Markets caught flat-footed on Japanese bond move

<p>Kia ora,</p><p>Welcome to Wednesday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.</p><p>I'm David Chaston and this is the International edition from Interest.co.nz.</p><p>Today we lead with news that bond markets are showing the pressure today with heavy selling and rising yields, in a sign that markets accept that central banks are serious in their inflation fight commitments. Yesterday's Bank of Japan moves aren't helping either.</p><p>But first up today we have the final <a href="https://www.globaldairytrade.info/en/product-results/" target="_blank"><strong>dairy auction</strong></a> for the year and it is also ending on a low note, down -3.8% from the prior event and down -18% from the same event a year ago. In between it peaked +20% in March, and bottomed -18% at this latest event, so finishing in the dumps. WMP fell -4.0% from two weeks ago, and SMP fell -4.8%. The exchange rate has moved little over the past two weeks, so the -3.5% result in NZD is little different to the USD result.</p><p>With the milk flow easing off, the combined effect of lower prices on lower volumes will not help our export trade, nor our current account balance. But with borders open and international tourism and education slowly building back, at least there are forces mitigating the hurt this would otherwise cause.</p><p>US <a href="https://www.redbookresearch.com/" target="_blank"><strong>retail sales bounced back</strong></a> last week, up on a same store basis from the same week a year ago and by a bit more than inflation.</p><p>American <a href="https://www.census.gov/construction/nrc/pdf/newresconst.pdf" target="_blank"><strong>housing starts</strong></a> were little-changed in November from October and maintaining the expected level. But <a href="https://www.census.gov/construction/nrc/pdf/newresconst.pdf" target="_blank"><strong>building consents</strong></a> for residential construction fell away rather sharply, to a rate not seen since June 2020. A small fall back was