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 markets want to move on from the US debt-ceiling debate but there are details to deal with.

In Washington DC, the House of Representative has approved the Biden-McCarthy debt deal compromise. It is unlikely to fail in a Senate vote soon. The Biden Budget is largely intact in the end. All eyes will now turn to the bond markets as the US Treasury races to raise the necessary funds to avoid default. They will come at a higher cost than it these theatrics hadn't played out.

US-based employers announced 80,089 cuts in May, a +20% increase from the 66,995 cuts announced one month prior. This tally is rising; so far this year, companies have announced plans to cut 417,500 jobs, a 315% increase from the 100,694 cuts announced in the same period last year. But these layoffs are tiny compared to both their overall labour force, and even the expansion of those employed.

The pre-cursor ADP jobs report came in way stronger than expected, reporting private payrolls expanded +278,000 in May when +170,000 was expected. But they did report pay growth was slowing. Markets are still expecting tomorrow's non-farm payrolls report to deliver +190,000 extra jobs for May.

American initial jobless claims totaled 208,000 last week, little-changed from the prior week and really no evidence their labour market is tightening. There are still just 1.6 mln people on these benefits.

However on the factory floor, things are tightening. There were two factory PMIs out overnight and both reported a contraction in activity. New orders are slowing and this weaker demand is dragging on performance. The widely-watched ISM Manufacturing PMI retreated further as expected to a seventh consecutive month of contraction. However, production rose, employment rose and at a faster pace, and price pressures eased. The internationally benchmarked Markit PMI for the US reported similar conditions.

In China and in a bit of a surprise, the private Caixin factory PMI actually expanded in May, in contrast to the official version which said the sector contracted further. No analyst picked the Caixin PMI reversal. Certainly, the Beijing stats masters aren't gilding anything this month.

Belt & Road project bad debts are piling up. New analysis shows Chinese overseas loans went sour at a far worse rate in recent years as the pandemic and inflation took a toll on the economies involved in Beijing's signature infrastructure initiative. Almost US$77 bln in debt was renegotiated or written off from 2020 to 2022. This figure is more than four times the US$17 bln in problem debt for the preceding three years. These write-offs and write-downs however tie these countries even tighter to China.

Debt levels are a key focus at home too, especially those owed by local governments. A leading Chinese economist says China could be courting disaster if it permits local governments to default on their debts as part of a strategy to encourage greater fiscal discipline.

In Europe, consumer inflation retreated somewhat although it remains high. It fell to 6.1% in May, down from 7.0% in the previous month and below market expectations of 6.3%. A year ago, it was 8.1%. Core inflation is now significantly lower, only 5.3% in May.

In Australia, house price rises are gaining momentum. They rose +1.2% in May from April, and annualised rise exceeding +14%. In Sydney that annualised rate is nearer +20%, the city’s highest monthly gain since September 2021.

Global container freight rates slipped yet again last week. Bulk cargo rates fell too.

However, global air passenger travel is in a strong recovery mode, now back to 90% of pre-pandemic levels. But international travel is lagging that.

The UST 10yr yield will start today at 3.61% and down another -2 bps. 

The price of gold will start today at US$1977/oz and up +US$10 from yesterday.

And oil prices are up +US$2 today from yesterday at just under US$70.50/bbl in the US. The international Brent price is now just over US$74.50/bbl.

The Kiwi dollar starts today +½c firmer at 60.7 USc. Against the Aussie we are -½c softer 92.2 AUc. Against the euro we are unchanged at 56.4 euro cents. That means the TWI-5 is up +10 bps at 69.2.

The bitcoin price is marginally lower today at US$26,971 which is down a mere -0.3% from this time yesterday. Volatility over the past 24 hours has been modest at just on +/- 1.3%.

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.

Remember, Monday is a public holiday in New Zealand.

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