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 central bank actions to lean harder against inflation got more pointed today. And that has moved bond markets especially.

But first, US jobless claims inched higher again last week and now 1.45 mln people are on these benefits, well off their all-time lows of a month or so ago, but still historically very low.

The Philadelphia Fed factory survey for July is now showing retreating conditions. They report on a heartland manufacturing area and the fall away in new orders will be of a special concern. The price pressures are easing but they still remain high from an historical perspective. On the 'plus' side, the jobs and current activity categories of this survey remain quite positive.

Nationally and more generally, the Conference Board leading index remains off the boil, but only minorly and little changed in July from June, and is still historically very high.

As expected, Japan reported a larger trade deficit in June from the higher cost of oil. But the deficit wasn't as large as some had feared. However, the more important news here was the unexpected strength in Japanese exports, reinforcing that there is strong global demand for Japanese high-tech machinery. Exports rose more than +19% in June from a year ago, the 16th straight month of gains.

Even though the Bank of Japan is seeing higher inflation of +2.3% core, and up from 1.9%, and they are watching commodity prices rise, they have left their ultra-loose monetary policy settings unchanged for a 78th straight month. They downgraded their 2022/23 growth forecast from +2.9% to +2.4%.

In China, HSBC has become the first foreign lender to install a Chinese Communist Party committee within its investment banking subsidiary in the country.

The European Central Bank has turned suddenly active. They raised their three key interest rates by +50 bps, the first increase since 2011 and ending eight years of negative rates, in an attempt to bring inflationary pressures under control. This was double what was anticipated. They also said that further normalisation of interest rates will be coming soon. And they started a new bond purchase scheme to help more indebted member states to cap the rise in the borrowing costs "and limit financial fragmentation".

The South African central bank also surprised markets with an outsized rate hike. +50 bps was expected but they delivered +75 bps to 5.5%.

In Australia, there are growing calls to shut their border with Bali to keep the foot & mouth disease out. Fear of what it will do there is rising fast. Returning surfers seem to be the primary risk.

Container shipping costs fell again last week and are now -24% lower than a year ago. The biggest retreats are for the China trade. The Baltic Dry index is going sideways.

The UST 10yr yield starts today at 2.92% and down -11 bps from this time yesterday. 

The price of gold will open today at US$1714/oz in New York which is up +US$13 from this time yesterday.

And oil prices are down -US$2.50/bbl at just under US$96.50/bbl in the US, while the international Brent price is now at just over US$100.50/bbl.

The Kiwi dollar will open today a little softer at 62.1 USc. Against the Australian dollar we are nearly -½c softer at 90.1 AUc. Against the euro we are also softer at just under 61 euro cents. That means our TWI-5 starts today at 70.9 and -20 bps lower from yesterday.

The bitcoin price is lower from this time yesterday, down by -3.2% to US$22,807. Volatility over the past 24 hours has been high at just under +/-3.5%.

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.