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Developed economies

New Zealand will release GDP growth figures for Q2 on Thursday. Q1 GDP growth was 0.5% QoQ and forecasters are expecting a GDP growth rate of 0.7-0.9 QoQ for Q2. This is despite sharply lower business confidence levels. Q3 2018 general business confidence was at -47.60, the lowest level since the 2008/2009 recession, down from -29.87 in Q2 and -19.50 in Q1. In the last few years New Zealand has had decent GDP growth rate average 3.62% YoY between 2014 and 2018 vs an average of 2.02% between 2009 and 2013. New Zealand is facing cyclical slowdown in growth at the same time as new government policy is aiming at re-distributing income from firms to households via such measures as increasing minimum wage.

Australia, on the other hand, has a brighter economic picture and looks to be in a cyclical upcycle. GDP growth figures for Q2 released earlier this month show a 0.9% QoQ or 3.4% annualized growth rate, higher than the expected 0.7% QoQ growth rate. Q1’s annualized growth rate was 3.1%, 2017’s GDP growth rate was 1.98% YoY and averaged 2.42% YoY between 2014 and 2017. Much of this growth is coming from a return of Australia’s mining industry. Australian mining activity faltered as commodity prices fell from 2015 onwards. This year we’ve seen a return of commodity price growth and in Q2 Australian mining sector employment rose 8.8% the best growth rate since Q4 2012.

Northern Ireland’s DUP party, which props up Theresa May’s British government, said it was unconvinced by suggestions that technological solutions for an NI-UK sea border were more feasible than technological solutions for an NI-RoI land border. The quandary of how to keep the NI-RoI open and the NI-UK Sea border open after the UK leaves the European Union is holding back a final EU-UK withdrawal deal.

Emerging economies

Peru’s GDP growth surged in Q2 2018 on the back of stronger metals prices especially copper. Annualized growth was 5.4% in Q2 vs 3.1% YoY in Q1 and 2.2% YoY in Q4 2018. Production of copper also increased in Q2 to between 190,000 to 210,000 tonnes vs sub-190,000 tonnes in Q1. Copper prices have, however, come down in Q3 and this will likely mean Peru’s GDP growth will fall depending on the level of copper production in Q3. This boost in economic growth has had a very quick impact on Peruvian consumer activity, however, with consumer spending gaining 2.1% in Q2 QoQ, the highest rate of increase since Q4 2012 [it’s not a coincidence that this matches growth rate timeframe in Australia’s mining employment]. Moreover, preliminary Peruvian merchandise imports levels for Q3 are growing on average 6.85% MoM in Q3 vs an average MoM growth of -1.19% in Q2.

Zheng Xinli, the former director of China’s Central Policy Research office has urged the Chinese government to print more money to bolster domestic demand to offset economic problems from the on-going Chinese-United States trade war.

China has now recorded 49 months with an industrial production growth rate below 8%. Between 2007 and 2014 China’s industrial production only fell below 8% for 3-months. This reflects a maturing Chinese economy and a gradual shift towards being more consumer driven. This does not mean that China is no longer heavily reliant on exports to drive economic growth, just that there is a domestic consumer economy building to soften any reductions in trade.


European wheat markets have been creeping lower since late August. UK feed wheat is trading 9% lower today vs. this time last month with the November delivery trading at £172.5/tonne. Paris milling wheat is trading 6% lower with the December delivery trading at €198.75/tonne. The market is coming down for a variety or reasons. Primary amongst these are a) an increase in the USDA’s forecast for the Russian wheat harvest in mid-September and b) a flat export prediction for this harvest from Russia of 35 million tonnes. This will have caused some speculative market participants to sell off their positions and take profits.

Western Australia’s wheat growing regions were hit by a late spring frost in recent weeks. Analysts expect this will limit Australian output which is also being curtailed by a drought in eastern Australia’s wheat areas and further exasperate a global wheat shortage.

India is considering subsidizing its sugar exporters as its cane sugar growers face the combination of multi-year low international sugar prices and a glut of domestic sugar. The Indian crop this year was so good that the country is expected to become the world’s largest sugar exporter with a surplus of 10m tonnes. The entire Australian crop is expected to be 4.8m tonnes this year which is near its record. Australia and Brazil are preparing to launch a formal challenge to India at the WTO if the latter country implements an export subsidy. Sugar #11 dropped below 10c/lb in today’s trading after profit taking on a small upswing in prices last week.


US Energy Secretary Rick Perry declared during a visit to Moscow that Saudi Arabian, US and Russian crude oil output can be increased to match any decrease in global supplies from Iranian sanctions. Thus, he does not see the sanctions as having an impact on supply or prices. In the same interview Perry said Europe needs to wean itself off reliance on Russian gas supplies whilst the US is looking to increase its gas exports to Europe. Brent and WTI crude futures have been hovering just above the $78 and $68/bbl levels respectively recently.

Turkey will keep importing natural gas from Iran despite US sanctions. Turkey currently imports gas from Azerbaijan, Iran and Russia and may be looking to use Iran’s isolation and lack of other trading partners as a way of reducing the price it pays for Iranian gas.


So far this year investment into Peruvian mining has reached $2.7bn according to the Peruvian government. This is 29% higher than this time last year. There is also a much higher investment rate into mineral beneficiation of $690m vs $151m in 2017. The Peruvian government also expects some $20.8bn in investment between 2018 and 2022.

Baikal Mining Company is planning to raise $1.25bn to start exploiting its Udokan copper deposit. Udokan holds an estimate 26.7m tonnes of copper and has only been partially mined. The deposit sits north of Lake Baikal in Russia’s far east. Technological constraints, the deposits remoteness and its unusual ore grade have prevented its exploitation. The company is looking to commence production in 2022 and it could, theoretically, feed directly into the Chinese market via truck/rail. Shanghai, London and Chicago copper futures are 1% to 2% higher on the week trading at ¥48,680/tonne, $5,973/tonne and $2.63/lb respectively.

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