Kia ora,

Welcome to Wednesday’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 we are in for a day of significant announcements, but locally and internationally.

But first up today, the overnight full dairy auction brought higher prices, up +4.6% in USD terms and up +3.0% in NZD terms. Of note, the butter price hit a new all-time record high of US$74992/tonne. Also, cheddar cheese rose a very sharp +12.0% from the prior full event, and the dominant WMP price was up a heady +6.2%. This has been a very positive outcome, even if it was on relatively low off-season volumes.

There seemed to be two big background drivers. First, EU production is slipping and today's NZ auction prices seem to be equalising with European pricing. And secondly, there was a substantial increase in demand from Southeast Asian buyers, shifting from EU supply. Today's result will bring upside to the payout - if it is maintaintained in future events.

Elsewhere, there was a good rise in US retail sales last week, up +6.9% from the same week a year ago in the Redbook survey. But as we have noted previously, it is now hard to separate the inflationary effect of the tariff taxes from volume gains. It is about now that the tariff-tax impact will start happening. All eyes are on Apple, because they won't be able to avoid price hikes much longer now.

Retaliatory tariff taxes also juiced up US exports in both goods and services in March but it was minor and similar to February. US imports however shot up to a new all-time record high. So the American trade deficit also hit a new record exceeding -$140 bln for the month

None of this is helping sentiment. The latest survey, this one the RealClearMarkets/TIPP Economic Optimism Index retreated in May from April when a gain was anticipated. It was at its lowest in seven months.

Meanwhile, the US logistics managers index returned to more usual levels, but allowing it to do that were rises in inventory and freight costs, rather than the efficiency components.

There was a well-supported US Treasury 10 year bond auction earlier today, and that delivered a median yield of 4.28% which was down -6 bps from the prior equivalent event a month ago.

Tomorrow will be dominated by the US Fed's meeting outcome. Changed interest rates are unlikely, but there will be intense interest in how they view the present and future economic landscape.

In Canada, the widely-watched local Ivey PMI turned into contraction in April.

In China, the Caixin Services PMI expansion eased back in April, down from March’s three-month high to be below analyst forecasts. This is now the softest expansion in their services sector in seven months. But this Caixin version reported a slightly faster expansion than the official version.

There is a lot going on today, and amongst that we are expecting a significant Chinese briefing by their central bank and other regulators about new moves to respond to their economic pressures triggered by the tariff war.

In Europe, their April services PMI didn't fall into contraction as expected. Rather it stayed just on the positive side. But it is an anemic expansion all the same.

In Australia, household spending slipped in March from February, to be +3.5% higher than March 2024. Of special note was the very sharp -1.3% dive in Queensland.

There was an even sharper retreat in building consents in Australia in March with a big -15% dive in consents for building apartments.

The UST 10yr yield is now at 4.31%, down -3 bps from this time yesterday.

The price of gold will start today at US$3414/oz, and up +US$101 from yesterday, and heading back towards its April 23 record high.

Oil prices are firmer today, up +US$2 at just on US$59/bbl in the US and the international Brent price is now just under US$62.50/bbl.

The Kiwi dollar is now at 60 USc, up +40 bps from yesterday at this time. Against the Aussie we are up +0 bps at 92½ AUc. Against the euro we are up +50 bps at 52.8 euro cents. That all means our TWI-5 starts today just under 68 and up +10 bps. The Japanese yen has strengthened to limit the TWI-5 shift.

The bitcoin price starts today down a mere -0.3% from yesterday at US$94,563. Volatility over the past 24 hours has been low at +/- 0.9%.

Join us at 10:45am for the release of the important March quarter jobs report for New Zealand. We are expecting no rise in employment and a rise in the unemployment rate to 5.3%. Variations from that might be market-moving.

And then at 2pm we will be covering the RBNZ's half-yearly Financial Stability Report. This will be Christian Hawkesby's first big set piece presentation as Governor, a role he holds until at least October.

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

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.