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.

Today we lead with news New Zealand is claiming free trade wins in a deal with the EU.

But first, American jobless claims inched higher last week although the rise was less than analysts had expected. There are now 1.3 mln American on these benefits now, also a small rise. We are clearly past the bottom, past the all-time low.

Their PCE measure of inflation dipped a little in May from April, a pullback that wasn't expected. Core PCE is now running at 4.7%, the full PCE at 6.3%. The personal spending rise was much more modest in May that expected (up +0.2%) and may point to a weak Q2 GDP growth result, while the personal income gain was at +0.5% as expected.

The widely watched Chicago PMI fell back to the levels of the last few months, but the main concern in this report was the sharpish retreat in new order level growth. A
quarter of firms saw fewer new orders received in June.

Japanese industrial production slumped in May, the second straight month of decrease and the steepest pace since May 2020. However, it probably recovered in June. But from a year ago it will still be lower.

China was expecting its factory PMI to expand in June after contracting in the prior three months - and it did. But only just and by less than expected. The sudden shift in their services PMI from contraction to expansion was more impressive however. But these are the official data. We should wait for the private surveys before getting too carried away. And all countries got a bounce after lockdowns, bounces that have been hard to sustain.

Elsewhere in China, several regions have announced plans to increase coal production, as part of the country's efforts to ensure energy supply and stabilise prices. Full-year coal output is expected to increase by 200 million tonnes this year. That will be tough on the climate, already reeling from new restrictions imposed by the US Supreme Court on how Washington can regulate climate emissions.

Yesterday we reported a topping out in the German inflation rate. Today we can reports their retail sales rose in May more than expected (from April), and their employment levels rose, dipping their jobless rate to just 2.8%.

That fed in to an overall EU jobless rate of 6.1% which ranges between Spain's very high levels and Czechia's very low levels. Germany is near the lowest, France and Italy highish.

In Europe, New Zealand has secured a new Free Trade deal. It is claimed it will increase the value of New Zealand’s exports to the EU by up to NZ$1.8 bln per year but we have to wait 13 years for that level of benefit to kick in. Still it is a "better deal" that we got with the UK. This latest deal with the EU will benefit kiwifruit and seafood, and there will be an eightfold increase in the volume of beef we could export to the EU. Butter and cheese will now be able to be trade with the EU for the first time in many years.

But to be realistic, the gains are all very minor, and the EU gave way on nothing of real advantage to us, certainly not on their bully-claims on labelling. But it does come with a MFN clause, so the tiny gains we won won't be trumped.

In Australia, CBA, Australia’s largest bank (and parent of ASB), has hiked fixed mortgage rates for customers by +1.4% ahead of next Tuesday's RBA rate review, as analysts say larger hikes are on the way for homeowners there. CBA no longer has any comparison fixed rates lower than 5% now.

There was a sharper fall in containerised shipping rates last week, with prices falling hardest in the China to US routes. These costs are now -16% lower than a year ago after falling -3% this past week alone. On no routes are they rising anymore. Bulk cargo rates are now at a two-month low, and falling.

Today is the end of the month in the world's major markets so we should be wary of shifts in the indicators because portfolio managers will be squaring away positions there, and that can twist the daily movements in a way that doesn't really reflect today's sentiment.

The UST 10yr yield starts today -12 bps lower from this time yesterday at 2.98% and it is ending the month in New York about where it started. 

The price of gold is at US$1809/oz in New York and down -US$9 from this time yesterday.

And oil prices are -US$5/bbl lower at just over US$105/bbl in the US, while the international Brent price is just over US$109/bbl. The falling American demand for petrol we noted yesterday is undermining the oil price.

The Kiwi dollar will open today a little firmer at 62.5 USc. Against the Australian dollar we are unchanged at 90.4 AUc. Against the euro we are also unchanged at 59.6 euro cents. That means our TWI-5 starts today at just on 70.5 and up fractionally.

The bitcoin price has moved down again since this time yesterday and is now at US$19,124 and down another -4.4%. Volatility over the past 24 hours has been very high at +/- 4.4%.

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 on Monday.