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.

Today we lead with news that apart from coal, almost all commodity prices are falling today. Market recession rears are behind the retreats.

But first, the latest weekly update of American retail sales shows it bubbling higher at a very good pace, well ahead of inflation. This index reports a +13% rise year-on-year, before price adjustments.

But a good proportion can be attributed to inflation. Americans don't see it as transitory at all now, in the short-term at least. The latest consumer expectation survey pegs one year ahead inflationary expectations at 6.8%, but still lower than actual inflation which is running at 8.6%. The survey reports that three-year ahead inflation is expected to run at only +3.6%.

But there is new evidence that the China-to-US trade is picking up, a definite sign of rising retail demand.

We have been reporting on slipping ocean freight rates, but we should also report that US trucking freight rates are now falling too. Lower factory orders in an attempt to control rising inventories means less road freight, and as demand slips, companies are trying to reset trucking freight agreements lower. If the retail demand rise is sustained, these renegotiations may be short-lived.

One commodity not likely to be on ships heading for the US is cotton sourced from Xinjiang. Producers there are in a desperate position, only surviving because of Beijing subsidies. The trade pushback on Uygur forced-labour abuse in the region is having a substantial impact.

The latest update to the US WASDE review of American and international grain supplies shows that higher production in North America (US and Canada) will pretty much offset lower eastern Europe supply (Ukraine and Russia), so the expected crisis in world cereal production probably won't occur.

The US Treasury had a 10yr bond auction earlier today, bringing a lower yield. It was well supported but the latest median yield was 2.85%, down from 2.95% at the prior equivalent event a month ago.

The start of the Q2 earnings reports on Wall Street is showing that companies are prioritising dividend pay-out levels, and that is putting a floor on downward yield pressures on stock prices.

In China, more details of their infrastructure stimulus plans are being revealed. They are to add more than 460,000 kms of new highways by 2035.

India released industrial production data for May earlier today and that rose by almost +20% year-on-year in a big gain that was widely expected because it was off a weak base.

A new wave of COVID infections are now sweeping across Europe and North American, lifting case numbers sharply, and deaths too, again taking 100s of lives daily. A re-commitment to mask-wearing is being urged by the WHO.

The United Nations says the world population will hit 8 bln in November and grow to around 8.5 bln by 2030 and 9.7 bln by 2050, before reaching a peak of around 10.4 bln people during the 2080s. The population is expected to remain at that level until 2100. Two-thirds of the projected increase through 2050 will be driven by the momentum of past growth that is embedded in the youthful age structure of the current population. And part is from declining death rates - birth rates are falling too.

In Australia, the widely-watched NAB business confidence survey shows it fell to a below-average +1 index point in June, as global uncertainty, looming interest rate hikes and inflation continued to cloud the outlook in Australia. Fears over these impacts on Aussie household consumption were particularly evident with confidence in the retail sector taking a significant hit. This business confidence slip is mirrored in a Westpac consumer confidence survey also out yesterday for June.

The UST 10yr yield starts today down at 2.95% and a -4 bps slip from yesterday. 

The price of gold will open today at US$1726/oz which is -US$10 lower than this time yesterday.

And oil prices have slid -US$7.50 to just om US$94/bbl in the US, while the international Brent price is still just on US$98/bbl.

The Kiwi dollar will open today little-changed from this time yesterday at 61.4 USc. Against the Australian dollar we are marginally softer at 90.6 AUc. Against the euro we are up at 61.1 euro cents. Notice that the USD and the EUR are very close to parity now, a 20-year event. That means our TWI-5 starts today at just on 70.5 and a minor firming.

The bitcoin price has slipped further since this time yesterday and is now at US$19,845 and down -3.6%. Volatility over the past 24 hours has been moderate at +/-2.9%.

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 tomorrow.