The cost of money rises on Wall Street, falls in Shanghai

<p>Kia ora,</p><p>Welcome to Tuesday’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>And today we lead with news the cost of money is ending its extended 'cheap' period. There is a whole generation unused it its 'normal' level where the benchmark is about 5% with lending costs above that.</p><p>We start today noting that American bond yields are moving ever higher. The yield on the UST 10yr has hit its highest since November of 2007. Markets see the Fed encouraged to stay hawkish on 'good data', and the US Federal deficit situation will need more issuance at a time of very partisan election uncertainty and rising risks of shutdown. Investors insist of compensation for these risks. Inflation-protected 10-year Treasuries rose past 2% for the first time since 2009.</p><p>In China however, they made a modest reduction to their loan prime rates yesterday. Markets were disappointed at the timid policy action. The August fixing <a href="http://www.pbc.gov.cn/rmyh/108976/index.html#LPR" target="_blank"><strong>cut the one-year loan prime rate by -10 bps</strong></a> to 3.45% (a record low) in an effort to ease borrowing costs for businesses, but maintained the five-year rate, the home loan benchmark, at 4.2%.</p><p>It was a disappointing regulatory response that saw foreign banks cutting their China forecasts further. And the property sector revealed even more signs of distress.</p><p>The commercial office market in both Beijing and Shanghai is <a href="https://pdf.savills.asia/asia-pacific-research/asia-pacific-research/2023-prime-benchmark-jul.pdf" target="_blank"><strong>tightening significantly</strong></a>, extending the residential property sector's woes into the wider sector. More tenants in Shanghai's Grade A offices terminated leases than signed them during the June 2023 quarter ending, the first time that has happened since 2015. Further Beijing experienced its third consecut