Economy Watch

Fresh from meeting with international reinsurers, Tower CEO Blair Turnbull says they are "questioning whether they want to be down under."

Turnbull spoke to interest.co.nz for the latest episode of our Of Interest Podcast about insurance and climate change.

Reinsurers are highlighting they've taken losses for several years in a row, Turnbull said.

"And they are looking very closely, as you would expect, about where they want to have insurance for insurers. And especially more recently with the floods in Australia, which are record $4 [billion] to $5 billion events, they are questioning whether they want to be down under. And that's a concern for us because we rely on that capacity. In our case we have category cover up to just below $1 billion, and we need that cover."

Reinsurance is often described as insurance for insurance companies like Tower, allowing them to transfer some of the financial risk they assume when issuing insurance policies to a reinsurer.

Turnbull said Tower's highlighting to reinsurers that New Zealand is not Australia. Although we too have floods, they're typically alluvial and eluvial, and not on the scale of Australia's inland river flooding where there are huge catchment areas.

"So what we're saying to reinsurers is 'please don't join us together and say you're the same. We're quite different and the nature of those storm events are quite different.' I think also in the case of Tower what reinsurers do like is things like risk-based pricing because we are working with customers and communities to really understand it, and to help mitigate it, and to also price appropriately for it."

Turnbull also spoke about the Government's draft national adaptation plan, which is currently open for consultation. When the draft plan was released in April, Climate Change Minister James Shaw said it was designed to help communities across New Zealand "adapt to the unavoidable impacts of climate change." The draft plan includes discussion of managed retreat, or moving people, property and infrastructure away from areas at high risk.

"We don't have uninsurable pockets at the moment, but if we look forward and these trends continue, that is a risk. So plans like the national adaptation plan, those discussions, the Natural Hazards Bill that's going through [parliament], that's really, really important to now start informing ourselves and responding," Turnbull said.

In the podcast he also talks about wanting councils to stop issuing consents that enable building in flood prone areas, on top of "a lot of newer subdivisions that are [already] in areas prone to flooding and that is causing problems."

He also talks about the impact of climate change on businesses and rural areas, what Tower's data tells it about the  frequency and severity of major weather events, Westport and Buller's efforts to improve flood resilience, the recent floods in Canterbury and Kumeu, the UK's reinsurance scheme Flood Re, and much more.

"Today we don't have uninsurable areas but we want to make sure we don't have them in the future and that's the reason we must take action," Turnbull said. "The key thing about the national adaptation plan is we're round the table talking about it."

The final version of the adaptation plan is scheduled to be published in August, with a Climate Adaptation Act set to follow.

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 that it is all about inflation and its pressure on central banks.

First up today, the headline American CPI inflation rate rose sharply in June by +9.1% and well above the expected +8.8%. That's their largest rise since 1981. But their core inflation rate actually fell to 5.9% in June from 6.0% in May. That shows that most of the inflation pressure is coming from petrol (+60% year-on-year) and food (+10%). The May to June food price rises were less than the prior month. So really, its an energy story.

In the US, food makes up 13.4% of their index, and fuel 7.3% (3.5% for household use, and 3.8% for petrol). For New Zealand, food makes up 18.5% of our index, while fuels 7.5% (4.0% for household use, and 3.5% for petrol). We tax ourselves a lot more for petrol, so their change just seems a very big increase, not that they are actually spending more than us. The New Zealand CPI data for the June quarter is due out on Monday, and analysts expect ours to rise from 6.9%. Actual forecasts aren't released yet but they will undoubtedly be above 7%.

But with the headline rate so high, that does to seem to open the door to a full +1.0% rate hike when they meet next to review rates on Thursday, July 28 NZT.

The latest US Fed Beige Book reports an economy ticking over at a good level, but with signs of a coming slowdown. Most Districts reported that consumer spending moderated as higher food and petrol prices reduced households' discretionary income. Due to continued low inventory levels, new car sales remained sluggish.

As we have noted in previous months, the US Government deficit is being repaired fast. In the past 12 months, it is now down to just over -US$1 tln in the year to June (-4.1% of GDP), and a far cry from the -US2.8 tln deficit in the year to September 2021 (-12.3% of GDP). By any measure that is an impressively fast repair. The monthly deficit in June 2022 was less than half the June 2021 level. Spending is down -US$900 bln while tax receipts from a healthy economy are up almost +US$800 bln for the year to June.

There was another US Treasury bond auction, well supported, this one for their 30 year maturity. The median yield today was 3.05%, down from 3.11% at the prior equivalent event 5 weeks ago.

We have noted it before, but keep an eye on the energy crisis in Texas. Blackouts seem close now.

The Canadian central bank surprised markets earlier today and took the plunge with a full +1.0% rate hike, taking their policy rate to 2.50%. Most analysts had expected an outsized +75% bps jump, but their central bank Canuks surprised them still. Canada's inflation rate is running at 7.7%. It’s a rate change than makes yesterday's RBNZ hike look small by comparison.

Meanwhile, the IMF is warning G20 treasurers to tighten their budgets and their central banks to push up interest rates to prevent high inflation from becoming entrenched.

China reported a fatter trade surplus in June as exports rose almost +18% year-on-year, the most in five months as logistics constraints eased, especially in the Shanghai region and a catch-up in delays were eased. Meanwhile imports grew barely, up just +1% and far less than the almost +4% rise expected, suggesting this June surge is really just a one-off. Still the June +US$98 bln surplus was impressive.

In the Chinese property sector the stresses just go on and on. Buyers involved in 35 projects across 22 cities have decided to stop paying mortgages as of last week due to project delays and a drop in real estate prices. Others say it could be what is happening in up to 100 projects. This will sharply raise the bad debt risks for the exposed banks. On top of the regional bank run we have noted over the past few days, calls are out to address a 'crisis of confidence' in China's banks, banking system, and what might be unexpected corruption among banking managers. Their stumbling economy is putting huge pressure on regional banks, it seems.

The RBNZ and the Bank of Canada weren't the only central bank to raise rates yesterday in the face of the threat inflation poses. The Bank of Korea raised its base rate, also by +50 bps to 2.25%, the largest increase since the bank adopted interest rates as its primary policy tool in 1999, as it stepped up its battle against inflation now running at a 23-year high. The move followed five previous +25 bps hikes, and was the rate markets expected.

In Australia, ANZ has confirmed it is in talks to buy SME accounting software company MYOB from private equity giant KKR, but says an agreement is yet to be reached.

The UST 10yr yield starts today down at 2.91% and another -4 bps slip from yesterday. 

The price of gold will open today at US$1740/oz which is +US$14 higher than this time yesterday.

And oil prices are little-changed at just over US$94/bbl in the US, while the international Brent price is just under US$98/bbl.

The Kiwi dollar will open today a little firmer from this time yesterday at 61.6 USc. Against the Australian dollar we are still at 90.6 AUc. Against the euro we are little-changed at 61 euro cents. That means our TWI-5 starts today at just on 70.6 and a minor firming.

The bitcoin price returned to almost at the same level as this time yesterday at US$19,873. Volatility over the past 24 hours however has been high at +/-3.0%.

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 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.

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 stress is driving protests in countries as diverse as the Netherlands and China.

But first, there was a US Treasury 3 year bond auction earlier today delivering higher yields. It was very well supported delivering a median yield of 3.04%, up from 2.87% at the prior equivalent event a month ago.

In the US we should also note that now more than 5% of new car sales are electric, which is considered a tipping point from where mass adoption of EVs will rise fast from here. (In New Zealand we are at about 3%.)

More electric demand is problematic for some states there. Demand due to summer heat alone is drawing warnings in Texas that they face blackouts again this year.

Wall Street is getting ready for their Q2 earnings reports and expectations are low for what is to come. Overall, earnings growth of +4.3% is anticipated for this upcoming set, the lowest gains since 2020. Big banks and other financial companies will dominate the early part of the scheduled releases later this week. PepsiCo will report tomorrow and Delta Air Lines on Thursday, NZT. They start a flood of releases.

In Japan, machinery order data for May was weak, but no weaker than expected for that month. They fell -5.6% in May from April, posting their first drop in three months and nearly matching forecasts for a -5.5% contraction. But they were up +7.4% from year ago levels which was better than expected. Analysts suggested that Japanese firms could be delaying spending due to rising energy and raw material prices that have been aggravated by soaring import costs due to a weakening yen.

The arguably more important Japanese machine tool order data for June came in a very strong +17% higher than a year ago, maintaining the same strong level as for May.

China is successfully pumping bank debt out the door is a rather spectacular way. In June, new yuan loans increased by ¥2.81 tln (+NZ$0.7 tln), a year-on-year increase of +24% taking their total bank debt to ¥205 tln (NZ$50 tln) or 173% of annual economic activity. For perspective, the same ratio in New Zealand is 148% and for the US is just 70%.

China isn't shaking its pandemic risks and new lockdowns seem inevitable, keeping supply chain troubles bubbling away.

Meanwhile, China has a new and explosive bank-run risk. A large crowd of angry Chinese bank depositors faced off with police on Sunday, some roughed up as they were taken away, in a case that has drawn attention because of earlier attempts to use a COVID-19 tracking app to prevent them from mobilising. Hundreds of people held up banners and chanted slogans on the steps of the branch of China's central bank in the city of Zhengzhou, Henan Province, about 620 km southwest of Beijing. Video taken by a protester shows plainclothes security teams being pelted with water bottles and other objects as they charge the crowd. The protesters are among thousands of customers who opened accounts at six rural banks in Henan and neighbouring Anhui Province that offered higher interest rates. They later found they could not withdraw their funds after media reports that the head of the banks' parent company was on the run and wanted for financial crimes. This is the type of bank run by depositors that Beijing fears.

In Holland demonstrations of a different nature where "huge protests" have swept the country triggered by the introduction of laws designed to cut nitrogen and ammonia emissions by -50% by 2030, and by -75% in protected nature reserves known as Natura 2000 areas. The latest demonstrations were sparked by a government announcement in June suggesting some farm closures were inevitable when they released a detailed map showing which areas needed reductions from -12% to -95%.

And we should also note that foot & mouth cattle disease has broken out in Indonesia, and travelers from Bali especially are at risk of bringing it back. The risk is much higher for Australia of course, but it is not trivial for us either.

The UST 10yr yield starts today back down at 2.99% and an -9 bps fall from yesterday.

The price of gold will open today at US$1736/oz which is -US$7 lower than this time yesterday.

And oil prices have moved back down -US$1 to just under US$101.50/bbl in the US, while the international Brent price is still just over US$105/bbl.

The Kiwi dollar will open today down more than -½c from this time yesterday at 61.3 USc. Against the Australian dollar we are +½c firmer at 90.8 AUc. Against the euro we are unchanged at 60.8 euro cents. That means our TWI-5 starts today at just on 70.4 and a minor -20 bps lower.

The bitcoin price has slipped fractionally since this time yesterday and is now at US$20,595 and down +1.4%. Volatility over the past 24 hours has been moderate at +/-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 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 China seems to be hamstrung with a flagging economy that is yet to respond to the stimulus administered so far.

First up, China reported its June CPI inflation rate at 2.5%, up marginally from May, and up from 1.1% in June 2021. But if it wasn't for a +19% rise in fresh fruit year-on-year, and fuel of course (+32%), the 2022 rate may have matched the 2021 rate. The cost of fresh milk rose +0.9% but lamb fell -6.0%. China doesn't really have an inflation problem at this time, 'aided' by an economy in the doldrums. But that 2.5% June rate is their highest in 23 months. Buying heavily discounted Russian oil and gas certainly helps.

They seem to have neither inflation nor an economic expansion.

China's producer cost rises are slowing. After rising at a rate exceeding +13% late last year, PPI inflation is now down to 'just' 6.1% in June, its slowest rise in 15 months. We should note that the pressure on the 'industrial sector' is higher (at 8.5%).

In Chinese society, nationalist fervour is building ahead of the CPC party Congress. But as we have reported before, their economy is struggling and major announcements on vast new stimulus are expected soon. Larger deficit spending is proposed. Local authorities are already distributing helicopter money to keep retail activity bubbling along. But in the industrial heartland things are serious. China’s steel mills are sounding the alarm over crisis conditions in the industry as margins plunge due to weak demand. The starkest warning yet has come from Hunan Valin Iron & Steel Group, which met this week to discuss the rapid downturn in the sector and the measures it needs to take to ensure the company’s survival, including halting unprofitable production. Citing industry experts, the mill based in southern China, said it expects the crisis to persist for five years. Iron ore prices fell again on Friday, weighed by the gloomy demand outlook in China.

In Taiwan, export data for June was very strong, rising more than +15% year-on-year to US$42.2 bln in the month, far better than the +13.6% rise expected and the +12.5% rise in May. The Taiwanese export juggernaut rolls on. They even managed to keep import growth lower than expected and lower than for May, even with the oil price pressures. The trade balance stumble in May is behind them now.

In the US, the market bears have been thinking they will finally have their day. But better-than-expected jobs numbers make it a very hard claim to sustain.

Markets were expecting a +268,000 increase, but the seasonally adjusted American non-farm payrolls rose +372,000 in June from May to be +6.3 mln higher than a year ago, and +1.1 mln higher than in the pre-pandemic June 2019. By this measure, this June 2022 data records substantial progress. But it is actually better than that. As regular readers know, we also look at the actual, rather than seasonally adjusted numbers, and June's employed labour force is actually +944,000 higher than May's and continuing a trend that exposes a very sharp rise in actual hiring.

All those extra paid workers buy stuff, and that is expanding their economy faster that many analysts are expecting. The Americans seem to have both inflation and a good economic expansion.

High inflation in a strong labour market is sure to keep the US Fed in its rate hiking mood, the next of which will come on July 28 (NZT), now probably +75 bps. Two of the Federal Reserve's most vocal hawks said they would support another big interest rate increase but a downshift to a slower pace afterward, even as both downplayed the risk of higher borrowing costs pushing the US into recession.

The rise in American wholesale inventories continued in May, but at a slower pace than for April. Their inventory-to-sales ratio remains low from an historical perspective, but as we have noted before, firms are moving to actively reduce this build-up, and that is affecting factory new orders worldwide.

The US reported that consumer debt (not housing) rose by +US$22 bln in May, less than expected (+US$32 bln), and much less than the April rise of +US$36 bln. They now collectively owe US$4.54 tln in consumer debt, a per capita rate of US$13,660 each. For perspective, New Zealanders owe NZ$2,600 each as a per capita average.

Meanwhile, the top has come off the recent rise in American mortgage interest rates.

Canada also reported jobs numbers for June, shedding -43,200 jobs in the month although almost all of those were part-time jobs. Canada has been shifting from part-time to full-time for most months in 2022, although this month there was not compensating growth in full-time jobs. Canada's jobless rate fell to 4.9% which is a record low for them. The US is at 3.6%. Australia is at 3.9%. New Zealand is at a 3.2% unemployed rate.

In Australia, the insurance claim costs of their on-going flood catastrophes in NSW are already at AU$100 mln. Some insurers are calling on immediate restrictions on rebuilding on flood plains. That may affect more than 15% of households there, perhaps thousands who can't return. New Zealand premium costs are sure to feel the impact from stressed Aussie insurers.

Globally, the UN FAO Food Price Index slipped in June from May as both vegetable oils and cereals slipped in price. But both dairy prices and meat rose again, meat to a new record high and dairy back close to its 2013 record level. What is interesting is that even on an inflation-adjusted basis, global demand for meat and dairy remains very strong, and alternatives seem to be making no headway into these markets. Perhaps the very sharp run-up in grain prices is putting them at a disadvantage. An early pioneer, Beyond Meat, has seen its share price crash -75% in a year. Its sales are dragging and costs skyrocketing as consumers loose interest in the product.

The UST 10yr yield starts today back up at 3.08% and a +19 bps rise in a week. 

The price of gold will open the week at at US$1743/oz. A week ago it was at US$1808/oz, so it has fallen -US$65/oz since.

And oil prices have moved back -50 USc to just under US$102.50/bbl in the US, while the international Brent price is still just under US$106/bbl. A week ago these levels were US$107 and US$111/bbl, so a -US$5 shift lower in a week week.

The Kiwi dollar will open today unchanged from Saturday at 61.9 USc. Against the Australian dollar we are also unchanged at 90.3 AUc. Against the euro we are still at 60.8 euro cents. That means our TWI-5 starts today at just on 70.6 and a minor +25 bps higher in a week. 

The bitcoin price has fallen since this time Saturday and is now at US$20,892 and down +4.3%. Volatility over the past 24 hours has been high at +/-3.0%.

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.

The Government's push to develop a national supply chain strategy doesn't make much sense because supply chains need to be matched to specific products, says a leading supply chain academic.

Tava Olsen, Professor of Operations and Supply Chain Management and Director of the Centre for Supply Chain Management at the University of Auckland Business School, spoke to interest.co.nz for the latest episode of our Of Interest Podcast.

Earlier this year the Ministry of Transport issued the New Zealand freight and supply chain issues paper.In the wake of global supply chain disruption caused by the Covid-19 pandemic. Transport Minister Michael Wood said the Government was "taking action to future proof our supply chain, limiting the impact of the next global shock on our businesses across the country."

Olsen said while the paper does an excellent job of outlining the background and all the issues, she's not convinced a national supply chain strategy is a good idea.

"I don't think a national supply chain strategy makes much sense. A freight strategy maybe, quite possibly. But in our very first class on supply chain what we teach is that you don't have one supply chain strategy. You have to match your supply chain strategy to the type of product."

"So Fisher & Paykel Healthcare exporting their high tech, light masks, are going to need a completely different supply chain than Fonterra exporting their low value, heavy milk powder bags. Those are two fundamentally different supply chain types. And if you look at what you're going to emphasize, you're going to emphasize responsiveness for Fisher & Paykel Healthcare, and you're going to emphasize minimising cost for the Fonterra milk powder," Olsen said.

"The other issue I have with their proposed strategy is they don't seem to recognise that. So they want productivity or efficiency, and they want responsiveness or resilience. Yes, we want both of those but where's that trade off? Which one do we want to emphasize? Well, it depends on what product we're actually thinking about. So I think coming up with a country strategy for supply chain, it doesn't make a whole lot of sense."

"Coming up with a country strategy for freight, thinking about the modes we want to use, and whether we want to subsidise rail more, or roads more, or coastal shipping more, that makes a lot of sense. So yes, we should be thinking a lot more in terms of our strategic planning for our country's freight network," said Olsen.

The Ministry of Transport says it received more than 70 submissions on the issues paper. Some will be published, along with a summary document, by the end of July.

In the podcast Olsen also argues NZ should "absolutely be looking at" developing a system for compulsory stocks of critical supplies such as fuel, medical supplies and key foods that are brought in from overseas. 

Additionally she talks about whether the "just in time" model has a future, the concept of a national shipping line, how local government ownership prevents a shift to a hub and spoke model for NZ export and import ports, coastal shipping, automation and robot deliveries, supply chains and climate change, the tyranny of distance, and the need for NZ businesses to upskill their supply chain knowledge and her desire for more investment in research and development.

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 there does seem to be an export-led trade recovery underway for some key Western economies, one that isn't attracting much attention from markets so far.

But first we should report that initial American jobless claims rose a very minor +12,000 last week from the week before. There are now 1.378 mln people on these benefits, and still near all-time record lows.

But reports of job cuts are rising even if they are still at low levels.

The US trade deficit of both goods and services remained at an historically high level even if it did fall in May from April. The reduction was due to stronger exports and restrained imports although both hit monthly record high levels. Their deficit with China fell. It seems that world trade is in good heart. And as we have noted before, their annual trade deficit is 'only' -4% of US economic activity, so isn't a heavy load for them especially when it is paid for by their domestic currency.

Supporting that is international air cargo data out for May, showing North America leading this recovery, and by a substantial margin.

Bulk cargo shipping rates are holding their recent lower levels. But the falls in shipping container rates we have seen since March stopped last week on stronger demand for cargoes from China to the US.

Canada's trade surplus rose in May (nothing like Australia's record-breaking surplus however), and it was on the back of stronger exports and restrained imports.

Meanwhile, China's foreign exchange reserves fell in May and are now just over US$3 tln, their lowest since the pandemic, and down to the low range since 2016. The -US$57 bln monthly fall was large for them.

German industrial production rose in May from April, but not by as much as was expected. However it is still lower than year-ago levels. 

There was a big surprise in the Australian trade data reported yesterday for May for both goods and services. Most analysts expected a +AU$10.7 bln surplus, but in the end a +AU$16 bln was recorded, and a new all-time monthly record. That takes their annual surplus to AU$135 bln and also a stunning record high and +60% more than for the May 2021 year. Further, the April surplus was revised higher to +AU$13.2 bln. These are very juicy numbers for them, driven by exports, up almost +10% when a +1% rise was expected. Shipments of coal were especially strong - to China.

The Americans are easing import rules to allow foreign makers of baby formula stay on their market for the long term, in an effort to diversify the industry after the closure of their largest domestic plant sparked a nationwide shortage.

Back in China, reports suggest that their battle with the pandemic isn't easing. Shanghai (and even Beijing) may face renewed lockdowns. Patience with China's part in the global supply chain network must be wearing thin. And the endless trouble in their property development sector seems far from over. All this is prompting Beijing to promise ever higher support and stimulus activity to keep their economy from listing too badly. When their "positive" Q2-2022 GDP data is release, it will draw considerable scepticism.

The UST 10yr yield starts today back up at 3.01% and a +11 bps rise from this time yesterday. 

The price of gold is staying lower but up +US$3 from this time yesterday at US$1740/oz.

And oil prices have moved back up today, up +US$5 at just over US$101/bbl in the US, while the international Brent price is just over US$104/bbl. But the latest American crude oil inventory data (just released) surprised analysts, rising sharply when a fall was expected and that is starting to weigh on those oil price levels. (US petrol inventories fell however but only by a third of the rise in crude oil stocks.)

The Kiwi dollar will open today marginally firmer at 61.7 USc. Against the Australian dollar we are a little softer at 90.3 AUc. Against the euro we are +½c firmer at 60.8 euro cents. That means our TWI-5 starts today at just over 70.5 and +20 bps firmer.

The bitcoin price has risen since this time yesterday and is now at US$20,882 and up +3.1%. Volatility over the past 24 hours has been moderate at +/-2.5%.

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.

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 overnight data has actually been quite positive, showing the global expansion isn't done yet.

The American logistics sector is still expanding fast. The June report shows that growth is rising at an increasing rate for inventory levels still which growth is increasing at a decreasing rate for inventory costs, warehouse utilisation, warehousing costs, and transportation capacity. It is still a very healthy rate of expansion, just not extreme like it was three months ago.

Even after adjusting for the short week ahead of their national holiday, American mortgage applications fell back rather sharply last week and this was despite a small rollback in mortgage interest rates.

The latest weekly survey for retail activity picked up last week from levels that were already quire buoyant. It was a gain that was better than expected.

The widely-watched American services PMI for June came in better than expected and only a trivial dip from May. If there is an issue with this, it is a slightly lower growth rate in new orders. The internationally-benchmarked version also reported weakness in new orders but otherwise came in better than expected

The level of job openings remained near record highs at 11.3 mln and coming in for May above the 11 mln expected. Their 'quit rate' fell to a four-month low of 2.8% and there are almost 2 openings for every unemployed person. Skill match is a problem however.

The latest US Fed minutes show their officials are concerned entrenched inflation poses a "significant risk" and a "more restrictive" policy stance may be needed (pg 9). They concluded they needed to raise rates faster and to levels designed to slow the economy because the inflation outlook had worsened. And broad inflation expectation surveys they watch most closely are about to get worse. Their key fear is inflation becoming entrenched. And that probably means a more muscular fight is ahead, even at the risk of lower economic activity.

We should also note that the Chinese and American foreign ministers are about to meet in an attempt to reset their relationship. It won't be easy. But the Americans may offer to roll back some tariffs (for their own inflation-fighting reasons), an idea that may attract China to help reinvigorate their stuttering economy. But you have to say, chances of any deal are not high.

In China, it looks like their police database has been hacked, with records of about 1 bln Chinese available for sale on the dark net.

And new flooding in the Pearl River basin is affecting logistics in the region.

German factory orders surprised with a small month-on-month rise when a sharpish fall was expected. This is just the latest data in a series that have been nowhere near as bad as you might think it would be. The pace of adaption in the German economy in the face of extreme stress is actually quite impressive.

In France, it looks like they are about to nationalise their big nuclear energy producer in an attempt to keep the lights on.

And in Australia, businesses there say they have a stark choice - either push through very sharp price increases from sharp hikes in energy costs, or close as insolvent. For consumers and businesses, either way they face huge jumps in energy costs.

And NSW flooding isn't getting better. The number of people under evacuation orders is huge, and rising.

The UST 10yr yield starts today back up at 2.90% and a +10 bps rise from this time yesterday. 

The price of gold is down sharply again, down another -US$29 at US$1737/oz.

And oil prices are down further, down -US$1 at just under US$96/bbl in the US, while the international Brent price is just on US$99/bbl.

The Kiwi dollar will open today little-changed at 61.5 USc. Against the Australian dollar we are also barely-changed at 90.6 AUc. Against the euro we are firmer at 60.3 euro cents. That means our TWI-5 starts today at just under 70.3 and +20 bps firmer.

The bitcoin price has risen since this time yesterday and is now at US$20,260 and up +2.8%. Volatility over the past 24 hours has been moderate at +/-2.7%.

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 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 with another day focused on commodity prices, including this time, dairy prices.

The overnight dairy auction has brought lower prices again, down -4.1% in US dollar terms. Butter was the big loser, down -9.1% at this auction. SMP fell -5.2% and WMP fell -3.3%. But somewhat saving the day has been a sharpish retreat in our currency, so in NZD terms prices fell only -1.0%. This is the seventh retreat in dairy prices in the past eight auction events, taking prices back to levels last seen at the start of 2022.

But dairy prices weren't the only commodity to take it on the chin. The gold price has fallen below US$1800/oz for the first time since October 2021. And oil prices have crashed, down about -10% and below US$100/bbl for the first time since mid-May. Lower demand expectations and Russians selling at huge discounts has finally caught up with the main oil indexes. 

All this is despite US factory orders levels coming in surprisingly positive, up +1.7% from April when a good monthly +0.5% rise was expected. Overall these orders are up +15.5% from year-ago levels, far more than can be explained by inflation. And durable goods orders were up +12.2% so the gains are more than just temporary consumption. It is data that isn't getting much respect today.

The private Caixin China services PMI also revealed a big recovery, even stronger than the official June services PMI.

Not to be out-done, the Japanese services PMI also recorded a steep rise revealing an impressive recovery underway there. It has been their third-fastest rise in business activity there since 2008.

China needs jobs badly. In the south, it is peak hiring season, but young workers face slumping wages and fewer opportunities in the Pearl River manufacturing heartland, a region grappling with pandemic disruptions and slumping exports when supply chains shift their business out for strategic reasons.

China is taking aim at the international technology firms by rolling out new "standards". This effort is to try and get key tech "made in China" in return for access to their huge economy. They are building a large non-tariff "bamboo curtain" that circumvents the WTO.

And in Europe, their Parliament has overwhelmingly approved two sweeping new pieces of digital regulation, paving the way for clashes between regulators and some of the world’s largest tech companies over how the rules should be applied.

In the UK, senior ministers are now abandoning the Prime Minister, as their sleaze crisis just goes on and on. And their central bank says the British economic outlook is deteriorating "materially".

The Reserve Bank of Australia raised its offial cash target rate by +50 bps to 1.35% at its July meeting late yesterday. "The Board expects to take further steps in the process of normalising monetary conditions in Australia over the months ahead. The size and timing of future interest rate increases will be guided by the incoming data ... " they said. A third +50 bps rate rise is entirely possible in August.

The Australian services PMI wasn't so impressive, still expanding but much slower, in fact their softest expansion in five months.

The UST 10yr yield starts today down at 2.80% and a -9 bps drop. 

The price of gold is down sharply, down a very chunky -US$42 at US$1766/oz.

And oil prices are down very sharply, down a massive -US$12.50 at just under US$96.50/bbl in the US, while the international Brent price is just on US$100.50/bbl. Even natural gas prices are falling.

The Kiwi dollar will open today -¾c lower at 61.4 USc. Against the Australian dollar we are lower at 90.7 AUc. Against the euro we are a little firmer at 59.9 euro cents. That means our TWI-5 starts today at just on 70.1 and -20 bps softer.

The bitcoin price has slipped since this time yesterday and is now at US$19,708 and down -1.0%. 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.

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 there are growing suggestions that the inflation surge may be topping out

Remember, it is the July 4, Independence Day holiday in the US and financial markets are closed there.

Yesterday we noted than most of the top ten global commodities were falling in price now. Other key hard commodities like nickel, cobalt and tin are too, most essential for green energy projects. But not lithium yet even if its rise is now over. The overall slide in commodity prices are an indication that inflation's bite may be easing, and quite quickly.

Further, there are suggestions that the US may roll back some of its tariffs on Chinese imports, a Trump-era tax on Americans. (Only those drunk on MAGA propaganda thought they were a tax on the Chinese. US import volumes showed otherwise.) This could be significant too to arrest inflation.

China is feasting on cut-price Russian oil, gas and coal. It is helpful for China because their economy is struggling to regain momentum. Other suppliers like Iran are having to match the Russian discounts. That in turn is driving down West African oil prices. And Australian coal producers are having to make the same match. All these price declines in these key commodities are helping quell inflation globally.

In China, property developer Shimao Group has missed the interest and principal payment of a US$1 bln offshore bond due on Sunday, in the latest blow to China’s embattled property market.

To get their economy moving again, China has halved taxes on new car purchases.

And China has found more undeclared additives in what is being sold as "pure milk" products. And these are from the Xinjiang Uyghur autonomous region. Propylene glycol is the additive; no mention of forced labour at these dairy farms of course.

In Europe, there is no relief for producer prices, up +36% from a year ago, with energy prices almost doubling and non-energy prices up about +17%. But this is May data so there is no evidence yet that it is topping out, even if other June data has subsequently suggested that.

High Russian gas prices has pushed German importers to the brink of collapse. But now the German government wants to add a rescue measure for energy companies such as Uniper in its energy security law and may end up acquiring a stake in the company.

German exports slipped slightly in May when a small rise was expected. But that was despite a virtual collapse of exports to Russia (down -30% in 2022) . Being able to post a 'hold' in such circumstances has to be a good win for Germany in the circumstances, although since 2014 they have weaned themselves off Russia as a customer to a very substantial extent.

Turkey's inflation rate rose for a 13th consecutive month to almost +80% higher than a year ago, its highest since 1998. This is what happens when a central bank chooses not to raise interest rates early enough. Meanwhile their currency dived further making the problem worse. Everything Erdogan does reveals he is incompetent.

In Australia, SkyCity’s Adelaide casino will be scrutinised via an independent review as part of a widening Australian crackdown on the gambling industry.

One of Australia's largest insurers, Suncorp, says costs are rising from 'the material hardening of the global reinsurance market following elevated natural hazard activity in recent years’. Their focus might be Australia, but Kiwi premium payers probably won't be forgotten in insurance repricing for rising natural hazard claims.

And staying in Australia, there was a big and unexpected jump in the number of residential building consents issued in May, up almost +10% from April when a -2% fall was expected. It is unclear how analysts could get that so wrong. Also rising is bank mortgage lending, up more than +2% in May from April, when a -2% fall was expected.

The UST 10yr yield starts today still down at 2.89%. 

The price of gold is now down -US$5 at US$1808/oz.

And oil prices are up +US$2 at just over US$109/bbl in the US, while the international Brent price is just over US$113/bbl.

The Kiwi dollar will open today unchanged at 62.1 USc. Against the Australian dollar we are firmer at 91.5 AUc. Against the euro we are also unchanged at 59.6 euro cents. That means our TWI-5 starts today at just on 70.3 and marginally softer.

The bitcoin price has risen since this time yesterday and is now at US$19,904 and up +3.9%. Volatility over the past 24 hours has been moderate at +/-2.7%. The crypto lender Vauld, backed by Coinbase and Peter Thiel, is exploring a possible restructuring after becoming the latest cryptocurrency platform to freeze services.

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.