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 there is still no sign yet that the Chinese economy is back driving international trade.

There was another dairy auction this morning and it was a dull affair. Volumes sold were lowish, and the key WMP price was little-changed. Overall prices slipped -0.9% in USD terms and -1.3% in NZD terms. Butter rose -2.2%, but cheese fell -3.4% and SMP fell -1.6%. Perhaps the only implication that can be drawn from this late-season event is that there seems resurgence Chinese demand based on their foodservice sector is still quite absent.

American retail sales disappointed for April. A good rebound from the weak March -0.7% slip was expected, and while they did advance, it was by only half the anticipated level. Still the annualised rate of increase from March to April was solid and better than it has been. But for year on year, there has been virtually no increase, so this sector is failing to keep pace with inflation over the longer run at an increasingly worrying rate. And this weakness is confirmed by the weekly same-story monitoring. Last week was only +1.6% ahead of the same week a year ago, again nowhere near enough to account for inflation.

If there is a bright spot, it is car sales, and these are expected to stay healthy for a while yet.

And that will help American industrial production which did turn in a better than expected April result. It rose +0.5% in April from March, but that is inflation adjusted. This clawed back some earlier weakness in 2023. But it was the production of business equipment that kept this elevated in April.

Even better is the turn up in confidence by American home builders. They haven't been this bullish in almost a year.

Of course the debt-default theater is still playing out in Washington with talking points hardening on both sides. The business community is imploring Congress to act soon.

Canadian inflation stayed up at 4.4% in April which was a bit of a surprise because a shift lower to 4.1% was expected. And the annualised pace between March and April rose to +7% pa. Few saw that coming.

China said its retail sales rose in April by a strong amount, up +18% above year ago levels. But remember retail sales were down more than -11% in April 2022. That is only a +5.3% gain above April 2021. In that same period, consumer price inflation rose +1.6%, so there are real gains here. This 2023 year-on-year gain underpins the good service sector expansion there.

China also reported that industrial production rose by +5.6% year-on-year in April, but this was below market forecasts of an +11% rise, so it comes with a tinge of disappointment. But it is faster than the +3.9% rise in March and it was the fastest growth in industrial production since last September. Looking behind this production, we see that electricity production was up +6.1%. Their domestic coal production was up only +4.1% but imported coal was 140 mln tonnes in April, a year-on-year increase of +89%.

And while the rumours of new stimulus have come and gone quickly this week, local analysts expect the Chinese central bank to reduce interest rates again and loosen monetary policy following the April decline in lending to households. "Something has to be done."

German economic sentiment got weaker in May. Getting the blame were the twin impacts of rising ECB interest rates and fears about what a US debt default would do to the global economy. But to be fair, the sentiment level is still much better than what it was at any time in 2022.

Fitch Ratings has affirmed Australia's Long-Term Foreign-Currency Issuer Default Rating at 'AAA' with a Stable Outlook. Currently Moody's have Australia rated , and S&P have them rated AAA too. Australia is only one of nine countries to be rated AAA by all three major credit rating agencies.

Consumer sentiment slumped in May in Australia, according to the Westpac-MI survey. It dropped by almost -8% from the prior month when only a -1.7% fall was expected. But recall it did jump more than +9% in April. Since April they have had another rate increase when none was expected, and they had a Budget that is being seen as more restrained than expected. This sentiment result highlights continuing pessimism among households, and especially low income renter households, at levels that first arrived in November and hasn't really shown any sustained improvement from then. This overall pessimism is reflected in new home sales remaining at rock bottom levels.

And staying in Australia, investment banks are getting ready to pitch be the one to sell the 18% shareholding in Auckland Airport held by Auckland Council.

The UST 10yr yield starts today at 3.55%, and up another +5 bps from this time yesterday. 

The price of gold will start today at US$1989/oz and down -US$29 in a day.

And oil prices are a bit softer from yesterday to be just und US$71/bbl in the US. The international Brent price is now under US$75/bbl.

The Kiwi dollar is little-changed against the USD from yesterday and now just over 62.3 USc. Against the Aussie we are up +½c at 93.6 AUc. Against the euro we are unchanged at 57.3 euro cents. That means the TWI-5 is now at 70.5 and up a mere +10 bps from this time yesterday.

The bitcoin price is marginally lower today, now at US$27,055 and down -1.5% from this time yesterday. Volatility over the past 24 hours has remained modest at just over +/- 1.2%.

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.