Economy Watch

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 global trade may still be happening, but it seems to be happening at a slower pace.

But first, last week new US jobless claims were 206,000 which was a small decrease from the prior week and now 1.45 mln people are on these benefits, a small rise but still near a record low. Tomorrow we get the July non-farm payrolls report and that is expected to report a gain in employment of +250,000.

Job layoff activity was lower in July than June and still at a much lower level than pre-pandemic.

The trade deficit in the US narrowed by -US$5.3 bln to a six-month low of US$79.6 bln in June. Total exports were up +1.7% from the prior month to an all-time high of US$261 bln and up +23% in a year. Meanwhile, imports went down -0.3% to $340 bln in June from May to be up +20% from the same month a year ago. Their trade deficit with China seems stable at about -US$27 bln/mth.

Part of the reason imports are staying high is to guard against future shortages. Retailers and logistics operators are struggling to find space to store the flood of goods that have swamped warehouses and weighed on their balance sheets. Warehouse owners say more retailers are looking to add storage capacity, both for goods now reaching their networks of stores and distribution centers and as they prepare to keep more inventory on hand long-term to guard against stock-outs.

The American 30-year fixed-rate mortgage rate is 4.99% this week. Rates have fallen swiftly from their 13-year high of 5.81% in June.

Canada's trade surplus widened to +C$5.0 bln in June from a downwardly revised C$4.8 bln in May. This was their largest monthly trade surplus since August 2008.

And staying in Canada, house prices are retreating sharply in both Toronto and Vancouver.

The Bank of England raised its policy rate by +50 bps to 1.75% during its overnight meeting, the sixth consecutive rate hike, and pushing borrowing costs to the highest level since 2009. It was a unanimous decision and the rise was as markets expected even if it was their biggest rate increase since 1995. They have inflation running at 9.4% pa. They say the country is about to enter a recession in 2022.

The star of the trade data reported overnight was Australia who recorded an all-time record high trade surplus in June of +AU$17.7 bln for both goods and services. That takes its annual surplus to +AU$136.4 bln and a rather remarkable +6.3% of GDP. Exports rose almost +38% in a year, with the June activity up a stunning +5.1% from May alone.

In China and hard on the heels of a regional banking scandal that saw customers take to the streets in protest, the same province is now investigating a massive fraud involving "missing" copper.

The cost of shipping containers by sea continues to fall, down again last week to be almost -30 lower than a year ago. Bulk cargo rates slumped as well.

But there are signs of a strong recovery in global passenger travel. That said, it is still miles below pre-pandemic levels.

The UST 10yr yield starts today at 2.67% and down -6 bps from this time yesterday. 

The price of gold opens today at US$1792/oz in New York which is up +US$29 /oz from this time yesterday.

And oil prices start down another -US$3 at just over US$88/bbl in the US, while the international Brent price is now just under US$94/bbl.

The Kiwi dollar opened today up +½c from this time yesterday to 63.1 USc. Against the Australian dollar we are marginally firmer at 90.4 AUc. Against the euro we are unchanged at 61.6 euro cents. That all means our TWI-5 starts today at just under 71.3.

The bitcoin price has moved lower from this time yesterday, down -3.6% to US$22,633. Volatility over the past 24 hours has been moderate at just over +/-2.2%.

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.

The labour market remains tight with an official unemployment rate of just 3.3%, and good pay rises for some workers with private sector hourly earnings up 7.1% in the June year, almost matching the highest inflation in 32 years of 7.3%.

It seems as if every business you visit, and every business owner you talk to no matter what industry they're in, is looking for staff. Speaking in the latest episode of interest.co.nz's Of Interest Podcast, Shannon Barlow, the Managing Director of recruitment agency Frog Recruitment, says this does indeed appear the case.

"Definitely finding staff, or retaining talent, is the number one problem for businesses across New Zealand," she says.

In the podcast Barlow talks about which industries are especially feeling the staffing squeeze, where workers are getting 20% to 30% pay rises, the Great Resignation, and how 2021 was the year of wellbeing with businesses recognising the importance of workers' mental health and wellbeing, but in 2022 cash is king.

She also talks about how the Covid-19 pandemic added new factors and supercharged existing factors affecting labour shortages, and how towards the end of last year the balance of power shifted to employees from employers, and whether there's any circuit breaker on the horizon.

"With that shift in the balance of power job seekers are really using the market conditions as a bargaining chip to be able to secure better conditions, definitely including pay. And with increased living costs, I guess a lot of people are in a situation where they can't afford not to do that, and why wouldn't you take that opportunity," Barlow says.

Kia ora,

Welcome to Thursday’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 we are probably facing new supply-chain stresses as the fallout over the Pelosi visit to Taiwan echoes over coming months.

But first, after declining for eight of the past 12 weeks, and four of the past five weeks, American mortgage applications actually rose last week. It wasn't a big rise, but it was unusual, even in the whole 2022 context. The recent yield declines followed through to lower mortgage interest rates, which undoubtedly helped, especially as higher rates are anticipated for the rest of the year

Also rising, and unexpectedly strongly, was their services sector activity in July. The widely-watched ISM measure was particularly upbeat with strong gains in new orders and activity levels while the price pressure eased noticeably. They also noted that these businesses are struggling to replenish inventories, and that bodes very well for the factory sector in coming months. The internationally benchmarked Markit PSI was however as negative as the ISM one was positive, so there is a good opportunity to reinforce confirmation bias here.

Meanwhile, American factory order growth beat forecasts in June to be +15% higher than year-ago levels, and that makes this data elevated for four of the past six months, impressing markets.

US carmaker Ford said is North American sales jumped by more than a third in July from a weak year-ago level. This was driven by a huge leap in electric car sales, and a +70% jump in SUV sales.

The US logistics management index (LMI) is now reporting that freight prices are falling in July - not by much, but it is the first time that has happened since the start of the pandemic. Other components of the LMI are going in buyers favour as well, although warehouse capacity is still shrinking.

In the background, the Fed is almost sure to raise rates by another +50 bps at its next meeting in September. It would be 'reasonable' for the Federal Reserve to raise interest rates by that level if the US economy evolves as expected, San Francisco Fed President Mary Daly said, as she signaled policymakers are united in reducing decades-high inflation. Meanwhile, the cost of borrowing as measured by 3-month LIBOR just hit its highest point since 2008. Fed speakers are making markets into believers, despite some earlier scepticism.

In China, the private Caixin Services PMI rose in July from June to a good moderate expansion, pointing to the second straight month of growth. This was a better result than the official version and is the fastest pace of expansion in their service sector in 16 months. It comes after an easing of some lockdown measures with new orders rising the most since October 2021. However, new export orders fell for the seventh straight month, and employment fell modestly again amid a slight decline in the backlog of work.

China's car sales are recovering with good sales gains in July.

But the Chinese government still finds it necessary to inject ¥320 bln (NZ$75 bln) in public funds into small and midsized banks in a bid to help regional lenders reeling from their economic slowdown (not to mention some well-publicised cases of fraud).

The EU reported retail sales volumes for June, and these were sharply negative. Their rise in producer prices extended into June too, but apart from energy cost, there is a sense non0energy costs are losing some upward momentum there.

In international trade, June air cargo data basically went sideways, and putting a dampener on earlier optimism. The easing of restrictions in China and reduced disruption in global supply chains is likely to be good news for world trade and air cargo volumes in coming months. However, the impact of high inflation and rising interest rates will work against this expected recovery. In June, Europe was sharply negative, the US sharply positive, and the Asia/Pacific region quite lack-luster.

China's attempt to blockage Taiwan in retaliation to the Pelosi visit will also have a severe, even if temporary impact on Asia/Pacific air and sea cargo activity, messing with supply chains again in a significant way that will be felt globally.

The UST 10yr yield starts today at 2.73% and unchanged from this time yesterday. 

The price of gold opens today at US$1763/oz in New York which is down -US$6/oz from this time yesterday.

And oil prices start down -US$3 at just over US$91/bbl in the US, while the international Brent price is now just over US$97/bbl.

The Kiwi dollar opened today little-changed from this time yesterday to 62.6 USc. Against the Australian dollar we are marginally softer at 90.2 AUc. Against the euro we are unchanged at 61.6 euro cents. That all means our TWI-5 starts today at just under 71.1.

The bitcoin price has moved up from this time yesterday, up +1.3% to US$23,484. Volatility over the past 24 hours has been moderate at just over +/-2.0%.

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.

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 bond yields are rising sharply today as fears for a hot response in Taiwan seem to recede.

Overshadowed this morning by that Pelosi trip to Taiwan, the dairy auction delivered another weak result, down another -5% from the prior event. That means overall prices are now down -27% from the peak in March. The WMP price fell -6.1% and more than the fall expected. The SMP price fell -5.3% and also more than expected. Butter also fell -6.1%. Despite global reductions in milk supply, this auction didn't bring a respite from falling demand. Farm gate pay-out forecasts will now need to be pared back as this run of price declines is now well embedded and prospects for a turn higher seem to have faded. Expect analysts to start this trimming adjustment later this week. Today's decline was the fourth in a row, and the ninth of the past ten.

Meanwhile, American retail sales climbed last week to record one of their best gains of the year.

But the number of job openings in the US fell in June by -605,000 from a month earlier to 10.7 mln, the lowest in nine months and below market expectations of 11 mln. To put that in perspective, the US is expected to have 5.9 mln people unemployed in July, of which 1.4 mln are on jobless benefits. So roughly, there are two job openings for every unemployed worker. The June fall in job openings was the third consecutive drop after a record level in March. Ironically, retail was where some of the larger pullbacks happened in June.

In China, after a three month stand-down period to supposedly allow their in-shore fish stocks to recover, thousands of fishing vessels have been launched into these oceans for a renewed plunder. China doesn't show the same [minimal] restraint for the wider oceans.

And staying on the seas, global shipping giant Maersk has raised its earnings guidance again, a third rise. They say shipping freight costs will stay high for longer. The supply-chain congestion has been a river of gold for them, and they are essentially saying they want it to continue.

In Australia, their central bank raised their cash rate target by +50 bps to 1.85% as expected. Most analysts see another +50 bps coming in September, but then the increases will slow to +25 bps. They have raised their inflation forecasts and lowered their growth forecasts. There wasn't any indication in this announcement that they are about to drain their huge monetary reserves by starting quantitative tightening.

All eyes now turn to the New Zealand jobless rate and it is expected to be near historic-best levels, dropping from the March 3.4% to 3.1% (consensus), or possibly even below 3% (ANZ).

The UST 10yr yield starts today at 2.73% and surging +12 bps from this time yesterday. 

The price of gold opens today at US$1769/oz in New York which is unchanged from this time yesterday.

And oil prices start up +US$1.50 at just over US$94/bbl in the US, while the international Brent price is now just over US$100.50/bbl.

The Kiwi dollar opened today falling more than -½c from this time yesterday to 62.7 USc. Against the Australian dollar we are marginally firmer at 90.4 AUc. Against the euro we are little-changed at 61.6 euro cents. That all means our TWI-5 starts today at 71.1.

The bitcoin price has moved up from this time yesterday, up +1% to US$23,188. Volatility over the past 24 hours has been modest at just over +/-1.7%.

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.

Kia ora,

Welcome to Tuesday’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 the world's factories aren't the driving force they once were.

But first, hanging over today is an imminent visit by a senior US politician to Taiwan, much to Beijing's fury and accompanying threats. It is a tense flash-point right now.

Separately, global factories are now reporting their upturn has stalled as production stagnates and new orders contract. But price inflation and supply chain pressures brought signs of easing. Business optimism fell to a 26-month low in July. Growth is strongest in India, Australia and the US while the EU is struggling.

In the US, both the major July PMI reports said new order levels fell in the month, taking the shine right off their factory expansion. Both are still expanding however as they work through large order backlogs. A dip in new orders isn't unusual as they head into their summer holiday season however and was less than expected. Equally notable is the easing of price pressure, recorded in both reports. The widely-watched ISM one called the July pullback "slight", but the internationally benchmarked Markit one noted the sharp easing of demand.

But four of the six biggest manufacturing industries - Petroleum & Coal Products; Computer & Electronic Products; Transportation Equipment; and Machinery - all still registered moderate-to-strong growth in July.

Defying the Chinese official version which has its factory PMI slip into a contraction, the private Caixin PMI fell but not into contraction. But this fall was more than expected. There were softer increases in output and new orders, employment fell at a quicker pace as firms cut back, and input cost inflation slowed notably, with prices charged falling again.

In Hong Kong, they have fallen into a second recession in 3 years as pandemic restrictions sting their economy which fell -1.4% in Q2 and further weakening its status as a vibrant financial hub.

And staying in Hong Kong, crisis-hit Chinese property giant Evergrande says that one of its subsidiaries has been ordered to pay US$1 bln for failing to honour its debt obligations.

In Japan, factories are still expanding at a modest level but the momentum is slowing.

In Taiwan, the suffered their steepest falls in output and new orders for over two years as their factory sector suddenly contracted in July.

India is a bright spot, recording a rare rise in their expansion, which is now bubbling along at a solid moderate rate.

That is quite the contrast to Europe where they slipped into a minor contraction in July, their first in more than two years. And that was the case for both Germany and France. Generally among other countries there, northern Europe is still expanding while southern Europe isn't.

Not helping is a sharp drop in German retail sales volumes, which although it was expected, came in at the bottom end of forecasts. The Germans are hunkering down ahead of a tough period expected to start in a few months.

Most think the EU has just three months to build resilience to a full winter cut-off of Russian gas. Progress is frantic everywhere and the signs are now reasonable that a unified EU will be able to cope.

The first of the two Australian factory PMIs was released yesterday, and it shows little change with a good moderate expansion continuing. The other local version recorded a decline to a more modest expansion.

And Australian house prices are losing altitude quickly. The CoreLogic home value index, covering the eight major capital cities, fell -1.4% in July, following a -0.8% slip in June and a -0.3% dip in May. The July fall is the largest monthly decline since 1983 and both Sydney and Melbourne are leading the way down.

At the end of today, we will get the August review by the Australian central bank. They are widely expected to raise their cash rate target by another +50 bps to 1.85% at about 4:30 pm this afternoon.

The UST 10yr yield starts today at 2.61% and down -5 bps from this time yesterday. 

The price of gold opens today at US$1769/oz in New York which is up +US$2 from this time yesterday.

And oil prices start +-US$5 lower at just over US$92.50/bbl in the US, while the international Brent price is now just over US$99/bbl.

The Kiwi dollar opened today firmer from this time yesterday at 63.3 USc which is actually a six week high. Against the Australian dollar we are also marginally firmer at 90.2 AUc. Against the euro we are a tad firmer too at 61.7 euro cents. That all means our TWI-5 starts today at 71.3.

The bitcoin price has moved lower from this time yesterday, down -3.3% to US$22,950. Volatility over the past 24 hours has been moderate at just over +/-2.8%.

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.

Kia ora,

Welcome to Monday’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 the rise in both American personal income and personal spending topped forecasts in June, but bond markets have ignored this strength.

But first in China, they said they had an inflow of foreign investment in June of +US24.5 bln in the month. That was their best monthly result in more than a year.

But this comes after Beijing meetings on their economic slowdown and how they are responding. Missing are any mentions of the 5½% 2022 growth target. Replaced are calls for measures to "expand demand", work on "preventing decline" and "stabilising the current situation".

And over the weekend, their official PMIs were released for July. After having popped up to a rare expansion in June, the July manufacturing PMI contracted again, as it had done in each of the March to May months. So that is four of the past five months contracting. Both new orders and especially new export orders, fell. It wasn't a contraction analysts were expecting. Their services PMI was still expanding at a good pace July, but less so than in June, and their claim seems an odd result when only three of the ten sub-indexes actually expanded. New orders contracted in the 12 of the past 13 months.

However, the easing Chinese lockdowns, as tentative and uncertain as they have been, supercharged Japanese industrial production. After taking a heavy hit in May, this June rebound more than made up for the earlier shortfall and was way better than expected. It was the first rise in industrial output since March and the steepest pace on record. But Japanese retail sales growth slowed in June.

In the US the widely watched PCE inflation gauge rose +1.0% in June from May, more than expected and up +6.8% in a year. But these inflation levels are far lower than the US CPI measure of inflation (+9.1%).

For a fourth consecutive week, American petrol prices have fallen. So some heat is coming out of this source of inflation. 

Perhaps more importantly, the PCE data set shows both incomes and spending growing faster than expected. Personal incomes are up +7.2% in a year, a rate that has been stable for many months. Personal spending growth was up more, but this is a more volatile series and is up at the rate of +7.6%. These shifts show on average most households are not quite keeping up with inflation. The slippage however is being assumed as more than it really is, which is why sentiment surveys are quite negative.

All of these indicators keep pressure on the Fed.

The widely watched University of Michigan sentiment survey bounced off its lows in July, but remains deeply pessimistic. In fact it is still basically at its all-time low in a record that does back 44 years, six recessions and some of those were long and deep. Yet, the US has record low unemployment and is not in recession presently, and yet these types of sentiment surveys record lowest-ever mood depths. But company earnings remain very strong. It is not easy to reconcile. They may be talking themselves into a recession.

Expanding at a moderate pace, even if less so, is the heartland Chicago PMI. But of note in this survey is the sharpish shrinkage of new orders. Inventories are rising.

On the heels of the advance US Q2 GDP release on Friday, there were a slew of countries releasing Q2 economic activity reports over the weekend. Canada's was flat from May but up +1.1% in the year. Taiwan's was up +3.1% for the year. Mexico says it was up +2.1% for them. And the overall EU rate was +4.0% and a better than expected result. It was lower than the +5.4% in Q1, but well above the expected +3.4%. These come after a set of national releases that included France who said it grew +4.2% over the past year. Germany reported a +1.1% expansion rate. New Zealand won't report its Q2 GDP result until September 15.

In Australia, producer prices rose +5.6% over the past year to June, slightly faster than in the year to March, but lower than their CPI rise of 6.1%. The equivalent New Zealand data for the June quarter isn't due out until August 17, 2022.

Staying in Australia, the latest APRA data shows moderating growth in mortgage loans to owner-occupiers as rate hikes and the rising cost of living taps the brakes for household borrowing, but loans to investors are picking up sharply - in anticipation of more migration. Overall, private sector lending was up more than +9% year-on-year.

The UST 10yr yield starts today at 2.66% where it ended in New York last week. 

The price of gold opens today at US$1767/oz in New York which is up +US$2 from this time Saturday.

And oil prices start the week marginally softer at just on US$97.50/bbl in the US, while the international Brent price is now at US$103.50/bbl. The number of North American oil rigs operating is now back to pre-pandemic levels.

The Kiwi dollar opened today marginally firmer from this time Saturday at 62.9 USc. Against the Australian dollar we are also marginally firmer at 90 AUc. Against the euro we are a tad softer at 61.5 euro cents. That all means our TWI-5 starts today at 71.2 and little-changed in a week.

The bitcoin price has moved sideways from this time Saturday, down a mere -0.8% to US$23,735. Volatility over the past 24 hours has been moderate at just over +/-2.2%.

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.

Markets and prices for a number of asset classes are currently behaving as they tend to around the time of a recession, says BNZ Interest Rate Strategist Nick Smyth.

Speaking in the latest episode of interest.co.nz's Of Interest Podcast, Smyth also says financial markets pricing in Federal Reserve rate cuts as soon as next year, despite the Fed's current aggressive hiking and US Consumer Price Index (CPI) inflation of more than 9%, suggests markets are worried about recession risk. 

"The market has got circa 90 basis points of rate hikes over the remaining three [Fed] meetings this year, so still got the Fed hiking quite aggressively over the remainder of this year. And then next year it's pricing just over 50 basis points of rate cuts with the first rate cut fully priced by June," Smyth says.

"So why is that?"

"The logical way to interpret it would be to say markets are worried about recession risk. And I guess you can kind of see evidence of that in various parts of the financial markets," says Smyth.

"So for instance the S&P 500 is down more than 20%. That's that definition of a bear market. Bear markets are often, but let's be clear not always, associated with a recession. The US yield curve is inverted, which historically has been quite a reliable leading indicator of recession."

"We've got industrial commodity prices like copper, and copper's kind of used in lots of different things [and] historically that has been quite a good barometer of the strength of global demand. And that had fallen more than 30% from its peak," Smyth says.

"So you've got a number of asset classes that are behaving in a way they normally would in the lead up to, or around recessions. And this is taking place in the context of central banks really aggressively lifting interest rates over a short period of time, and in quite a synchronized manner."

Excluding China, which has its challenges around zero-Covid, and Japan which still has relatively low inflation, Smyth notes even the European Central Bank is raising interest rates, having not done so for 10 years.

"So a synchronized global tightening cycle will certainly slow [economic] growth. And then we've got these other contributing factors that are giving markets concern about the rising risk of recession including the risk of lockdowns and restrictions in China, and the situation in Europe where you've got potential gas shortages and power rationing later this year."

"So I think asset markets are kind of telling you that there's at least a reasonable, if not a high chance, of recession next year. And historically during recessions the Fed cuts interest rates."

The Fed increased the Federal Funds Rate, its equivalent of the Official Cash Rate (OCR), by 75 basis points to a range of 2.25% to 2.50% on July 27.Smyth says markets see it peaking at between 3.25% to 3.50% in the current tightening cycle. And they see the OCR, currently at 2.5%, peaking at between 3.75% and 4%.

"And the New Zealand market now is reflecting that same profile as what the US is, so there are some rate cuts, albeit not as much as in the US, that are priced in to the short-end of our curve as well," says Smyth.

Meanwhile, Smyth says markets see US CPI inflation, currently running at a "staggeringly high" annual rate of 9.1%, dropping to about 7.5% by the end of the year, and then down to about 2.7% by the end of 2023.

"So that is a really big fall. And again that's consistent with the market thinking there'll be a recession or some kind of miracle with global supply chains," says Smyth.

In the podcast Smyth also talks in detail about this week's market reaction to the Fed's rate hike, what the yield curve is telling us at the moment, Reserve Bank and Fed quantitative tightening, or moves to decrease liquidity, or money supply in the economy, and expectations for Wednesday's Household Labour Force Survey from Statistics NZ, and what this will say about the labour/job market.

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 both China and the US seem to be facing economic questions at the same time.

There are mounting concerns about the giant American economy’s resilience. Inflation is at 40-year highs, home sales are weakening but their red hot labour market has yet to show any sign of weakness.

New American jobless claims fell marginally last week, and there are now 1.44 mln people on these benefits which is still close to an all-time low.

But the initial 'flash' reading for real economic activity fell in the June-2022 quarter by -0.9%, on top of the -1.6% recorded fall for Q1-2022. If that is confirmed over the subsequent revisions, it will show the US economy has been in a shallow recession. In nominal terms it grew at an annual rate of +1.9% in Q2 but that was less than inflation. Over the past year it grew to US$24.85 tln and up +9.3% in nominal terms, up 7.8% at an annual rate in the second quarter alone. But that was less than price increases which for the household sector was a 9.1% inflation rate. The second estimate of this data will come in about four weeks.

The puzzle in all of this is their labour market - growing fast with widespread labour shortages. If a recession is in fact declared for this 2022 period it will be the strangest one in memory, one with a record low jobless rate. Today, the bond markets 'believes' the recession story, but equity investors don't. History shows though it is unwise to ignore bond market signals.

To confuse matters, the official arbiter of whether the US is in recession, the NBER, has always rejected the "two quarters down" rule. So the 'recession' designation is still up for grabs.

Meanwhile, the Kansas City Fed's factory survey came in more positive for July than for June, back expanding at a strong pace and a much better level than was expected.

And Mastercard reported stunning revenue growth, up more than +20% and far more than can be account for by inflation. This is not the sort of data that suggests recession.

But the latest US Treasury bond tender reflects the risk-off mood sweeping bond markets. Their 7-year tender was well supported but the median yield fell to 2.65% from 3.20% at the prior event a month ago.

In China, their top leadership has been meeting to address, the "complex and severe international environment and the arduous domestic reform" situation, a clear indication that their economy is not performing as it would like. The problems run deep, as they seem to acknowledge. But their "persistence is victory" mantra seems to indicate they will keep doing the same things that got them into this current trouble.

In Europe, German inflation is staying very high, up 7.5% year-on-year with the month-on-month rises running at an even faster pace. This July data was higher than analysts were expecting.

In Australia, retail sales activity disappointed in June. They rose a mere +0.2% from May after the May change was revised lower. This latest data was the softest rise in retail trade since a retreat in December 2021, and signals that retail volumes are shrinking as inflation bites harder. June's retail trade may be up +12% from year-ago levels, but the tepid May-to-June rise is the one catching the eye of analysts (up at an annualised rate of only +2.5%).

The decline in global container shipping rates continued last week. Bulk cargo rates fell too.

The UST 10yr yield starts today at 2.68% and down -5 bps from this time yesterday. 

The price of gold will open today at US$1753/oz in New York which is up +US$32 from this time yesterday.

And oil prices are little-changed today at just on US$96/bbl in the US, while the international Brent price is still at US$101.50/bbl.

The Kiwi dollar opened today up from this time yesterday to 62.8 USc. Against the Australian dollar we are up +½c to 90.1 AUc. Against the euro we are also +½c higher at 61.8 euro cents. That all means our TWI-5 starts today at 71.2.

The bitcoin price has risen sharply from this time yesterday, up almost +11% to US$24,010 and most of the gain coming after the US GDP announcement. Volatility over the past 24 hours has been extreme at just over +/-5.7%.

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.

Kia ora,

Welcome to Thursday’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 the global economy is still adjusting to inflation, war, the pandemic and supply-chain issues.

First up, the US Fed raised its policy rates by +75 bps to 2.5%, unanimously, very much as expected, and for a second month in a row. While they acknowledged spending and output data had softened recently, they also said further rate rises are likely. Their commitment to clamping down on inflation is sort of being ignored by markets.

Markets handled this announcement with a surge in equities, a fall in bond yields, and a fall in the USD after the press conference remarks.

Meanwhile, US durable goods orders rose much more than expected in June from May and are now almost +12% higher than year-ago levels. Capital goods orders are up almost 7.5%.

And updated data out for inventories showing them rising in both the wholesale and retail sectors are at a pace that isn't worrying yet, but is probably not sustainable all the same, because they are up about a quarter from the same month a year ago, which was an unusual low point.

The American merchandise trade balance slipped a bit in June from May, but remains elevated, consistent with expanding demand and activity.

But their residential housing market is in trouble, with pending home sales falling sharply in June. They were down -8.6% nationwide from May as escalating mortgage rates and housing prices impacted potential buyers. That is -20% below year ago levels as activity in these markets shudders.

US mortgage applications fell again last week, the fourth consecutive retreat and the eighth in the past 12. Also falling were mortgage interest rates but that doesn't seem to be helping.

In Shanghai, significant parts of the city are back in lockdown as Covid cases spread fast. Drivers and delivery personal, as well as ‘closed-loop’ quarantine staff, have been spreading the pandemic across the city, officials say. It’s an ominous sign for the Chinese end of supply chains. Shanghai isn't the only center grappling with these pressures.

In Europe, they are learning how to cope with a fast shutoff of gas from Russia, more variable daily now. The squeeze is on. And German consumer sentiment is taking a hit from all this uncertainty, especially as it drives inflation.

In Australia, their June CPI data came in at 6.1% year-on-year and just below analysts’ expectations of +6.2%. But that was up from +5.1% at March. It was also their highest level in more than 20 years (and the 20-yr-ago peak was when they introduced GST). Apart from that, it is their highest since 1990. Perhaps signaling that this could be their new peak, the Q-on-Q rate slipped from +2.1% in March to +1.8% in June. But this probably locks in another +50 bps hike on Tuesday, August 2, by the RBA. For perspective the New Zealand June CPI rose +7.3%, the US was up +9.1% and Japan was up +2.4% for the same annual period. Canada's CPI rose +8.1%. All these comparables make the Aussie rise seem moderate - even if they don't think so.

The UST 10yr yield started today at 2.77% and down -2 bps from this time yesterday. Then after the Fed press conference it slid further, down another -4 bps. 

Wall Street had opened its Wednesday session unruffled by the Fed and up +1.5% trade before the chairman's press conference. But after that it surged, now up +2.5%. 

The price of gold will open today at US$1721/oz in New York which is up +US$3 from this time yesterday.

And oil prices are +US$1.50 firmer today at just over US$96.50/bbl in the US, while the international Brent price is now at just over US$101.50/bbl.

The Kiwi dollar opened today little-changed from this time yesterday at 62.2 USc. Then after Powell's remarks it rose to 62.6 USc. Against the Australian dollar we are also softer at 89.6 AUc. Against the euro we are also softer at 61.3 euro cents. That all means our TWI-5 starts today at 71 and little-changed.

The bitcoin price has risen from this time yesterday, it has make back +3.5% to US$21,667. Volatility over the past 24 hours has been moderate at just over +/-2.2%.

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.

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 the global economy is slowing amid 'a gloomy and uncertain outlook'.

The IMF lowered its growth forecasts for the global economy to +3.2% in 2022 from +3.6% in its April review, while the outlook for inflation was revised higher due to a surge in food and energy prices as well as lingering supply-demand imbalances. The American economy is seen growing +2.3% this year (down from -3.7% seen in April) and China's GDP is now expected to expand +3.3%, compared to +4.4% early.

Even though they say "the outlook has darkened significantly" they are still forecasting 2022 growth and that might surprise some bears, but the fact remains that global economic activity is still expanding in the major economies, and that is expected to continue even into 2023.

American retail sales rose at as fast a clip last week as we have seen for the past four weeks, and certainly far more than can be accounted for by inflation.

But new home sales in the US tailed off rather sharply in June and slipping below the 600,000 annualised rate for the first time since the March 2020 pandemic pullback.

And American consumer sentiment dipped again in July, according to the Conference Board survey. The decrease was driven primarily by a decline in the Present Situation Index—a sign growth has slowed at the start of Q3. The Expectations Index held relatively steady.

But it is not all gloom. The Richmond Fed's regional July surveys were both indicating improvements in their mid-Atlantic states region. The factory survey rose from its June negative mainly because of the heady rises in new investment in both production equipment and software. And those are expected to rise from here as are shipments of goods. Things weren't quite as positive for their services sector.

Across the Pacific, South Korea reported its Q2 GDP. That showed a pick-up in economic growth to 2.9% from the year-ago period and well above analyst estimates. A rebound in private consumption and government spending offset the decline in exports and private investment.

Economic news out of China has been eerily and unusually absent today. Their usual sources are all focusing on political news, what President Xi is doing or saying. But to be fair, they are winding down for their summer holiday break, even if the weather there is unusually hot at present. But the sudden disappearance of news about their property sector crisis is notable.

In Singapore, even though industrial production was still slightly ahead of year-ago levels in June that masked a sharpish fall away between May and June that is worth keeping an eye on.

The EU countries, bracing for further cuts in Russian gas supply, approved an emergency plan to curb demand after striking compromise deals to limit the reductions for some small countries.

In Australia, punishing Chinese tariffs have decimated what was Australia’s most lucrative export market for wine. Sales slumped from AU$1.1 bln two years ago to just AU$25 mln now. That has forced them to find other markets, and they are with sales to the rest of the world rising quickly, up +AU$400 mln. But the Chinese punishment means that their yields fell -14% from 2020 to 2022.

The UST 10yr yield starts today at 2.79% and down -2 bps from this time yesterday. 

The price of gold will open today at US$1718/oz in New York which is down -US$2 from this time yesterday.

And oil prices are little-changed at just over US$95/bbl in the US, while the international Brent price is now at just over US$100/bbl.

The Kiwi dollar will open today almost -½c weaker than this time yesterday at 62.3 USc. Against the Australian dollar we are also softer at 89.8 AUc. Against the euro we are firmer at 61.6 euro cents. That all means our TWI-5 starts today at 71 and a -20 bps below this time yesterday.

The bitcoin price is again lower than this time yesterday, down by another -4.3% to US$20,925. Volatility over the past 24 hours has been high at just over +/-3.7%.

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.