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.

And today we lead with news the US budget debate has financial markets on edge.

But first up today, the Chicago PMI did not report the expected modest bounceback in June from the very weak May result. In fact is stayed in a severe contraction, disappointing everyone involved. It's been nearly three years since they have had any regular expansion and 2025 looks like it is shaping up the be the worst of the three.

The Dallas Fed's factory survey for June was weak as well featuring shrinking new order levels. At least it was little-changed from May.

As you read this, the US Senate is debating, and about to vote, on the big Trump budget bill. After years of complaining about US deficit spending and refusing to move the debt ceiling law, they are weighing whether to accede to Trump's demand to give him a free pass on both, including 'hiding' US$3.8 tln of tax cut costs. If they pass the budget, it is likely the bond market will deliver a thumbs down response, one that will affect global financial markets.

On the US tariff trade bullying, there are few negotiations going well at present, for any of the parties involved.

In Canada, they seem to have conceded the digital services tax issue to try and make progress on bigger issues. But the DST is still a live issue in the UK-US talks.

Meanwhile, things are softening in India too. Their industrial production was up +1.2% in May from the same month in 2024, their weakest expansion in nine months and well weaker than expected.

In China, there were no surprises and little movement in their official PMIs for June. Their factory sector contracted very marginally - again - and the services sector expanded marginally, also again. Basically they describe an economy marking time. But also one resilient to the trade shocks thrown at it which were designed to throw it off balance. That just hasn't happened, yet anyway.

German inflation came in at 2.0% in June, a touch less than anticipated and little-different from April and May's 2.1% level. As small as it was, they weren't expecting a dip. Food prices there rose a modest +2.0% but keeping a lid on other rises was the -3.5% drop in energy prices.

In Australia, Cotality/CoreLogic said its Home Value Index rose +0.6% in June from May, up marginally from the prior month but it is the strongest monthly gain since June 2024. Improved market sentiment in most major cities was behind the firming and active first home buyers are behind that. On a yearly basis, national home values climbed 2.7%. Meanwhile, rental growth continued to ease, with national rents up +3.4% over the past 12 months, the slowest annual increase since early 2021.

Global air cargo demand rose +2.2% in May from a year ago, up +3.0% for international airfreight. The Asia/Pacific volumes were up a very healthy +8.2% on the same basis, no doubt related to the rush to beat US tariff deadlines. These overall volumes would have been better if the North American components hadn't been so weak (+-5.8%).

Meanwhile, May air passenger travel rose +5.0%, up +6.7% for international travel and up +13.3% in the Asia/Pacific region. The only region to decline was North America (-0.5%) and mostly because of weak domestic travel.

The UST 10yr yield is now at 4.23%, and down -4 bps from yesterday at this time.

The price of gold will start today at US$3,2952/oz, and up +US$19 from yesterday.

American oil prices are marginally softer from yesterday at just under US$65/bbl while the international Brent price is down -US$1, now just over US$66.50/bbl.

The Kiwi dollar is now just on 60.9 USc, up +30 bps from yesterday. Against the Aussie we are unchanged at 92.7 AUc. Against the euro we are little-changed at 51.8 euro cents. That all means our TWI-5 starts today at 68.2 and +10 bps firmer than yesterday.

The bitcoin price starts today at US$107,683 and up +0.2% from this time yesterday. Volatility over the past 24 hours has stayed low at just on +/-0.9%.

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

Kia ora. I'm David Chaston. And we will do this again tomorrow.