Kia ora,

Welcome to Tuesday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.

I'm David Chaston and this is the International edition from Interest.co.nz.

Today we lead with news financial and commodity markets have turned sharply fearful on concerns the economic expansion is waning. Risk aversion was gripping markets earlier today, and a lockdown crisis in Beijing isn't helping.

But first in the US, the Chicago Fed's National Activity Index fell in March to its lowest in three months and February was revised lower. It was still recording an expansion, just a weaker one.

The more current Dallas Fed factory survey for April retreated to its lowest reading since October. Again, still expanding, but the track is weaker.

This overall pullback is being reflected in trucking demand stats, which are turning lower and quite sharply.

But April PMI data has actually been good. The US factory sector is expanding faster, even as those concerns about the future build. Their manufacturing PMIs came in at their strongest in 7 months due to faster rises in output, new orders and employment. A rise in export orders is coming too. 

Canadian retail sales were expected to slip in February, but they rose in data released overnight, even if only marginally. They would have risen much more except vehicle sales were weak there.

Canadian producer prices rose very sharply in March, now running higher than +18% pa. In fact that is their fastest pace in almost 50 years.

Japan finally seems to be getting some [minor] inflation. Consumer prices rose by +1.2% in March, the most since October 2018, after a +0.9% gain a month earlier. The latest figure marked the 7th straight month of annual inflation, with food prices rising at the fastest pace in over 5 years at +3.4%.

And the flash April PMI for Japan brought signs their economy is expanding this month. The latest data showed that Japanese private sector activity improved at a sharper rate. Services companies recorded an expansion in activity for the first time since last December, while manufacturers saw output levels rise for the second successive month. April data signaled the sharpest expansion in four months, though the pace of growth was only marginal, to be fair, mainly because new order levels weren't growing. But it is better than a contraction.

In China, there are now realistic fears that Beijing will need to be locked down just like Shanghai has been. This is having strong echoes in financial markets with equities falling very hard yesterday. The Chinese currency, already under pressure, took another tumble and their central bank took some measures to ease the pressure, although it is unclear they had any real impact.

Copper prices have retreated sharply today as growth fears build for China.

Meanwhile, Taiwanese industrial production expanded in March but the year-on-year gain was more modest this time. But retail sales, which has been barely growing for some time, exhibited a much stronger rise in March.

Singapore is getting inflation like everywhere else. They booked a +5.4% annual rise in March, well above the expected level and well above the 4.3% they recorded in February. The month-on-month rise in March was very sharp indeed.

In Germany, there has been surprise data released overnight (a surprise to me at least). Their latest business sentiment survey turned higher as companies were less pessimistic after the initial shock of the war in Ukraine. Both current conditions and expectations improved. This survey happened before the French election result was known.

And that positive French election result should help overall EU sentiment.

PMI surveys show EU growth is accelerating in April as reviving services demand offsets a near stalling in their manufacturing sector. But prices are rising at record rates. In Germany, a drop in manufacturing production contrasts with continued service sector growth. But in France, business activity is rising at its fastest pace in more than three years. The UK however is still recording an expansion, but at lower levels. British retail sales were particularly weak in March, recording a decline.

In Australia, Westpac's respected economist Bill Evans has noted that 'underlying' inflation will rise to 3.4% when the March data is released next week, and their jobless rate will fall below 4% in April, and "on the basis of those forecasts we expect the RBA will decide to lift the cash rate by 40 basis points at its Board meeting on June 7" to 0.5%.

The UST 10yr yield starts today lower by -10 bps bps at 2.80% and taking it back to pre-Easter levels. 

The price of gold starts today down -US$35 since this time Saturday at US$1898/oz. That is a large -US$80 drop in a week or -4% down.

And oil prices are -US$4.50 lower at just under US$97/bbl in the US while the international Brent price is now just over US$100.50/bbl.

The Kiwi dollar will open today a little softer at 66.1 USc and still about its lowest since mid-February. Against the Australian dollar we are +½c firmer at 92.2 AUc. And against the euro we are firmer too at 61.7 euro cents. That all means our TWI-5 starts today at 72.9 and little-changed since where we left it Saturday.

The bitcoin price is virtually unchanged from this time yesterday at US$39,400. Volatility over the past 24 hours has been moderate at just under +/- 2.1%.

You can find links to the articles mentioned today in our show notes.

And get more news affecting the economy in New Zealand from interest.co.nz.

Kia ora. I'm David Chaston and we’ll do this again tomorrow.