI advantages much faster now. The US security community is gobsmacked. China may not buy a lot, but it doers give them access to the technology.

In Japan, machine tool orders were strong in November, up +14.2% from a year ago continuing expanded growth over the past seven months. But domestic demand actually fell. It was foreign orders that were the star here, up by +23%.

Next week, there will be an important central bank meeting in Tokyo. Overnight remarks by the Bank of Japan governor seemed to set the groundworks for another rate rise on the basis that inflation is embedding, especially wage inflation, and that the risks of deflation there are receding on a permanent basis. Japanese long term interest rates are now approaching 2% and a twenty year high..

Taiwanese exports were exceptionally strong again, as we have come to expect. They surged +56% in November from a year ago to a record US$64 bln, up from a 49% gain in October and again better that market expectations for a 41% rise. It is strong global demand for their chips and AI technology that is powering these amazing results.

German exports also rose in October, a surprise because that had risen strongly in September and a sm