Concerns high energy prices will crimp expansions, bring stagflation

<p>Kia ora,</p><p>Welcome to Wednesday's Economy Watch where we follow the economic events and trends that affect 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 energy issues are biting hard in both China and Europe now.</p><p>But first, Wall Street is trading sharply lower with the S&P500 down more than -2% and Dow Jones falling almost -500 points as a spike in Treasury yields dragged shares, especially tech shares, lower. Uncertainty in China isn't helping either. The yield on the 10-year Treasury topped 1.5% and the 5-year rate rose above 1% for the first time since February 2020. Investors are figuring that the US Fed will soon start reducing QE stimulus. They are also starting to wonder if the future is stagflation.</p><p>Also weighing on market sentiment are lackluster data. The <a href="https://conference-board.org/data/consumerconfidence.cfm" target="_blank"><strong>Conference Board sentiment</strong></a> measures are falling, and by more than expected.</p><p>The American trade balance came in virtually the same in August as in July, a -US88 bln deficit. Both exports and imports both rose about +3% in August from July.</p><p>The next regional factory survey is from the <a href="https://www.richmondfed.org/-/media/RichmondFedOrg/research/regional_economy/surveys_of_business_conditions/manufacturing/2021/pdf/mfg_09_28_21.pdf" target="_blank"><strong>Richmond Fed</strong></a> and its mid-Atlantic states, and this one has turned negative. That is because the new order flow is dipping now while costs are still rising but the ability to pass them on has stopped.</p><p>And the widely-watched Case-Shiller <a href="https://fred.stlouisfed.org/series/CSUSHPINSA" target="_blank"><strong>house price index</strong></a> rose +20% in the year that ended in July, as buyers continued to compete amid a shortage of homes for sale. But there are signs the American housing market is starting to cool.</p><p>In Congress, two separate forces are imper