Bond markets bet Fed hikes won't stick

<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>Today we lead with news investors are now betting that the US Fed will need to cut rates in 2023, and that is twisting the global bond market. The Fed is widely expected to raise rates +75 bps on Thursday, so these signals are confusing as markets struggle to make the transition.</p><p>In the US, even though the Chicago Fed's <a href="https://www.interest.co.nz/sites/default/files/2022-07/cfnai-july2022-pdf.pdf" target="_blank"><strong>National Activity Index</strong></a> was unchanged in June from May - and still recording a moderate expansion - the Dallas Fed's more current <a href="https://www.dallasfed.org/research/surveys/tmos/2022/2207.aspx" target="_blank"><strong>July survey</strong></a> is only expanding with "modest growth" and gives more evidence of an economic slowdown in the US factory sector.</p><p>There was another <a href="https://www.treasurydirect.gov/instit/annceresult/press/preanre/2022/R_20220725_3.pdf" target="_blank"><strong>US Treasury bond auction</strong></a> overnight, this one for the 2 year maturity and raising US$49 bln. It was well supported with the median yield achieved at 2.95% and marginally less than the 3.00% at the <a href="https://www.treasurydirect.gov/instit/annceresult/press/preanre/2022/R_20220627_2.pdf" target="_blank"><strong>prior equivalent event</strong></a>.</p><p>China <a href="http://www.nhc.gov.cn/" target="_blank"><strong>said</strong></a> the number of new births in several Chinese provinces hit the lowest in 60 years and their experts now expect the country's population to start to shrink before 2025.</p><p>And staying in China, they said they will <a href="https://www.reuters.com/world/china/china-plans-set-up-real-estate-fund-worth-up-44-bln-redd-2022-07-25/" target="_blank"><strong>launch a real estate fund</strong></a> to help property