Kia ora,

Welcome to Friday’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 China seems to be making a play to avoided as an investment destination.

But first, initial US jobless claims fell to just +192,000 last week when a small increase was anticipated. Still no labour market stress signals here. The total number of people on these benefits fell below 1.7 mln, the lowest level of the year. The insured unemployment rate remains at a very low 1.1%.

The globally benchmarked S&P Global/Markit factory PMI for the US rose (to 50.9) in May from its steady state in April although it did not get its boost from new orders this time. But new order growth was a feature of their May services PMI (54.8) with an impressive display and a two year high.

This May strength is yet to show up in the Chicago Fed's National activity Index which slipped slightly in April. But it is showing up in the Kansas City Fed's factory survey which recorded a good recovery.

It definitely did not show up in the April new home sales data, which in the month ran at almost -8% lower than the year-ago level. The retreat has been gradual each month in that period, but relentless.

Perhaps we should note that there was another case reported where bird flu in US dairy cows has jumped to a human. Officials still say the risk is low.

The internationally-benchmarked May S&P Global (Markit) PMI for Japan delivered its fastest expansion in nine months. Their previously shrinking factory sector rose to a minor expansion (50.5) while their service sector expansion slipped slightly (53.6).

India's PMI data continued its strong run in May, for both the factory and services sector. A feature is the growing rise in exports, presumably benefiting from the China de-risking trend.

Taiwanese industrial production was up more than +14% from a year ago in April. That is partly a reflection of weakness a year ago but for the past three months the month-on-month rises have been impressive and March was notably revised higher. Their retail sales growth was more modest however although its base was more solid. All this comes before the full-court pressure the PLA is currently applying to the island nation, a crude show of force in the Russian style.

Beijing's claim that they are 'prioritising business reforms' rings hollow in light of the Taiwan pressure.

In Europe, their economic recovery gained momentum in May, according to provisional PMI survey data. Faster increases in business activity, new orders and employment were all recorded in the month, while business confidence hit a 27-month high. This recovery is being led by Germany. Meanwhile, rates of inflation of both input costs and output prices softened from April, but remained above pre-pandemic averages in each case.

Australian inflation expectations, as monitored in a respected Melbourne Institute survey, eased to 4.1% for the year ahead, down from 4.6% last month. The last time they measured actual inflation, it came in at 3.5% in March.

The internationally-benchmarked May S&P Global (Markit) PMI for Australia delivered another small contraction in the factory sector (49.6) but a good expansion in the service sector (53.1). But both levels were lower than March and April. New orders retreated in both sectors, but to be fair the reductions were slight and the least in the past three months.

The tighter global security situation has seen the container freight rates leap again, up +16% in the week to their highest in at least a year. The jump is all about outbound cargoes from China which emphasises the risks of trade from there. The Taiwan situation will make it even worse next week. So far, bulk cargo rates haven't moved much in the past week.

The UST 10yr yield is now at 4.48% and up +5 bps from this time yesterday. 

The price of gold will start today still in a sharp down-trend, down another -US$51 at US$2336/oz. That is now down -US$119 from its all-time high on May 20, 2024, a -4.8% retreat.

Oil prices are down another -US$1 at US$76.50/bbl in the US while the international Brent price is down a bit less to under US$81/bbl.

The Kiwi dollar starts today unchanged from yesterday at just on 61 USc. Against the Aussie we are firmer, up +¼c at 92.3 AUc and a two-month high. Against the euro we are firmish at 56.4 euro cents. That all means our TWI-5 starts today just on 70.4, and up +10 bps from yesterday.

The bitcoin price starts today at US$67,776 and down -3.0% from this time yesterday. Volatility over the past 24 hours has been modest however at just on +/- 1.8%.

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 on Monday.