Kia ora,

Welcome to Thursday’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 that with the oil price up over US$120/bbl and the benchmark UST 10yr yield above 3%, the risks that global stagflation poses have risen sharply.

But first, the fall away in US mortgage applications picked up speed again last week - and are now at more than a 20 year low - as did the rise in their mortgage interest rates.

And American wholesale inventories rose +21% in April from a year ago, but that rise was less than in March. Part of that rise includes inflation of course. But as a ratio to sales, the new levels are still relatively low in an historical context. As we noted yesterday however, some large retailers are feeling high-inventory pain.

There was another well supported US Treasury bond auction earlier today, this one for the 10 year benchmark bond. The median yield rise to 2.95%, up from 2.85% at the previous equivalent event a month ago.

In China, parts of Shanghai are back in strict lockdown as pandemic cases are recorded.

Taiwanese exports grew less in May than in April, but at about what was expected. Their trade surplus was marginally smaller too as imports rose faster.

The Reserve Bank of India raised its key repo rate by +50 bps to 4.9% during its June meeting, after May's surprise +40 bps off-cycle hike. Yesterday's rise was more than the repeat +40 bps markets had expected. These moves up are to battle "steep" inflationary pressures, running now at 7.8% and rising.

Russia said its inflation rate in May was 17.1%, marginally less than for April. Turkey reported a May inflation rate of +73%, another rise.

In Australia, their Treasury Secretary said in a post-election speech said spending pressures from social programs that were freely promised in the election campaign need to be controlled to manage the inflation risks they pose. And he called for a major crackdown on tax breaks worth billions of dollars for both wealthy individuals and companies. He said 'growth' will not be enough on its own to tackle their AUS$1 tln debt levels or build back buffers for the next economic downturn.

The OECD has a positive view of Australia's economy and prospects, but it says tax reform to reduce their heavy reliance on taxation of personal incomes would help decrease the vulnerability of public finances to an ageing population.

But the war in Ukraine has made the global growth outlook far bleaker even though the world should avoid a bout of 1970s-style stagflation, the OECD said, mirroring the World Bank. It slashed its growth forecasts and jacked up its inflation estimates. About New Zealand, they said growth here will ease to +3% this year and +2% next year, both results regarded by them as 'solid'. Inflation will decline in 2023 but remain high they report, as firms pass on global commodity price inflation and workers demand higher wages.

Demand and capacity for air cargo fell in April. It was down about -10% year-on-year and is lower still that the equivalent 2019 comparison. The retreat in the Asia/Pacific region is greater,

The UST 10yr yield will start today up +6 bps at 3.02%. 

The price of gold is up +US$2 today from this time yesterday, now at US$1854/oz.

And oil prices are up +US$3.50/bbl from this time yesterday, now just under US$121/bbl in the US, while the international Brent price is now just under US$123/bbl.

The Kiwi dollar will open today lower at just on 64.5 USc. Against the Australian dollar we are marginally lower at 89.6 AUc, again our lowest against the Aussie dollar in nearly four years. Against the euro we are also lower at 60.2 euro cents. That all means our TWI-5 starts today at just under 71.5 and held up by strength against the yen and the English pound.

The bitcoin price has risen by +1.5% and is now at US$30,360. Volatility over the past 24 hours has been moderate at +/- 2.8%. 

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.