Economy Watch

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 commodities are on the front line of a global economic shift.

The top ten commodities traded in the world are Brent crude (oil), Steel, WTI crude (oil), Soybeans, Iron, Corn, Gold, Copper, Aluminium and Silver, in that order.

But copper prices fell to US$7,716/tonne at the end of last week, a very long way down from the US$10,000+ level they reached at the start of June.

Aluminium prices fell to US$2,244/tonne, also a far cry from the peak in mid-March over US$3,800/tonne. They are now back to where they were in middle of 2021.

Iron ore prices are not going anywhere, despite all the talk of stimulus and rebounds in China. And that is also in the face of supply difficulties in China. World steel prices are flat-lining despite high energy costs.

Even wheat prices are falling, in this case based on fresh USDA planting data pointed to grain acreage and stock levels that were above market expectations.

Only corn, soybeans and oil are staying high. The rest are in a funk now, a developing fade.

You should note that it is a long weekend holiday in the US, their three day July 4 Independence Day weekend. Markets won't open there again until Wednesday our time.

Investors ended last week in a pessimistic mood, thinking a recession is imminent and acing accordingly. But we should be clear there is no imminent recession, only 'talk' at this stage. Whether investors talk themselves into one is yet to be seen. But one group, equity investors, ended last week questioning this negative herd view. They seem to be reassured that they can't lose - if a recession does come, that may delay or cancel the rate hikes and p/e ratios will stay high, underpinning current valuations. If recession doesn't arrive, those values may hold just based on good trading conditions.

Helping their mood was data out of China.

The private sector factory PMI recorded that manufacturing output rebounded as their pandemic restrictions receded, much like the official PMI reported on Thursday. But this one was actually a stronger result than the official one - not by much, but it is recording a better expansion. It was their best in more than a year. Japan and South Korea are still expanding, but the expansion in Taiwan has evaporated. All countries are reporting strong cost pressures and new order levels that are fading.

Hong Kong may have been on holiday on Friday 'celebrating' China's takeover of the territory and the current Emperor's visit, but before they did, they released some grim retail sales data showing just what a wet blanket the takeover has been for the people of the once-vibrant City.

In India they introduced export duties on petrol, diesel and jet fuel to help maintain domestic supplies, while also imposing a windfall tax on oil producers who have benefited from higher global crude oil prices. They also raised their import taxes on gold.

And not helping investors were reports that US factories were expanding at their slowest pace in two years in June.

The widely-watched local ISM factory PMI came in with a more modest expansion, one that was lower than expected however. New orders contracted for the first time in two years.

The internationally benchmarked Markit PMI came in marginally better than expected, but quite a drop from May. And this one is recording almost the same modest expansion as the ISM one. But it also recorded a fall in new orders. Stretched supply chains and elevated cost inflation have not gone away.

Both are evidence that customers are moving to reduce inventories in their systems. All eyes will be on how far that needs to go, but at this time it looks like a shortish correction. But it won't just affect American factories, it will have worldwide implications. So far that impact hasn't really shown up on the global stage, but it will.

Meanwhile, Eurozone inflation hit yet another record high in June at 8.6% as price pressures broadened, and its peak could still be months away, adding to the case for rapid ECB rate hikes, and probably starting this month at their next review on Friday, July 22, 2022 NZT.

Investors now seem to be racing to exit the Buy Now Pay Later sector. The rush away is highlighted by the crash in valuation of Swedish firm Klarna who once boasted a US$46 bln valuation. The latest update is US$6.5 bln. It is unlikely to rise from there. Similar retreats are underway in the Aussie BNPL sector. The sellers of AfterPay will be pleased with their timing; Jack Dorsey not so much.

BNPL is only the most visible of the retreats from many fintechs. Profitability is what investors are refocusing on, not just 'growth'.

Australia’s housing market is on track for a -15% year-on-year fall by the middle of 2023, the weakest performance in more than fifty years, and that is according to analysts at Deutsche Bank.

The storms gripping Sydney and eastern NSW are getting serious. Their giant Warragamba Dam is spilling, meaning it is no longer constraining downstream flooding. Thousands of homes in parts of Sydney that have never previously flooded were warned they could face significant threats. More than 40 evacuation orders, affecting about 32,000 people face evacuation. It is a big 'wet' that could last for all the rest of 2022, forecasters claim.

The UST 10yr yield starts today another -9 bps lower from this time Friday at 2.89% and it has ended the month in New York almost exactly about where it started, although it did get as high as 3.49% in between. 

The price of gold ended last week at US$1813/oz in New York. And as we mentioned earlier, India has raised its import taxes on gold from 7.5% to 12.5% which won't help the yellow metal's price.

And oil prices are little-changed at just over US$107/bbl in the US, while the international Brent price is just over US$111/bbl. A week ago these prices were very similar.

Russia has confiscated (without compensation) the minority shareholdings of the mainly Japanese partners in a large Far East gas project. It will be a long time (and after Putin) before any non-Russian company risks an investment in any Russian project.

The Kiwi dollar will open today softer at 62.1 USc and a -1c fall in a week. Against the Australian dollar we are firmer at 91.1 AUc. Against the euro we are unchanged at 59.6 euro cents. That means our TWI-5 starts today at just on 70.4 but down -70 bps in a week.

The bitcoin price has slipped only marginally since this time Saturday and is now at US$19,148 and down -1.3%. Volatility over the past 24 hours has been modest at +/-1.6%.

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.

Whilst the Reserve Bank views the Official Cash Rate (OCR) at its current level of 2% as neutral in that it's neither stimulating nor constraining economic activity, the steep rise in mortgage interest rates over the past year means they are well past a neutral level and are unlikely to rise much further, mortgage broker John Bolton says.

Bolton, founder and executive director of mortgage broker Squirrel Mortgages, spoke to interest.co.nz for the latest episode of the Of Interest Podcast.

While the average bank two-year fixed mortgage rate, typically the most popular term with New Zealand borrowers, bottomed out at about 2.51% in mid-2021, it's now at 5.4%. This type of move leads to big repayment increases, or mortgage shock, for borrowers when they refix their mortgages. 

But Bolton says after the sharp rise in mortgage rates, he believes they are starting to peak.

"I don't think they're going much higher. We are going to go into a recession, and I think even in the last week or so you've started to see the swap [rate] market come off a little bit. I think the economy's going to come off quite hard and fast, and you're going to see those longer term swap rates [which influence bank mortgage rate pricing] come back a bit," says Bolton.

"We talk about the OCR being neutral at 2% but we are not neutral, we are way past neutral at the moment. Because the Reserve Bank has talked it up so hard that mortgage rates are already pretty much pricing in every [future] OCR increase. We've tightened incredibly fast. So it's not surprising that has flowed through to the housing market. I mean we shouldn't be surprised."

The Reserve Bank is forecasting the OCR will peak at about 4% by mid-2023.It started increasing the OCR from its record low of 0.25% as recently as October last year.

"The OCR's going to go up but it's already fully priced into mortgage rates, so I think mortgage rates are going to start to stabilise quite quickly. We get this panic that runs through our market and everyone's like '[mortgage] rates could get to 8% or 9%'...Clearly no one could afford that. So I think that panic will start to dissipate when people start to see that interest rates are stabilising, they're not nearly moving as quickly as they have been. And that people just settle into the fact that, 'ok I've got to plan a future that says that mortgage rates are going to be hovering around 5% to 6%.' That's not the end of the world for most people and most people can adjust to that. So that will just gradually work its way through and people will get used to it," Bolton says.

"We're not seeing a lot of [mortgage] distress, I think we're starting to see a little bit. But the distress that we're seeing is probably people that just need to adjust their living expenses. Every generation goes through this."

He does, however, see higher mortgage rates having a broad impact on the economy by reducing the discretionary spending of mortgage holders.

"The thing that I find with the higher mortgage rates is it's going to translate into the real economy really fast because about 60% to 70% of the housing market is fixed on terms of less than a year. So you're going to get a really rapid reduction in discretionary income. When you reduce discretionary income, you're taking it out of hospitality, takeaways, retail, domestic tourism. So we're talking about a whole lot of industries that have been through two years of pain already that are now losing their customer base really, really fast. People just aren't going to be eating out as much, they're not going to be taking those domestic holidays...There's an increasing part of the population that's thinking 'I've got to hunker down for a while'," Bolton says.

In terms of house prices, Bolton estimates they are down between 10% and 15% from last year's peak already. 

"The media's going to be reporting that [falling house prices ] for at least another six to 12 months. I think most of the absolute change is already there in the market, [but] it's going to take a while to work its way through in the statistics," says Bolton.

"They [prices] are down 10% to 15% in absolute terms, I don't see them going much further. I think it will stabilise around that level. I think there will be vendors that just take their properties off the market, and there's not a lot of supply out there."

Parts of the market, where there's still a supply-demand imbalance, are still holding up quite well, Bolton says, adding that the house price fall isn't as big a drop as seen in the prices of other assets.

"The S&P 500's down over 20% this year, the Nasdaq's down 30%, crypto's down 60%. The everything bubble's popping, [and] property has probably done comparatively well. Where else do you put your money?"

In the podcast Bolton also talks about bank behaviour, cashbacks being offered to borrowers, the opportunity for non-bank lenders, the impact of December's changes to the Credit Contracts and Consumer Finance Act, comments from Reserve Bank Chief Economist Paul Conway that the tide may have turned on housing being a one-way bet, the residential property development market, and more.

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 New Zealand is claiming free trade wins in a deal with the EU.

But first, American jobless claims inched higher last week although the rise was less than analysts had expected. There are now 1.3 mln American on these benefits now, also a small rise. We are clearly past the bottom, past the all-time low.

Their PCE measure of inflation dipped a little in May from April, a pullback that wasn't expected. Core PCE is now running at 4.7%, the full PCE at 6.3%. The personal spending rise was much more modest in May that expected (up +0.2%) and may point to a weak Q2 GDP growth result, while the personal income gain was at +0.5% as expected.

The widely watched Chicago PMI fell back to the levels of the last few months, but the main concern in this report was the sharpish retreat in new order level growth. A
quarter of firms saw fewer new orders received in June.

Japanese industrial production slumped in May, the second straight month of decrease and the steepest pace since May 2020. However, it probably recovered in June. But from a year ago it will still be lower.

China was expecting its factory PMI to expand in June after contracting in the prior three months - and it did. But only just and by less than expected. The sudden shift in their services PMI from contraction to expansion was more impressive however. But these are the official data. We should wait for the private surveys before getting too carried away. And all countries got a bounce after lockdowns, bounces that have been hard to sustain.

Elsewhere in China, several regions have announced plans to increase coal production, as part of the country's efforts to ensure energy supply and stabilise prices. Full-year coal output is expected to increase by 200 million tonnes this year. That will be tough on the climate, already reeling from new restrictions imposed by the US Supreme Court on how Washington can regulate climate emissions.

Yesterday we reported a topping out in the German inflation rate. Today we can reports their retail sales rose in May more than expected (from April), and their employment levels rose, dipping their jobless rate to just 2.8%.

That fed in to an overall EU jobless rate of 6.1% which ranges between Spain's very high levels and Czechia's very low levels. Germany is near the lowest, France and Italy highish.

In Europe, New Zealand has secured a new Free Trade deal. It is claimed it will increase the value of New Zealand’s exports to the EU by up to NZ$1.8 bln per year but we have to wait 13 years for that level of benefit to kick in. Still it is a "better deal" that we got with the UK. This latest deal with the EU will benefit kiwifruit and seafood, and there will be an eightfold increase in the volume of beef we could export to the EU. Butter and cheese will now be able to be trade with the EU for the first time in many years.

But to be realistic, the gains are all very minor, and the EU gave way on nothing of real advantage to us, certainly not on their bully-claims on labelling. But it does come with a MFN clause, so the tiny gains we won won't be trumped.

In Australia, CBA, Australia’s largest bank (and parent of ASB), has hiked fixed mortgage rates for customers by +1.4% ahead of next Tuesday's RBA rate review, as analysts say larger hikes are on the way for homeowners there. CBA no longer has any comparison fixed rates lower than 5% now.

There was a sharper fall in containerised shipping rates last week, with prices falling hardest in the China to US routes. These costs are now -16% lower than a year ago after falling -3% this past week alone. On no routes are they rising anymore. Bulk cargo rates are now at a two-month low, and falling.

Today is the end of the month in the world's major markets so we should be wary of shifts in the indicators because portfolio managers will be squaring away positions there, and that can twist the daily movements in a way that doesn't really reflect today's sentiment.

The UST 10yr yield starts today -12 bps lower from this time yesterday at 2.98% and it is ending the month in New York about where it started. 

The price of gold is at US$1809/oz in New York and down -US$9 from this time yesterday.

And oil prices are -US$5/bbl lower at just over US$105/bbl in the US, while the international Brent price is just over US$109/bbl. The falling American demand for petrol we noted yesterday is undermining the oil price.

The Kiwi dollar will open today a little firmer at 62.5 USc. Against the Australian dollar we are unchanged at 90.4 AUc. Against the euro we are also unchanged at 59.6 euro cents. That means our TWI-5 starts today at just on 70.5 and up fractionally.

The bitcoin price has moved down again since this time yesterday and is now at US$19,124 and down another -4.4%. Volatility over the past 24 hours has been very high at +/- 4.4%.

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 'growth' is to be sacrificed to get the inflation genie back in the bottle, and the resulting pain accepted as the cost of doing so.

First, softer consumer spending and higher inventories put the US Q1 GDP further into 'negative territory' in their final revision on economic activity in the March quarter. Although these latest revisions were minor, they did feed into recession jitters in financial markets.

But American mortgage applications rose slightly last week while their benchmark 30 year fixed mortgage rate fell. That juiced up refinancing activity.

Meanwhile, speaking at an ECB meeting, the US Fed boss reiterated the US central bank's commitment to do-whatever-it-takes to control high inflation includes risking a recession. He said the bigger risk is to fail to restore price stability. Powell said there is a risk the US economy will slow more than they want to see but painful shocks may be a price that has to be paid. He also confirmed the Fed will raising rates fast and aims to move into restrictive territory fairly quickly. Either another +75 bps or +50 bps increase is expected at their July 28 meeting.

More positively, Japanese retail activity is rising, and by more than was expected. It rose by +3.6% in May from the same month a year ago, and the April data was revised up to +3.1%. This is now the third straight month of increase in retail trade and the steepest pace since May 2021, boosted by some somewhat surprising strength in consumption.

In China, their central bank said it is preparing a new round of "vigorous" monetary stimulus to support their flagging economy. At least they don't have material inflation.

Singapore reported its May PPI rise and it was worryingly high, up more than +31% from a year ago as energy cost rises punished them. But, the month-on-month rise was running at a slower rate.

Germany reported its June inflation rate and unexpectedly it came in less than the 8% forecast, in fact at 7.6%. On an EU harmonised basis it is running at 8.2% which is lower than the 8.8% expected and the 8.7% in May. The month-on-month change was very little (+0.1%) so maybe they have topped out.

In Australia, retail sales rose by +0.9% month-on-month in May to AU$34.2 bln, topping market forecasts and matching the April gain. This was also their fifth straight month of growth, as the Aussie economy recovered further from pandemic disruptions. The rise from a year ago exceeded +10%, handily beating inflation. Department stores had the largest month-on-month rise, up +5.1%, followed by cafes and restaurants. Given Australian consumer sentiment is low, this free-spending is a puzzle - not too dissimilar to the same track in the US. Makes you suspect "sentiment" is now hijacked as political, whereas the spending track tells the real economic story.

Meanwhile, Australian energy is getting a 'green' push from their regulator. They say Australia must accelerate a move away from coal to renewables and storage and urgently approve more than AU$12 bln of transmission projects to escape the ­energy crisis.

The UST 10yr yield starts today -10 bps lower from this time yesterday at 3.10%. 

The price of gold is at US$1818/oz in New York and down -US$3 from this time yesterday.

And oil prices are -50 USc/bbl softer at just under US$110/bbl in the US, while the international Brent price is unchanged at just over US$113.50/bbl. High petrol prices in the US "driving season" (summer holiday season) is causing more families to stay at home this year, revealed by low volume demand for petrol.

The Kiwi dollar will open today lower at 62.2 USc. Against the Australian dollar we are little-changed at 90.4 AUc. Against the euro we are marginally firmer at 59.6 euro cents. That means our TWI-5 starts today at just on 70.4 and down fractionally.

The bitcoin price has moved a little lower since this time yesterday and is now at US$20,011 and down -2.8%. Volatility over the past 24 hours has been modest at +/- 1.9%.

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 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 supply-chain stress in threatening the global economy in a fundamental way now. And weaker American consumer sentiment isn't helping.

The rise in American inventories is starting to become concerning, although much of it is just caused by price rises. Still even if retail inventories were only up +1.7% in May from April, they are up a sharp +17% from May 2021. Wholesale inventories are where the real problems are, up +25% year-on-year. Congestion in shipping, rail and warehouse supply lines haven't really eased. The prospect of an inventory-correction has to be rising. There could be US$250 bln in excess stock in their supply chains, US$150 bln in wholesale channels, US$100 bln in retail channels. That represents about 1% of US economic activity, so any pullback would be noticeable even if not huge. World-wide it is a very much larger problem and that is where the real risk lies.

The US merchandise trade deficit for May came in less than for April although not by much. But at least it was their lowest in five months with exports rising +22% year-on-year. As we have noted before, the overall trade deficit amounts to only about -4% of US GDP, again very manageable in the intermediate term at least.

The weekly Redbook indicator as an early view on American retail sales shows them tracking little-changed with no real sign of any slowdown on this front.

But the Richmond Fed factory survey does, confirming what the Dallas Fed survey indicated yesterday - that the top is off new order levels and future prospects don't look as bright in June.

And the widely-watch Conference Board survey of consumer sentiment in June has turned negative too, near a ten year low. You would expect this negativity to show up in retail sales activity soon. If not, the mood turn is entirely political, not economic.

Will the US Fed change its tightening course? Michael Burry thinks a retail bullwhip is coming and they will. But overnight senior central bank speakers in both the US and the ECB doubled-down on their inflation-fighting purpose.

In China, senior officials are exhorting farmers to bring in a good grain harvest, an unusual move that probabaly indicates some concerns about food security in light of Russia's invasion of Ukraine.

In Germany, GfK Consumer Climate Indicator declined to a fresh record low even if it wasn't quite as bad as expected. It been really negative for the past four months.

In Europe generally, we should note that Turkey has now consented to both Finland and Sweden joining NATO.

In Australia, their Federal Government has racked up AU$892 bln in bond debt - and growing. (For reference, the NZ Government has AU$168 bln gross outstanding.) At the rate they need to issue new debt, it will exceed AU$1 tln in the next few years. They now have a very serious interest rate risk. Plus, just given the quantum they have at risk, the market appetite for more may be constrained - meaning buyers may get hard to find. The head of their debt management office has been out explaining his expected predicament.

The UST 10yr yield starts today unchanged from this time yesterday at 3.20%. 

The price of gold is at US$1821/oz in New York and down -US$2 from this time yesterday.

And oil prices are +US$1.50/bbl higher at US$110.50/bbl in the US, while the international Brent price is now just over US$113.50/bbl.

The Kiwi dollar will open today -½c lower at 62.5 USc. Against the Australian dollar we are down -¾c at 90.3 AUc. Against the euro we are little-changed at 59.4 euro cents. That means our TWI-5 starts today at just on 70.5 and down a further -30 bps.

The bitcoin price has moved little from this time yesterday and is now at US$20,581 and down -0.6%. Volatility over the past 24 hours has been modest at +/- 1.6%.

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.

By Gareth Vaughan

Climate Change Commission Chairman Rod Carr says he's optimistic about New Zealand's transition towards a zero carbon future despite the massive challenges we face, including from inflation.

Carr spoke to interest.co.nz in an episode of the Of Interest Podcast.

In the podcast he discusses the impact on inflation from moves to combat climate change, and from climate change itself, and what can be done to mitigate it. This includes so-called "fossilflation," "greenflation," and "climateflation."

In a world that now has high consumer price inflation I ask Carr whether he's concerned this may slowdown efforts to combat climate change. For example, by reducing petrol excise duty and road user charges to give consumers some relief from high petrol prices while we are trying to wean ourselves off fossil fuels, does the Government risk countering measures such as clean car rebates and cash for clunkers to encourage the take-up of electric vehicles?

We also discuss the big global electrification push and what this is doing to demand for key mined metals and minerals required in the green transition such as copper, lithium and cobalt.

Then there's the rising number of severe weather events, and the impact this has on food product, supply and prices. 

"I would not underestimate the challenge that humanity faces in decarbonising our livelihoods and lifestyles. The fossil fuel technology that has been developed and deployed largely since the middle of the 19th century is incredibly powerful as a source of energy. And we have embedded that in our civilisation, in the way we earn our livings, and how we live our lives. And that transition is going to be costly. And that transition needs to be done with urgency. And the consequence is that relative prices will change. The price of high emission lifestyles will rise, and the vulnerability of high emission livelihoods will increase," Carr says.

"The major cause of the consumer price inflation we see today is not climate change or our response to it. The amount of pricing of carbon emissions in the global economy is modest and has only risen slightly over the last decade. The real challenge is that in our response first to the global financial crisis in 2008, and then more recently to the pandemic in 2020, the world's central banks, supported by the world's governments, have created an enormous amount of very low cost credit. And it is that abundance of low cost credit that has put pressure on the demand side of consumer pricing, while the pandemic itself has constrained supply. And that has been compounded in some product supplies, particularly in agriculture products, by the war in Ukraine. So don't over interpret climate as the driver of the current decades high levels of consumer price inflation."

Carr is also a former Chairman, Deputy Governor and Acting Governor of the Reserve Bank. So what does all this mean for fiscal policy, or the Government using spending and tax policies to influence the economy, and the Reserve Bank's efforts to use monetary policy to maintain price stability and support maximum sustainable employment?

Carr says he remains optimistic about the transition to a zero carbon future because there are "very real opportunities" for NZ in this transition. NZ farmers, he says, must face the challenge of showing and leading the world how to create protein and carbohydrates with year-on-year reductions in environmental impact.

"And that if we can understand those opportunities that make for a better, cleaner, greener and healthier society for all New Zealanders by 2050, where we reduce gross emissions from how we earn our livings and how we live our lives, we will see that as an opportunity not a threat. We will see fiscal policy as an investment not a cost, we will see the new jobs that are created as being more sustainable and less vulnerable than the old tasks which we are no longer fulfilling," says Carr.

"And I think that's what the optimism comes from, is from the opportunity that is real. New Zealand is not soldiering alone on this campaign. The world recognises the challenge. Other countries are already seeing and seizing the opportunities. We see it in the way in which the UK has developed offshore wind which it now sells to the world, we see it in Norway that has developed some of the most advanced infrastructure for supporting electrification which it now sells to the world, we see it in China in its advances in the solar panel technology where it is now the world's largest global manufacturer of solar arrays. So there are opportunities here to be  not as I said at the bleeding edge, but now that the die is cast , seeing and seizing the opportunities that must be developed to create the more sustainable, low emissions future within the next 30 years."

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 American economic data is generally more positive while Chinese economic data is generally less positive.

First, American durable goods orders for May came in better than expected with a +12% rise from year-ago levels. As good, orders for capital goods also rose +12% on the same basis reflecting that board rooms are still investing strongly. For both measures, the month-on-month gains also beat forecasts.

Also positive, pending home sales broke a six-month skid with a slight rise of +0.7% in May from April. There was a noticeable surge in the Northeast region. Year-on-year they are down however -13.6%.

Not positive however is the Dallas Fed factory survey for June with a sharpish deceleration recorded. Of particular concern is the quick fall-off in new orders.

In Japan, new data shows that the Bank of Japan now owns half of all bonds there, a relentless buildup as they continue their easy money policies to bring back inflation.

Meanwhile, Russia has defaulted on its foreign debt. It can't pay largely as a result of sanctions inhibiting its ability to shift funds. It's their first default of foreign debt in 100 years. But during Russia’s financial crisis and ruble collapse of 1998, then president Boris Yeltsin’s government defaulted on $US40 bln of its local debt.

The struggles of China's industrial companies continued into May. In the month, profits were -6.5% lower than the same month a year ago, and it is little comfort that decrease was less than for April. That takes their year-to-date gains back to just +1.0%. The whole situation is actually much grimmer; manufacturing profits are almost -18% lower and utility companies -6% lower. The overall results are only restrained by profit surges in coal and other mining companies.

The Chinese central bank injected a total ¥100 bln (NZ$23 bln) into their banking system yesterday, by a seven-day reverse repurchase at a rate 2.1%, to ease pressure from rising cash demand toward the end of the first half of the year. They started pumping more cash into the financial system on Friday. Demand usually surges towards the end of the quarter, when commercial banks also have to shore up cash positions for an administrative quarterly health check by the central bank. But the size of this may suggest more is at play this time.

Taiwanese consumer sentiment fell in June, and the slip from May was sharp as it has been for a couple of months now, and it is now at its lowest since November 2009, lower than during the 2020 pandemic

In Australia, they released 2021 census data today and that shows some important trends in their demographics. For example the millennial demographic now equals the boomer population (both now at 21.5% of their population), and soon to outnumber it. And it also shows that more than half of their population is first or second generation immigrant.

The UST 10yr yield starts today up +6 bps from this time yesterday at 3.20%. 

The price of gold is at US$1823/oz in New York and down -US$3 from this time yesterday.

And oil prices are +US$3/bbl higher from this time Saturday at just over US$109/bbl in the US, while the international Brent price is now just over US$111.50/bbl.

The Kiwi dollar will open today at just over 63 USc. Against the Australian dollar we are unchanged at just under 91 AUc. Against the euro we are nearly -½c lower at 59.5 euro cents. That all means our TWI-5 starts today at just on 70.8 and down -30 bps.

The bitcoin price has moved lower from this time yesterday and is now at US$20,699 and down -2.4%. Volatility over the past 24 hours has been moderate at +/- 2.4%.

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 there are meetings underway by two powerful economic groupings today - the G7 and the BRICS countries.

The G7 has about twice the economic activity of the BRICS countries, and the BRICS are in a bit of a rut at present, which is unusual for them. The BRICS are meeting 'virtually' and India seems to be a weak link, also meeting on the sidelines with the G7. It is noticeable that the G7 is active while the BRICS are defensive.

The G7 are about to roll out an extended set of sanctions on the invading Russians, including around gold transfers, insurance, and the oil price. A number of BRICS members (like China) could be boxed in by these moves. The G7 leaders morph into NATO leaders in a few days later.

The annual inflation rate in Japan was at +2.5% in May, unchanged from April's 7½-year high but in line with market expectations. This was also their 9th straight month of rising consumer prices, with food inflation hitting its highest in over 7 years, now topping +4%. The Bank of Japan has shown no signs of changing course from its ultra-easy money policies designed to raise inflation, but some sort of change must be getting closer.

Meanwhile, very hot temperatures are causing concern over how to keep the electricity system from suffering blackouts, especially in the Tokyo area.

In China, the sluggish economy is really putting the squeeze on job seekers. Their jobless rate for 16-24 year olds is now more than 18%, far above the high general jobless rate of almost 6%, which is also rising. (The equivalent NZ levels are 10.2% and 3.2%; for the US they are 10.4% and 3.6%.)

Keep an eye on flooding in the vast southern Pearl River system. It has been worse than prior years and isn't over yet. Officials are calling the situation 'grim', but things do seem to have eased somewhat over the past day or so. But new flood warnings are now in place for the northern Yellow River system, also likely to be serious. And in other parts of the country, including around Shanghai, excessive heat seems to be a big issue too.

Singaporean industrial production took off in May, rising much faster than anyone expected, especially after the dour prospects that were reported in April. The May recovery was broad-based.

Separately, the early PMI readings for the US are out, and they suggest that factory activity is slowing now, although still expanding modestly. The same is true of their services sector, although that expansion is a little stronger. But not so hot is that new order levels are now lower than previously, the first contraction in new orders since July 2020.

In its latest updated review, the US Fed released the results of its annual bank stress tests, which showed that banks continue to have strong capital levels, enough in the regulator's judgment to allow them to continue lending to households and businesses even in a severe recession.

Sales of new American single-family houses in May were at an annual rate of 696,000. This is almost +11% above the revised April level and comes after a string of slowing months. Still, this latest level is still almost -6% lower than for May 2021.

Meanwhile, American petrol prices seemed to have topped out and are now off their peak. They are currently at US$3.80/gallon in their futures market, a far cry from the US$5/gal that the AAA reported recently. Even that AAA price is lower, although not by a lot. But the November 2022 futures pricing is down at just above US$3/gal. The December futures pricing is now below US$3. If those signals play out as in-money market traders suggest, American CPI inflation could retrace quite quickly.

The widely-watched Economist Liveability Index has dumped Auckland and Wellington from near the top of their rankings. Cities in New Zealand and Australia are listed among the biggest fallers in these rankings, including Wellington and Auckland, which tumbled by -46 and -33 places respectively. 

Container shipping rates fell -3% last week alone for trans-pacific cargoes out of China. This is their biggest fall since when they came off their peak in September last year. Interestingly, rates from the US back to China are actually rising, against the trend. American imports seem to be shifting away from China, to a variety of ASEAN countries, especially Vietnam, and US exports are picking up.

The UST 10yr yield starts today up +1 bp from this time Saturday at 3.14%. 

The price of gold was at US$1826/oz in New York and down -US$5 at the end of last week. The gold price may open this week with some turbulence as markets absorb the G7 sanctions on Russian gold trading.

And oil prices are -50 USc/bbl lower from this time Saturday at just over US$106/bbl in the US, while the international Brent price is now just under US$109/bbl.

The Kiwi dollar will open today at just over 63.1 USc. Against the Australian dollar we are a tad softer at just under 91 AUc. Against the euro we are little-changed at 59.9 euro cents. That all means our TWI-5 starts today at just on 71.1.

The bitcoin price has moved up from this time Saturday and is now at US$21,212, up +1.3%. Volatility over the past 24 hours has been high at +/- 3.8%.

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 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 pandemics, war and now floods are compounding pressures on the global economy.

In the US, Fed Chairman Powell is giving testimony to Congress today and tomorrow, and today acknowledged that a soft landing for the giant American economy will be "challenging" and he also acknowledged that a recession is a real possibility there. That dose of realism has put a huge damper on financial markets today, but Wall Street is actually up, presumably on the basis that his comments on the outlook weren't worse.

American mortgage applications rose again last week, a second successive weekly gain after a long period of declines. They also reported that the average 30 year mortgage rate is almost touching 6% there. It was just 3% at the beginning of 2022.

In more positive news the US retail Redbook index shook off its prior week slowdown to return to its 'normal' strong recent year-on-year gain, well above what can be accounted for in inflation.

There was a US Treasury bond auctions earlier today. The 20yr one was very well supported and came in with a median yield of 3.41% compared to 3.22% at the prior event a month ago.

Canada reported May consumer price inflation earlier today at 7.7% and well above the 7.4% expected which in turn was above the 6.8% they reported in April. Fuel and food drove their sharp rises. This level is a 40 year high for them. Recall the US CPI is rose +8.6% in May, so Canada's impact is less than its southern neighbour.

In China, their southern manufacturing hub in Guangdong raised its flood warning to the highest level due to the worst rains in decades in the Pearl River basin, spurring more evacuations and threatening further supply chain disruptions in an economy reeling from Covid-related lockdowns.

And pressure, already extreme, is still rising on the Chinese property development sector. Sales have been very weak, with most of their large listed companies reporting they are only achieving less than 30% of their sales targets, and that is even after more than 200 cities have rolled out policy measures to support the struggling housing market. Nothing authorities are doing there is helping yet.

That is having a direct impact on commodity prices, like copper and iron ore.

In the EU, consumer sentiment is in the toilet and back near its early pandemic record low. Inflation's bite and the invasion to their East isn't making them feel good at all. Russia is now deliberately bombing grain terminals and infrastructure, completely insensitive to the food crisis it will worsen.

And Europe has been told to prepare for the upcoming winter without Russian gas supply.

The UK also reported their CPI inflation for May and it rose +9.1% there from a year ago (on the same basis other countries report - they have some weird local versions that are lower.) This was a fresh 40 year high too.

The UST 10yr yield starts today down -8 bps at 3.15%. 

The price of gold is now at US$1841/oz in New York and up +US$5.

And oil prices are -US$1.50/bbl lower from this time yesterday at just under US$107/bbl in the US, while the international Brent price is now just over US$110/bbl.

The Kiwi dollar will open today at just under 63 USc and -20 bps softer than this time yesterday. Against the Australian dollar we soft 90.7 AUc. Against the euro we are much lower at 59.5 euro cents. That all means our TWI-5 starts today at just under 70.8, an down -50 bps from this time yesterday.

The bitcoin price has moved up from this time yesterday and is now at US$20,235 and up +1.9%. Volatility over the past 24 hours has been high again at +/- 3.6%.

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, because tomorrow is a public holiday in New Zealand, Matariki, we’ll do this again on Monday.

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 RBA governor has set some specific limits to where pay rises shouldn't go - to avoid monetary policy consequences.

But first up today, the dairy auction brought slightly lower overall prices, down -1.3% in USD. But our lower currency turned that into a +0.9% rise from the prior event in NZD. In a reverse of what the derivatives market signaled, WMP prices dipped a little while SMP prices rose. The big mover however was the Cheddar cheese price which dived -9%. Volumes offered and sold were modest in the big scheme of these auctions. Nothing in today's result is by itself going to change farm gate payout prices but todays slip in prices is the sixth in the past seven events and since mid-March when this slide started, overall prices have fallen -9%. However, from the start of the 2021/22 season in August, prices are up +21%.

In the US, analyst talking heads are out in force warning of recession. But financial markets are ignoring those.

Meanwhile, the Chicago Fed National Activity Index fell to an eight-month low of +0.01 in May from April. Production-related indicators dipped sharply, while the contribution of the personal consumption and housing category fell as well. But jobs, sales, and new orders all rose on that same basis.

American existing home sales activity continues its slide, recording sales at the annualised rate of 5.4 mln units in May, a heady drop from the 6.5 mln rate in January. From a year ago, that is an -8.6% retreat. It is the modestly-priced end of the market that is falling fastest, so the median price is getting skewed to more expensive houses and is up almost +15% in a year, with the median breaking above US$400,000 for the first time ever (NZ$630,000).

North of the border, Canadian retail sales beat estimates in April and are now +9.2% higher than a year ago. Much of that may be inflation's impact however. But not all, so there is 'real' growth in volume terms.

In China, it is the rainy season and flooding is back. It is hard to know whether it is worse this year of not, but it is extensive - just as it has been in many previous years. It certainly looks bad.

Hong Kong inflation is failing to fire as demand stays very weak. It rose just +1.2% in May when a +1.6% rise was expected.

We've noted it before, but the iron ore price continues to waken. In fact it is now at its lowest point on the year as Chinese stimulus demand just isn't eventuating. A good dose of over-optimism is being unwound.

Also falling is the price of wheat and that is despite the ongoing export issues from the Black Sea. Coordinated international efforts are having an impact to reduce the impact of that supply, despite Russia's best efforts to choke off Ukrainian sources.

In Australia, their central banks has been out explicitly warning of the consequences of excessive pay hikes. Anything over +3.5% is a problem for them they say and have warned regular pay rises of 4% to 5% risks entrenching higher inflation and bringing tougher monetary policy measures. (These warnings were in comments after the speech, not in the speech itself.)

The UST 10yr yield has started the week in New York at 3.31% with a +8 bps rise. 

The price of gold ended yesterday at US$1834/oz and down -US$2.

And oil prices are little-changed from this time yesterday to just over US$109/bbl in the US, while the international Brent price is now just over US$112.50/bbl.

The Kiwi dollar will open today at just on 63.4 USc and +20 bps firmer than this time yesterday. Against the Australian dollar we are softer at 90.9 AUc. Against the euro we are also softish at 60.1 euro cents. That all means our TWI-5 starts today at just under 71.3, unchanged from this time yesterday.

The bitcoin price has moved up strongly from this time yesterday and is now at US$21,226 and a gain of +6.8%. Volatility over the past 24 hours has been very high again at +/- 4.7%.

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.