A warning on bank asset quality

Kia ora,Welcome to Tuesday’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 of a warning of a permanent downgrade on asset quality that will affect banks worldwide.But with Japan, China and Singapore all on holiday, global economic news is a bit thin today.First up, American inflation expectations seem to be easing, even if the changes are small. But for the year ahead they were steady in January at 3%, the lowest in three years. Even though the overall pace is steady and key items are declining, some core elements are still relatively high. They were lower for petrol but at 4.2%, the lowest since December 2022, for food at 4.9%, the lowest since March 2020, and for rent at 6.4%, the lowest since December 2020. Overall, looking ahead three years, they are down to 2.4%.In India, consumer inflation is falling also, even if there are some key elements that remain high. Overall it eased to 5.1% in January, the lowest in three months, from 5.7% in December and matching market expectations. Their central bank has a wide 2-6% target range. The slowdown is mostly due to an ease in food inflation and favourable base effects from last year. But food inflation only fell to 8.3% from 9.5%.Indian industrial production was up +3.8% in December from a year ago, handily more than November's +2.4% and the expected +2.5%Indonesia goes to the polls tomorrow in elections that include one for President. And it is looking like one candidate will win in the first round, current Defense Minister Prabowo Subianto. Prabowo is from the Suharto political dynasty. He also chose the son of very popular outgoing president Jokowi as his running mate. Jokowi is barred from running for a fourth term and many believe he is organising the Prabowo candidacy and will be a major influence in the new leadership.And there was a second round presidential election in Finland over the weekend. Alexander Stubb of the centre-right National Coalition Party narrowly won defeating liberal Green Party member Pekka Haavisto, who conceded defeat. Stubb is pro-European and a strong supporter of Ukraine and someone who has taken a tough stance towards Russia.In China, the January data on new car sales were a disappointment. They reported their first month-on-month decline in vehicle sales since August, despite renewed efforts by some carmakers to offer discounts in the world’s largest auto market. Just on 2.04 million vehicles were sold in the month, down -14% from December. Sales of passenger NEVs fell almost -30% month-on-month to 668,000, also the first such drop since August.In Europe, a new ECB official is worried about structural changes in their banking sector and asset quality is starting to deteriorate. She warned of a permanently changed risk landscape that requires lenders to alter how they operate.The UST 10yr yield starts today at 4.17% and little-changed from yesterday. The price of gold will start today down -US$10/oz from yesterday at US$2014/oz.Oil prices are little-changed, still at US$76.50/bbl in the US while the international Brent price is still just over US$81.50/bbl.Perhaps we should also note the rather stunning fall in natural gas prices worldwide. In the US, these prices are back to levels they first had in 1990. In Europe, back to levels they first had in 2011. Not only is Russia a major exporter and suffering the downturn, so is Australia. In inflation-adjusted terms, natural gas has never been cheaper.The Kiwi dollar starts today at just under 61.4 USc and marginally softer that this time yesterday. Against the Aussie we are down nearly -½c at 93.9 AUc. Against the euro we open at just under 57 euro cents and little-changed. That all means our TWI-5 starts today at just over 70.7 and down -20 bps.The bitcoin price starts today at US$49,598 and up +2.8% from this time yesterday. And at that level it is now over NZ$80,000 for the first time since December 2021. Volatility over the past 24 hours has been moderate at just over +/- 2.3%.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.