Economy Watch

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 there are some early signs global households may be starting to feel they are owing too much debt. Any pullback from that will induce a 'balance sheet recession', that during stagflation, might be very hard to control.

But first up today, the latest dairy auction has come in with something of a disappointment. Overall prices rose as expected, but the +1.5% gain in USD terms wasn't as strong as the derivatives market had priced in. Chinese buyers were noticed by their relative absence. On the positive side, it did end a run of five consecutive declines. In NZD terms however, that small rise evaporated. Volumes were low so the direct impact was not great, but the flow-through to wider contract pricing based on these auctions will be noticed. Maybe the impact on farmgate payout prices won't be strong either given where we are in the season, but analysts will be underwhelmed by this result.

In the US, logistics stress as measured by the LMI index seems to be easing. The rise in freight costs seems to be tailing off, but warehouse capacity is getting tighter and so warehousing costs are rising faster. It's a mixed bag. Higher inventory levels in response to the extended supply-chain uncertainties appear to be embedded now.

However, at least one very large American retailer has announced plans to shrink their embedded high inventories. If that spreads, suppliers may face a drought of orders.

American retail activity still appears to be strong, according to last week's nationwide survey.

American exports of both goods and services rose in April and their trade deficit reduced. Even if these shifts were small, they were unexpected and noticed. In fact, their deficit with China decreased by -US$8.5 bln to just under US$35 bln, the most in seven years. Falling imports from pandemic-restricted Chinese ports drove the April changes.

American consumer credit expanded more than expected in April, but that was down from the very high March expansion. Still, it continues a longish run of high demand, some of which will be inflation's effect, but it does support the ongoing strength of overall American consumption.

In China, they are expanding its safety net for the financial sector with a new rescue fund that could run into the tens of billions of dollars, as a cooling domestic economy and tightening monetary policy abroad pose growing risks. The new financial stability security fund is expected to provide a backstop for big institutions, such as banks, insurers and leasing companies, in cases of imminent collapse or widening investment losses sparked by overseas market turmoil that risk undermining the financial system as a whole.

They are worried about a 'balance sheet recession' because households have loaded up on debt, and will cut their spending plans for a long time to work their way through that new load.

German factory orders really disappointed observers. They fell in March and quite hard. A small recovery was expected, but in fact they fell again in April and for a third consecutive month. And foreign orders sank -4% which was faster than for local orders.

The Reserve Bank of Australia hiked its cash rate more than was expected to 0.85% with a full +50 bps rise, the most in more than 20 years. It is a real blindside curve-ball thrown to markets from a famously conservative governor, who apparently wants to know more about "least regrets". He has had an epiphany over the threat inflation poses for Australia.

But the pain it will cause their housing sector is a key concern for companies there.

Meanwhile, the World Bank has substantially cut its global growth forecast for 2022 to +2.9% in June from the +4.1% it forecast in January, citing the war in Ukraine, surging energy and food prices, and rising interest rates. They said that for many countries, a stagflation recession will be hard to avoid. Interestingly, the adjustment down to their forecasts for advanced economies was greater than for China. They still see China expanding +4.3% this year while the US's expansion will be reduced to +2.5%.

The UST 10yr yield will start today down -7 bps at 2.96%. 

The price of gold is up +US$10 today from this time yesterday, now at US$1852/oz.

And oil prices are little-changed from this time yesterday, now just under US$117.50/bbl in the US, while the international Brent price is now just under US$119.50/bbl.

The Kiwi dollar will open today lower at just under 64.8 USc. Against the Australian dollar we are -½c weaker at 89.7 AUc. in fact, that is our lowest against the Aussie dollar in nearly four years. Against the euro we are also lower at 60.5 euro cents. That all means our TWI-5 starts today at just under 71.7 and surprisingly little-changed in a week.

The bitcoin price has fallen by -4.5% and is now at US$29,898. Volatility over the past 24 hours has been very high at +/- 4.0%. 

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 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 we are heading into a key week for economic data.

In the week ahead we will get the US CPI next on Saturday, June 11, and it is expected to hold at 8.3% as the headline rate. Along with last weekend's rise in non-farm payrolls, that probably locks in the next two +50 bps rate hikes from the US Federal Reserve, and a CPI number coming in as expected probably locks in one for September as well. Bond markets seem to be assuming that, and benchmark rates are rising today.

And later today, the Australian central bank will review its policy rate at 4:30 pm, likely to raise it from 0.35% to 0.60% - a +25 bps gain is the consensus. But don't be surprised if it is a bit more than that, perhaps taking it to 0.75%.

Tomorrow morning, we have another dairy auction, and prices there are expected to be quite a bit higher, perhaps with both WMP and SMP gains exceeding +5%. Low supply seems to be driving the trend, and if China is really opening up again, that won't hurt. But other regions seem better prospects.

China's private sector survey of their services PMI 'improved' but is still contracting. It is just contracting less. On it's own the May result would have been seen as a disaster, but because April came in at a fast-shrinking 36.2 (50 is steady state), the May reading of 41.4 just looks "better". Not really. They are going backwards fast. And don't forget their official services PMI was at 47.8, so it appears the official data was boosted by some Beijing gloss. No wonder Premier Li is worried.

With Shanghai looking like it is over the worst of its lockdown, that will help some. But Shanghai is not China. And no-one there is suggesting their tough-medicine approach to the pandemic is about to change.

Lockdowns keep a lid on inflation, so I suppose they will take that as a 'win' when comparing themselves to the rest of the world. Their May CPI is due to be released on Friday, June 10, and a little-changed rate of 2% is expected.

The Indian central bank reviews its policy rate tomorrow and it is expected to rise by +40 bps to 4.8%. India seems stuck with a weak currency at present, and combined with highish interest rates, they are dealing with some economic headwinds.

Late last week, South Korea reported a CPI inflation rate of +5.4%, well above the +4.8% in April and the expected +5.1%. That will likely mean another official rate hike there.

Singapore reported retail sales up more than +12% in April from a year ago, but they might have been disappointed in the tepid monthly rise from March.

In the US, their petrol price hit a new all-time record high to start their summer. At US$4.82/gal, that is now the equivalent to NZ$1.95/L (both U91). In the US they aren't paying NZ$1.08/L in taxes as we are. Today's local Auckland price seems to be about NZ$3/L for U91. Bottom line is that they are paying about the same as we are if we forget our taxes.

In Russia, car sales have plunged more than -80% in May as their economy stumbles under sanctions.

Germany has raised its minimum wage to €12/hour (NZ$19.75 /hr) in a move said to help 6 million low paid workers.

And in Australia, their new government is pushing for a +5.1% minimum pay increase for their low paid. It will take their minimum wage to AU$812/week (NZ$22.50/hr NZ$900/week or NZ$46,800 pa). It will go to about 1.3 mln Australians. Australia's CPI is currently running at 5.1%.(New Zealand's adult minimum wage is currently NZ$21.20/hr. Given Australia's taxes are higher, it may surprise readers how low Australia's and Germany's minimum wages are, compared to ours.)

The UST 10yr yield will start today up an unusual +9 bps at 3.03%. A week ago it was at 2.74%. 

The price of gold is down -US$9 today from this time yesterday, now at US$1842/oz.

And oil prices are down -US$2 from this time yesterday, now just over US$117/bbl in the US, while the international Brent price is now just over US$119/bbl.

The Kiwi dollar will open today little-changed at just over 65 USc. Against the Australian dollar we are marginally softer at 90.2 AUc. Against the euro we are also little-changed at 60.8 euro cents. That all means our TWI-5 starts today at just under 72 and little-changed in a week.

The bitcoin price has risen by +4.5% and is now at US$31,301. Volatility over the past 24 hours has been high at +/- 3.2%. 

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.

Of Interest: In this episode Gareth Vaughan discusses the progress the New Zealand central bank is making on its digital currency development with Ian Woolford.

The Reserve Bank of New Zealand (RBNZ) considering launching a central bank digital currency (CBDC) is in part a defensive move to protect it and NZ's monetary sovereignty, says RBNZ Director of Money and Cash Ian Woolford.

The RBNZ is one of dozens of central banks around the world considering introducing a CBDC. A few, including those of The Bahamas and Nigeria, have already done so.

A CBDC is the digital form of a country’s fiat currency. That means an RBNZ issued CBDC, like the physical NZ dollar, would be a liability of the RBNZ, backed essentially by trust in the Government and its institutions. By law the RBNZ is the sole supplier of NZ banknotes and coins, with this being a key raison d'être for the central bank.

Although most financial transactions are already done electronically, Woolford points out these are done using digital forms of private money.

"Most people use private money in the form of their bank accounts with registered banks in New Zealand. I guess the main point of difference is you are effectively taking a credit risk with your bank, so your claim is on the bank. Whereas with a central bank digital currency your claim would effectively be on the Government, which typically and is the case in New Zealand, has a higher credit rating than private institutions," Woolford says.

He says the RBNZ hasn't yet made a formal decision on whether it will launch a CBDC or not, and it's likely to be years not months before it does. Nonetheless he says the RBNZ considers that a CBDC "will make sense."

In a world of cryptocurrencies, stablecoins and big technology companies such as Apple, Facebook and Google pushing into payments and financial services, Woolford acknowledges there's a defensive aspect to the RBNZ looking to launch a CBDC.

"Yes, I think that it's fair to say that to a degree this is a defensive play," Woolford says.

"I don't want to come across as too defensive, but I think it's hard to argue otherwise if you are interested in protecting monetary sovereignty, and that threat [to it] could come from private forms of digital currency [or] big tech firms."

"Monetary sovereignty matters in that it enables us to operate monetary policy, to set interest rates that reflect the state of the New Zealand economy," says Woolford.

"If you don't have monetary sovereignty you end up usually, and you've seen this in a number of countries around the world, being dollarised. So the citizens lose confidence in their own currency...Dollarised typically refers to the US dollar, so they lose control of domestic monetary policy."

"It's really important first and foremost that New Zealand retains monetary sovereignty. Monetary sovereignty can be undermined or threatened through a number of channels. One channel, for example, could be the advent of cryptocurrencies or stablecoins. People choosing not to transact in the New Zealand dollar whether it's a private form of digital currency like a stablecoin, or whether it is using another country's central bank digital currency. So effectively you'd be dollarised," Woolford says.

"Dollarised" refers to when a country begins to recognize the US dollar, which is viewed as the world's reserve currency, as a medium of exchange or legal tender alongside or in place of its domestic currency.

In the podcast Woolford talks in detail about the RBNZ's work on a CBDC, including what introducing one would mean for cash and privacy. Among other things, Woolford also talks about how the RBNZ believes a CBDC could bolster competition and innovation in the NZ financial system, and the potential for a CBDC to reduce or eliminate the role of banks.

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 of rising frustrations in China.

But first, we get the May American non-farm payrolls report tomorrow and analysts expect it to rise by +325,000 jobs. But today, the precursor ADP Employment Report only signalled +128,000 new jobs, and if the non-far, payrolls report comes in like that, it will be statistically disappointing.

The latest job cuts report delivered historically low levels. But for technology, fintech, construction, and the car industries, these all reported jumps in layoffs.

New US jobless claims came in at 182,000 and less than expected. There are now 1.26 mln people on these programs, yet another record low.

April factory orders rose, but not by as much as was anticipated. But they were up almost +13% from the same month a year ago.

US central bank officials were out speaking overnight, and all had the message that steep +50 bps policy rate hikes might be needed for longer than originally indicated, perhaps through to September.

And separately but related, an overnight New York meeting observed that digital money, a curiosity just a few years ago, is emerging as an intense concern among central banks with the potential to erode the power of monetary policy, and even in the best of worlds, likely to make control of interest rates more difficult.

Canadian residential building permits fell in April when a rise was expected.

In China, we should keep an eye on Premier Li's fortunes. There is historical precedent for a CCP deputy trying to fix a leaders mistakes, and in that earlier case it didn't end well for the deputy. The backdrop is that officials aren't seeing things turning any better on the economic front. Li is aggressively urging remedies.

All that talk has boosted copper prices in anticipation of vast new infrastructure stimulus (but iron ore not so much).

And in Shanghai, frustrations are building. As officials declare 'victory' over the pandemic, lockdowns persist for millions, and frustrations are rising fast causing protests and arrests.

In India, the monsoon has arrived a little earlier than usual in the south. That will be good news for rice production there especially, and possibly help keep a lid on food prices.

In Europe, there are signs that the extreme rises in their producer prices might be topping out in April from March. But there are still up savagely on a year-on-year basis led by German costs and restrained by French costs.

Australia has booked yet another AU$10+ bln monthly trade surplus in April, continuing a long run of these fat surpluses. That takes the annual surplus to +$129 bln, a record high for any 12 month period.

The UST 10yr yield will start today down -2 bps at 2.92%. 

The price of gold is up +US$23 today at US$1869/oz. Silver is up a similar proportion.

And oil prices are again firmer from this time yesterday, up +US$1 to just on US$115.50/bbl in the US, while the international Brent price is up at just under US$117.50/bbl.

The Kiwi dollar will open today up almost +¾c at 65.6 USc. Against the Australian dollar we are unchanged at 90.3 AUc. Against the euro we are a little firmer at 61 euro cents. That all means our TWI-5 starts today at 72.3 and a one-month high.

The bitcoin price has risen a fractional +0.1% since this time yesterday and is now at US$30,214. Volatility over the past 24 hours has been modest at +/- 1.8%.

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 on Tuesday because Monday is a public holiday in New Zealand.

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 tomorrow will be as good as today, and it will stay like that for a while. But more international data is softening.

US mortgage applications decreased yet again last week and that was even though mortgage interest rates slipped a bit.

But last week's survey of retail activity remained strong, expanding faster than the prior week and holding on to the momentum they have had since mid 2021.

There were two PMI reports out for the US factory sector overnight and both are recording a continuing healthy expansion. The widely watched local ISM one reported a faster expansion, while the internationally-benchmarked Markit one recorded a slower expansion.

They are backed up by the Fed's month Beige Book surveys which also record modest to moderate growth in almost all their regions, but with hints of slowing conditions.

Also confirming the continuing expansion are the American JOLTS data for April. The number of job openings in the US was 11.4 mln at the end of the month, down from a revised record high of 11.9 mln in March, matching market expectations and suggesting firms continued to struggle to find and hire new workers.

For all this positive data, it is probably worth noting the Jamie Dimon, the boss at JPMorgan, fears a "hurricane" is coming for the US economy but not until consumers use up more of their savings that are backing up current consumption levels. With a year, he thinks.

For the third consecutive time, the Bank of Canada raised its official cash rate, this time by another +50 bps to 1.5%, matching market expectations, and signaled that it will hike interest rates further in the coming meeting to curb rising inflation. It is also explicitly tightening monetary conditions and says it is ready to act "more forcefully".

Beijing has ordered state-owned policy banks to set up an ¥800 bln (NZ$185 bln) line of credit for infrastructure projects as it leans on construction to stimulate an economy battered by coronavirus lockdowns.

Meanwhile, Shanghai is waking up to many lockdown conditions that are being eased or released. There are still widespread restrictions but people are now allowed out, and businesses will now start to re-open. This release will give an initial boost in activity and demand, but after that things remain quite uncertain.

But just as Shanghai gets its release, there are signs that Hong Kong may have to be put back into a strict lockdown again. They have the same problem - low vaccination rates especially for older residents, which risks overwhelming their health system capacity. And Hong Kong may not be the only other large Chinese city to face renewed lockdowns.

With inflation pressing them hard, Germans are cutting back on their retail spending, and quite hard. The latest data is for April and retail sales fell more than -5% from March on an equivalent inflation adjusted basis.

Russia is reporting that both industrial production and retail sales fell, not only from March levels, but by much more than they expected. Their car industry is the hardest hit.

In Australia, there were two factory PMI reports out for May yesterday, (here and here) both reporting a slowing of their good expansion back to a more modest expansion.

Australia also reported its Q1-2022 economic growth rate yesterday and it came in at +3.3% pa which was better than the +2.9% expected, but a step back from the Q4-2021 rate of +4.2%. 

One thing analysts have picked up on in this GDP result is that Aussie wages and consumption were tracking higher than other separate measures suggested. And that probably means the RBA is locking in a substantial +40 bps rate hike next Tuesday.

Globally, factory activity fell again in May, led by the drop-off in China. Overall, new order inflows remain lackluster, inflationary pressures stay elevated, and international trade volumes are declining. Luckily for us, we are not yet being impacted by the trade or new order weights many others are, who have high exposure to China.

The UST 10yr yield will start today up another chunky +9 bps at 2.94% on the strong US data.

The price of gold is up +US$1 today at US$1846/oz.

And oil prices are marginally firmer from this time yesterday, up +50 USc to just on US$114.50/bbl in the US, while the international Brent price is unchanged at US$116.50/bbl.

The Kiwi dollar will open today down another -¼c at 64.9 USc. Against the Australian dollar we are down at 90.3 AUc. Against the euro we are a little firmer at 60.9 euro cents. That all means our TWI-5 starts today little-changed at 71.9 because we rose against both the yen and the English pound.

The bitcoin price has fallen -5.6% since this time yesterday and is now at US$30,182. 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 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 stagflation is stalking the global economy.

But first, the latest American consumer sentiment survey, this one from the Conference Board, declined marginally in May, but nothing like the University of Michigan one. The dip in this one was less than expected. Those surveyed seem happy with the 'present situation' but concerned about their 'expectations'. This survey seems more in keeping with the economic data we have seen recently.

And the latest Chicago PMI backs that up. It reports a better expansion in this industrial heartland - in fact quite a fast expansion in May. Both production and new orders jumped from April, but the cost pressure isn't waning yet. Inventories are very high as firms 'invest' to add resilience against supply-chain difficulties that aren't going away.

And the Dallas Fed's survey of Texan manufacturing paints a similar story. Their May report reveals expansions across the board. But they also report heightened concerns about the future in a more generalised way - even if firms had no evidence yet to support those concerns. It seems more 'politics' than a reading of their actual situation.

Canada reported a more modest GDP growth rate for Q1-2022 of +3.1% real. This would be regarded as quite good except in light of the recovery-growth posted in 2021.

Japan reported good retail sales growth in April, better than expected, but inflation may have played a part in these numbers. Still, it was their largest jump in almost a year. But they are bracing for new retail price hikes that become effective today. Higher retail sales due to inflation, yes, but that isn't being matched by rising incomes. Expect Japanese consumer sentiment - already low - to fall further.

And Japanese industrial production really struggled in April. Production fell and inventories rose which is a bit of a toxic mix. Supply-chain issues around component supplies from a lock-down Shanghai hurt more than expected, and we know they didn't get better in May, and prospects in June aren't great either. Their factories are going to be under the pump for a while yet. Good order levels mean nothing if you can't supply.

China's officials are noting that their May PMI's "rebounded" from April. But they are still contracting after the disaster that was April. And that is true for both their factory and service sectors. That makes it three consecutive months of decline. It will take a magical turnaround for them to book a 5.5% GDP growth in 2022 as they were targeting. It seems most unlikely at this point. Factory export orders are contracting as they have done every month for the past year.

The early data on May's house sales in China isn't encouraging, although that may pick up slightly in June as cities like Shanghai and Beijing ease their lockdown restrictions.

In an effort to boost consumer sentiment and spur economic activity, Beijing has halved the taxes on small low-emission passenger cars. They expect this could lead to an additional 2 mln such vehicles being sold.

India also reported their January-March quarterly economic performance, and it under-performed in a trend we have come to expect. Getting the blame there has been both the spread of the pandemic and high commodity prices.

The EU reported its overall inflation rate for May and it came in at 8.1%, with Germany higher at 8.7% on a harmonised basis, and France the lowest on 5.4%. Most nations came in at the German level rather than the French level.

It is not only looking like a sharp downturn in the residential construction industry in New Zealand, Australia has recorded a fall in building consents too - made to seem worse because a rise was expected, and that now means 23 of the past 25 months have booked retreats from the prior month, and year on year the April level is a whopping -36% lower.

And May hasn't been that great for the Sydney housing market. Prices fell -1% in the month from April, the largest monthly retreat since January 2019. Some analysts say it is now on track for a -10% fall in 2022. None of this will help how banks view the risks of lending to the Aussie construction sector in the current environment.

The UST 10yr yield will start today up a sharp +11 bps at 2.85% adjusting after Wall Street returned from holiday. 

The price of gold is down -US$9 today at US$1845/oz.

And oil prices are back down from this time yesterday, down -US$2 to just over US$114/bbl in the US, while the international Brent price is now just under US$116.50/bbl.

The Kiwi dollar will open today down -¼c at 65.2 USc. Against the Australian dollar we are down at 90.7 AUc. Against the euro we are little-changed at 60.7 euro cents. That all means our TWI-5 starts today at 71.9 and softer.

The bitcoin price has risen +4.2% since this time yesterday and is now at US$31,988. 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 retailers worldwide are now on eggshells waiting to see how hard consumers pull back in the face of the supply-chain-induced inflation surge.

But first, it is Memorial Day in the US and they are still on holiday. They are using the break to ponder their ridiculous obsession with guns. Away from there, financial markets seem upbeat. Asian equity markets ended yesterday booking stellar gains mostly. Overnight European equity markets were mostly quite positive. And that was despite peaky consumer inflation data.

Perhaps the better business mood relates to signs that Shanghai is moving toward re-opening its city and region after a two-month lockdown.

A pickup in global demand and tighter supply is seeing the oil price rise sharply.

But supply-chain pressures don't seem to be easing, and may in fact get worse with a China re-opening. Japanese consumers are waiting months for appliances they once took for granted. And that is all to do with supply-chain snafus around computer chips.

China not only has a Covid crisis, and a related supply-chain crisis, it also has a banking confidence crisis in one province. It is bad enough that people took to the streets demanding access to their money.

In Europe, German inflation is surging, principally from energy costs, but food is up sharply too. They are on the economic front line of the war in Ukraine. CPI inflation is up 7.9% in May, rising from 7.4% in April. This is their highest since the 1973 oil shock and well above what was expected. Food inflation is set to surge to more than 11% (vs 8.6% in April), while services are expected to rise 2.9% and this is down from 3.2% in the prior month.

Spanish inflation jumped too, up to 8.7% in May.

These surges, undoubtedly felt across the whole EU, is denting consumer sentiment in a significant way. But interestingly, businesses are looking past the immediate impacts and haven't joined consumers in their depressive fog. Business sentiment remains above long term averages. Confidence in employment prospects remains surprisingly elevated.

It's not good in all of Europe. Sweden revealed its economy shrank in Q1-2022. It is not the only one of course, just the latest one.

Back in the US, Fed officials are out softening up the financial markets for a set of more +50 bps rate hikes.

High inflation is a scourge for retail demand. Around the world, retailers are bracing for consumer resistance to higher prices, and the impact could get very depressive in the next month or two. Costs are forcing prices up right now. Higher prices are keeping consumers wary. The risk of sharp falls in retail volumes is very real, very soon. The fight against inflation seems urgent.

And those consumer attitudes will have a great bearing on how housing market sales activity performs from here.

In Australia, election watchers are now confident the winning Labor Party will govern with a majority in their new parliament. And the leaders of both parties in the prior coalition have been dumped.

The UST 10yr yield will start today unchanged at 2.74% while the US remains on holiday. 

The price of gold is unchanged today at US$1854/oz.

And oil prices are very much higher from this time yesterday, up +US$2 to just under US$116/bbl in the US, while the international Brent price is now just over US$117.50/bbl.

The Kiwi dollar will open today at firm 65.6 USc. Against the Australian dollar we are at 91.1 AUc. Against the euro we are at 60.8 euro cents. That all means our TWI-5 starts today at 72.1 and firming.

The bitcoin price has risen +5.2% since this time yesterday and is now at US$30,694. Volatility over the past 24 hours has been high at +/- 3.2%.

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's pandemic struggles are seriously undermining their economic life and the long-term impacts seem to be getting worse.

But first, we should note that it is a long weekend holiday in the world's largest economy. But this is also an important retail shopping period when all that inventory in global supply chains has a chance of clearing. It might be the start of the northern hemisphere summer, but how consumers react with their spending decisions will be equally important.

Across the Pacific in Japan, Toyota has lowered its global production forecast for June by about 50,000 vehicles, to around 800,000, as parts shortages caused by the pandemic lockdown in Shanghai continue to disrupt them. In Japan, that will involve a five-day halt at 16 local production lines.

China reported that its industrial companies saw profits grow +3.5% in the four months January to April. In the three months January to March they grew +8.5%. That means the April-alone result was very tough for their industrial companies. Profits at industrial companies fell -8.5% year-on-year in April alone. High raw material prices and supply chain disruptions have significantly squeezed margins.

Their lock-down pain is spreading fast now. According to Moody's, China's property development sector and its related supply chain account for as much as 28% of the country's GDP. And the struggles and declines we have been reporting for more than a year have now turned into a rout. Even State-owned property companies are in big trouble. It will be virtually impossible for China to achieve its expansion target of +5.5% with its property sector imploding.

But some relief may be in sight. Over the weekend, both Shanghai and Beijing started easing lockdown conditions.

For all its export prowess, and that has been impressive through the whole pandemic stress, Taiwan reported that its Q1-2022 GDP expanded at "only" +3.1% real. That is a reversion to the levels it was achieving pre-pandemic since the GFC. During the pandemic period it peaked at as much as +9%.

Singapore reported that its producer prices rose very sharply in April, in fact the fastest rise they have had in more than 40 years. They are up almost +30% year-on-year.

In India, the all-important monsoon has arrived earlier than normal this year, raising hopes that their agriculture will get a timely boost. The country has been suffering from excessive heat recently and rain can't come soon enough. But the north may have to endure another month of the debilitating heat.

In the US, the consumer inflation measure the US Fed watches most closely, the PCE, dipped slightly in April, 'down' to 6.3% from March's +6.6%. Excluding food and fuel, it recorded its lowest level of the year, down to 4.9%. The same data showed that inflation-adjusted personal incomes were unchanged but consumption expenditures rose. That is the fourth straight rising month. The financial markets liked that consumers are continuing their spending at good levels and Wall Street rose strongly last week to book a better-than-average gain.

But perhaps those markets should look at the sharply falling savings rate. Spending faster than income is eating into that rate quite quickly now.

That strong consumer spending impulse is reflected in the April trade deficit, on a merchandise-only basis coming in at -US$105 bln. Still that was -15% lower than for March. With port backlogs clearing, that was always going to push this metric up. It is also pushing wholesale inventories up, and if supply chain stress eases it might result in a downstream impact where orders will need to be cut back to give time to absorb them. Then again, no-one will want to be caught in supply chain hell a second time, so inventories may stay at higher levels for quite some time.

Those free-spending American consumers aren't feeling that great however. The latest measure of consumer sentiment is now back down at GFC levels. This time, that is probably more to do with their culture wars than their economic opinion. It is the start of their 'driving season' (from Memorial Day to their Labor Day) and this year with petrol prices so high there are much changed expectations that Americans will take to the road this year to holiday. That may juice up stay-at-home retail volumes and reduce holiday destination revenues. It is unlikely spending will be curtailed, just shifted. Those pattern shifts will be closely watched. Beef demand may rise for stay-at-home barbeque season. This will likely open up trade opportunities for New Zealand. We may also benefit from their infant-formula shortage. Foodservice demand may slip.

Coming up this week, we will get their non-farm payrolls report, and it is expected to add +310,000 jobs while their jobless rate stay near its historically low level of 3.6%.

Australia reported that retail sales were up +0.9% month-on-month in April, a faster pace than the +9.6% year-on-year. These are gains financial markets were expecting. But this data is not inflation-adjusted, so that colours the results.

The UST 10yr yield will start today at 2.74% and it likely to move little while the US is on holiday. 

The price of gold is unchanged today at US$1854/oz. But that is a +US$10 rise in a week.

And oil prices are little-changed from this time Saturday and still just over US$114/bbl in the US, while the international Brent price is now just over US$115.50/bbl. These are both +US$4/bbl weekly rises.

The Kiwi dollar will open today at 65.4 USc. Against the Australian dollar we are at 91.3 AUc. Against the euro we are at 60.9 euro cents. That all means our TWI-5 starts today at 72 and near its highest of the month.

The bitcoin price has risen +2.4% since this time Saturday and is now at US$29,182. Volatility over the past 24 hours has been modest at +/- 1.1%.

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 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 Wall Street is rising again, partly because some large retailers like Macy’s, Dollar General and Dollar Tree all reported good results reflecting their ability to handle margin pressures from inflation's surge.

Meanwhile, initial jobless claims fell again last week in the US, but the number of people on these benefits rose marginally, but they are still below 1.3 mln and still hovering near 50 year lows.

Pending home sales also fell in April, and both by more than expected and by more than in March. This is an embedded trend now, taking the string of falls to six consecutive months. Higher mortgage servicing costs are hampering sales. That average prices are still rising just means those that are selling are at the higher-priced end of the market. More recently we should note that US mortgage interest rates dropped last week, for a second straight week.

Although it did fall slightly, the Kansas City Fed manufacturing survey stayed historically strong in May.

Also falling slightly was the second estimate of Q1 economic activity in the giant American economy. As we have reported with the first estimate, it shrank slightly from the very strong Q4-2021, but is up +3.5% from the same quarter a year ago on an inflation-adjusted basis. On a nominal basis it is up +10.6% year-on-year, boosted of course by heady inflation.

Also showing signs of wear were Canadian retail sales which were unchanged in March from February when a rise was anticipated. Sales volumes fell.

The news out of China is still mostly negative and compounding that more property developers have said it can't make loan repayments in full.

South Korea raised its OCR by +25 bps to 1.75% in a move that was no surprise in response to rising inflation.

Singapore's industrial production bounced back less in April than anticipated, but the year-on-year gain is still a good +6.2%.

Russia cut its policy rate sharply again, slicing it by -300 bps today on top of the prior -600 bps retreat. They say inflation is retreating fast in the middle of "challenging" economic trends. Their policy rate is now 11%. Their inflation target is 4%, but it is running at over +17% currently they say, but falling faster than that anticipated - hence the rate cut.

In Australia, investment in new private capital fell unexpectedly in Q1-2022, when a solid +1.5% rise was anticipated. This was because investment in buildings and structures fell -1.7% while investment in plant and machinery rose by +1.2%.

Staying in Australia, power prices are regulated. Now just days after the election their regulator has announced new higher "default" power prices, up by between +1.7% and +8.2% above inflation in NSW, south-east Queensland and South Australia from July 1. Soaring coal and gas prices are inflating wholesale prices, mostly war-driven.

The cost of containerised shipping freight barely budged last week. The cost of shipping bulk cargoes fell from its recent highs. 

The UST 10yr yield will start today at 2.76% and little-changed. 

The price of gold is lower today, down -US$2 since this time yesterday at US$1849/oz.

And oil prices are up +US$4 from this time yesterday and now just on US$113.50/bbl in the US, while the international Brent price is now just at US$114.50/bbl.

The Kiwi dollar will open today little-changed against the US dollar, now at 64.7 USc. Against the Australian dollar we are softer at 91.2 AUc. Against the euro we are also softer at 60.4 euro cents. That all means our TWI-5 starts today at unchanged 71.5.

The bitcoin price has slipped a minor -0.6% from this time yesterday and is now at US$29,615. Volatility over the past 24 hours has been high however at +/- 3.5%.

You can find links to the articles mentioned today in our show notes.

And get more news affecting the economy in New Zealand from interest.co.nz.

Kia ora. I'm David Chaston and we’ll do this again on Monday.

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, apart from fossil fuels, we are seeing a broad retreat in most commodity prices today.

And first, even though the slip was small last week, American mortgage applications fell again week-on-week taking this downward trend to nine of the past twelve weeks. Benchmark mortgage interest rates fell for a second straight week.

April data for American durable goods orders came in marginally softer than expected. They rose +0.4% month-on-month to US$265 bln in April, following a downwardly revised +0.6% rise in March. They are now +10.5% higher than a year ago. This is a sign business spending moderated somewhat. In a good positive sign, orders for capital goods rose more than +14% year-on-year in a rising trend.

The release of the May US Fed minutes revealed that most of their policymakers judged that +50 bps increases in the fed funds rate would be appropriate at the next couple of meetings. They also recorded that a twist to a restrictive stance of policy may well become appropriate, and the timing of that shift will depend on the evolving American economic outlook. There is an urgency here that they want to recover lost ground as inflation has burst on them faster than they expected. But markets seem unconvinced of their commitment, especially as those minutes hinted a late 2022 pause may be needed.

The American federal budget situation is being repaired fast. This year's deficit is expected to be under US$1 tln, a sharp improvement from the -US$2.8 tln last year. Recall it hit -15% of GDP at the end of the Trump presidency. This year it may have recovered to -5% of GDP. Still, surpluses don't seem to be on the horizon any time soon.

China seems to be going the other way, worried things are slipping into dangerous territory. In a huge teleconference attended by 100,000 local officials, Premier Li warned China's economy is facing the risk of "sliding out of a reasonable range"... "for an economy as large as China, once the economic operations fall out of a reasonable zone, it will take a long time and huge costs to bring it back," he is reported to have said. Meanwhile, President Xi is nowhere to be seen dealing with the growing economic crisis. He is meeting with security officials.

Malaysia's CPI inflation came in at 2.3% extending the trend of modest to moderate inflation levels in ASEAN countries. Overnight their finance minister said there is now room for them to start raising interest rates.

Yesterday we noted a surprising improvement in German business sentiment. Today we can note an equally surprising, if minor, improvement in German consumer sentiment. It is still quite negative, but less so. In the circumstances of war and super-high inflationary pressures, it is not a result you might expect.

The ECB is warning a house price correction in Europe is looming as interest rates rise.

In Australia, the incoming administration is warning that their federal financial situation is worse than they expected, and with the RBA about to raise interest rates as inflation zooms, they are additionally constrained on spending plans over and above their election promises. They are saying economic pain could be with them for some time to come.

The UST 10yr yield will start today at 2.75% and little-changed. 

The price of gold is lower today, down -US$14 since this time yesterday at US$1851/oz.

And oil prices are virtually unchanged today and still just on US$109.50/bbl in the US, while the international Brent price is still just at US$111.50/bbl.

The Kiwi dollar will open today little-changed against the US dollar, now at 64.6 USc. Against the Australian dollar we are firmer at 91.4 AUc. Against the euro we are also firmer at 60.6 euro cents. That all means our TWI-5 starts today at 71.5 which is up +20 bps from this time yesterday.

The bitcoin price has risen +1.7% from this time yesterday and is now at US$29,788. 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.