Economy Watch

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 inflation's bite is getting worse, and the policy pushbacks are ramping up now. The stagflation risk is now very real.

American producer prices were up 11.2% in March from the same month a year ago, the biggest increase since the data started being collected twelve years ago and topping estimates. The increase from February was +1.4%, so recent rises are now running faster than the annual average. This will cement the Fed's inflation-fighting drive and probably lock in an outsized rate hike when they meet in early May.

The US Treasury had a small 30 year bond auction today for $25 bln, one that was well supported garnering US$50 bln in bids. The median yield achieved was 2.73%, up only modestly from the 2.32% pa for the same event a month ago.

As expected, the Canadian central bank raised its policy rate overnight by +50 bps taking it to 1.0% and explicitly started a monetary tightening phase. Canada's headline inflation rate is 5.7% and its economic expansion is running at +3.3% real.

Yesterday we reported a sharp jump in machine tool orders in Japan in March. Today we should note that February overall machinery orders were weak and much weaker than expected. Machine tool orders tend to be export focused, whereas overall machinery orders have a larger local component, and that is the part that was weak in February. But perhaps there was a bounce-back in March?

China's export growth slipped in March, although not by quite what was expected, and came in +15% higher than the year-ago level. But eye-catching in this data was the absolute decline in imports, down -0.1% when an +8% rise was expected, itself a drop from the February +16% rise. It is a massive negative turnaround, indicating very weak local demand. It is more stark when you note that energy imports were up +39% by value in March. The sharp divergence between exports and imports juiced their trade surplus up to +US$47 bln in the month, with their US surplus nearly touching +US$60 bln. But none of these March results are records, far from it. In March, they ran a -US$9.5 bln trade deficit with Australia and a -US$1.8 bln deficit with New Zealand which was unusually large.

China has signaled that a reserve ratio cut is in the works to help keep their economy from slipping back amid heavy domestic economic headwinds. They also have their banks raising vast amounts of new bond funding. With all this liquidity being readied, you do have to wonder what the quality of the projects that are to be funded will be.

In Australia, the respected Westpac/Melbourne Institute consumer confidence survey posted a modest fall in April from March, but it now sits at its lowest level since September 2020 when pandemic fears were dominating. Now they are worried about geopolitics, floods, inflation, and interest rates. These fears are not enough to overcome the juicy election Budget, further strength in the labour market and a significant recent fall in petrol prices there. It is also not good news for the incumbent government which is suffering from serious distrust issues by the electorate.

The UST 10yr yield has slipped today, down -3 bps to 2.69%. 

The price of gold starts today at US$1979/oz and up another +US$8 from this time yesterday.

And oil prices are up +US$3.50 today at just over US$103.50/bbl in the US while the international Brent price is now just on US$108/bbl.

The Kiwi dollar will open today almost -1c weaker at 67.9 USc. Against the Australian dollar we are -¾c softer at 91.2 AUc. Against the euro we have sunk a fill -1c to 62.4 euro cents. That all means our TWI-5 starts today at just 73.7 and its lowest in a month.

The bitcoin price is up 2.5% from this time yesterday at US$40,988. Volatility over the past 24 hours has been moderate at +/- 2.5%.

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

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

Kia ora. I'm David Chaston and because it is the long Easter holiday weekend here, we’ll do this next again on Tuesday.

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 it's all about inflation and policy interest rates today.

American CPI inflation was up +8.5% in March, driven by rising petrol prices. This was almost exactly as markets had expected, and is a rise from +7.9% in February. Their 'core inflation' (without food or energy costs) was up +6.5%, a similar rise to what was recorded in February, and also the rise markets had expected. The lack of any surprise in this data has induced something of a relief in financial markets. But we should note that at these levels, American consumer prices are rising faster than anywhere else in the G7 major advanced economies, even in the EU.

However, because American inflation didn't surprise on the upside, financial markets pulled back on their interest rate bidding, and the US dollar slipped slightly.

The US retail expansion rolls on, with a key survey showing it rising at its second highest rate in the past six months, and far more than can be accounted for by inflation.

The US Treasury offered another tranche of 10 year bonds at auction today, a smallish US$34 bln was offered and that attracted bids of US$83 bln. However, the median yield for the winning bids was 2.62%, up sharply from 1.84% at the prior event a month ago.

Even the American monthly budget statement didn't surprise, coming in with a modest (for them) March deficit of -US$193 bln, almost exactly the same as for February. At this level it is half what it was in March 2021, and on track for an annual deficit of -US$1.7 tln and almost US$1 tln lower than for the same period a year ago. That turnaround is essentially because tax receipts are running +10% higher than the prior year, and spending is running -10% lower. It is a remarkable untold achievement in just one year. They will end the year with a budget deficit of -7.1% of GDP, so still a lot of repair required yet.

Part of the improved American economic performance is because their industrial sector is humming. And one part of that is due to aircraft sales. Boeing said it had sold 145 planes in the first three months of the year, after accounting for canceled orders. Almost all of the orders were for the 737 Max. The company has now had 14 straight months of net new sales as the travel rebound accelerates.

Japanese machine tool orders have come in very strong indeed, up +30% in March from a year ago, up +20% from February. It is their second best month ever, only pipped by the spectacular March 2018 level. It is an impressive result, far greater than can be explained by producer cost rises. And those overall producer costs rose +9.5% in March from a year ago, pretty much as expected and a similar level they had had for five straight months.

But supply chain issues are hurting as well. Toyota has told its major suppliers that it intends to reduce global output to around 700,000 vehicles for next month, down a little more than -10% from original plans. The move comes amid supply chain instability fueled by Russia's invasion of Ukraine and in China where the pandemic battle rages. The new total would be just above the 670,000 vehicles Toyota manufactured last May.

The expected turn up in Indian industrial production hasn't happened yet and certainly did not happen in March where a tiny +1.7% annual gain was recorded. At the same time India reported CPI inflation running at just under 7% and faster than what was anticipated. They central bank's recently announced pivot from supporting growth to fighting inflation becomes more understandable with today's data releases.

German CPI inflation also came in pretty much as expected in March as well, up +7.3% (+7.6% on a harmonised EU basis). But that was up from +5.1% in February, all induced by the cost of Russian energy supplies of course. That crisis has pushed economic sentiment sharply lower even if it isn't lower in March than from February.

It isn't much, but a fall in the lithium price is worth noting. Sagging Chinese demand as their economy stutters seems to be behind the small drop. It is the first retreat for this commodity since 2020 when it then took off.

In Australia, business conditions surged higher in March and confidence also strengthened. Trading conditions and profitability rose markedly, suggesting demand remains strong, and employment also rose. The improvement was largely driven by the retail sector. Overall business confidence rose, continuing the steady rise since December.

All eyes will be on today's RBNZ official cash rate review die out at 2 pm today. It seems to be a line-call whether the rise will be +25 bps or +50 bps with +25 bps marginally preferred by analysts. Later today the Canadian central bank is having a similar review and most observers there think +50 bps is likely for them.

The UST 10yr yield has given up all of yesterday's rise, today down -6 bps to 2.72%. (The long term average over the past 50 years has been 5%.) 

The price of gold starts today at US$1971/oz and up +US$24 from this time yesterday.

And oil prices are up +US$6 at just under US$100/bbl in the US while the international Brent price is now just on US$104/bbl.

The Kiwi dollar will open today +½c firmer at 68.7 USc. Against the Australian dollar we are marginally softer at 91.9 AUc. Against the euro we are at 62. euro cents an softer also. That all means our TWI-5 starts today at 74.6 and up +40 bps from this time yesterday.

The bitcoin price is down -0.8% from this time yesterday at US$39,994. 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 tomorrow.

Kia ora,

Welcome to Tuesday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.

I'm David Chaston and this is the International edition from Interest.co.nz.

Today we lead with news the expected reactions are bedding in now with equity prices sliding as bond yields rise sharply again.

But first, American inflation expectations are rising, in the short term at least. Median one-year-ahead inflation expectations increased to a new series high of 6.6% in March from 6.0% in February, while three-year ahead inflation expectations actually slipped to 3.7% from 3.8%. The increase in short-term expectations is broad-based across age, education, and income groups. Tomorrow we get the official March CPI data and 6.6% is what is expected for core inflation. But including food and energy, analysts are expecting total CPI inflation to be up at 8.4%, and well above the 7.9% recorded in February.

The US Treasury auctioned US$46 bln of 3 year Notes earlier today. They got bids worth US$114 bln, but for the accepted bids they had to pay 2.68% - a three year high - which is up sharply from the 1.70% they paid just a month ago in an equally popular auction.

Canada is girding itself for a +50 bps rate rise by their central bank this week.

China is apparently getting a bit more inflation now. Their official data says overall prices were up +1.5% in the year to March, but because there was no change from February what we are seeing are base effects moving the annual number up. Food prices are rising as part of that (+2.0% year-on-year), but prices for beef (0.0%) and lamb (-4.6%) are not part of that. Milk prices are rising slightly (+0.4%). The easing of high producer price inflation did happen in March, but not be as much as was expected. It is now running at +8.3% year-on-year.

And despite their economic slowdown, Chinese banks are lending at a fast rate, with new loans up more than +10% in March. Bank debt is rising at more than twice the economic growth rate, an extended distortion.

The Shanghai government announced yesterday that it will lift pandemic lockdown restrictions in just over 40% of its neighbourhoods, though the city as a whole has continued to log record daily infections. Spreading distress for locked-down residents is behind the move. And that distress has been noticed in Guangzhou (the metropolis near Hong Kong) where there has been a severe run on supermarkets and household supplies in case authorities there impose a similar tough lockdown.

The French first round election result has gone as we noted yesterday, so the Incumbent president and his far-right rival are now expected to be in a tight race in two weeks for the second round and deciding vote. What will swing this result is how the third-place 'left' voters react. Will they turn out for Macron? If so he will win comfortably. If not it will be very close. (For the record, the traditional French conservatives polled only 5% in the first round.)

Zinc prices have skyrocketed to above US$4,400/tonne in April, just shy of its record peak hit in November 2006. Demand remains strong, but Russia is a key supplier and supply disruptions are spreading. High energy prices aren't helping. As a consequences inventories are very low with them virtually zero in Europe and falling in the US. Zinc isn't the only metal under pressure, but it is emblematic.

There has been another heady rise in benchmark bond yields overnight with the UST 10yr yield rising +8 bps to 2.78% taking it back to a level we last saw in November 2018. 

The price of gold starts today at US$1947/oz and essentially unchanged from this time yesterday.

And oil prices are down -US$3.50 at just under US$94/bbl in the US while the international Brent price is down -US$4 and now just on US$98/bbl.

The Kiwi dollar will open today lower by -20 bps at 68.3 USc. Against the Australian dollar we are marginally firmer at 92 AUc. Against the euro we are at 62.7 euro cents an slightly softer. That all means our TWI-5 starts today still just under 74.2 and little-changed from this time yesterday.

The bitcoin price is down a sharp -6.4% from this time yesterday at US$40,327. Volatility over the past 24 hours has been high at +/- 3.9%.

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 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 inflation stress is building worldwide and will have an increasing influence on elections and the ability of governments to hold on to office.

Firstly in China, the pandemic emergency is not improving - in fact it is getting worse in Shanghai. It is hard to know how bad it is elsewhere with a broadening clampdown on news reports. It might be concentrated only in Shanghai as it seems, but you would think the Chinese media would say so if that was the case. The risks to global supply chains are rising, not falling. The depth of their economic retreat isn't obvious. We are left seeking signals in oblique ways, like calls for 'helping hands'.

More directly, vehicle sales in China fell by -11% in March compared to the same month a year ago. Recall in February they rose almost +19% on the same basis, so the shift down is dramatic and the first drop of the year. It has clearly been induced by sinking consumer confidence in the face of lockdown pressures.

And house-buying is in the doldrums too.

And overseas money is starting to pull out of Chinese markets. Foreign investors sold a net -NZ$9 bln in Chinese stocks and bonds in Q1-2022, nearly the highest outflow on record. The amount isn't large, but the switch from large positives is. ESG issues weigh on Chinese investment, now it seems to have aligned itself with autocracies.

Japanese consumer confidence fell again and this survey is now at its lowest level in a year. Apart from the pandemic shock, we haven't seen such Japanese glumness since the GFC crisis.

But Taiwanese exports rose at a fast clip again, but now this is as expected and the latest March data didn't beat estimates. But in value terms, this was their best month ever and by a long shot, and nearly +5% more than the prior record set in November 2021.

Taiwanese CPI inflation is up to a 3.3% pa rate, which is fast for them and the highest in ten years.

The Indian central bank left its policy rate unchanged at 4% and its accommodative settings in place. But they are now talking about shifting to tighter settings soon, prioritising the inflation fight rather than growth. They are talking of 'tectonic' upward shifts in food prices (p86). Wholesale rates are rising and their 10 yr bond yield spiked on the commentary, hitting 7%.

In Russia, S&P has declared them in selective default on their foreign debt. That is because they used rubles to pay bond obligations and they were insufficient to meet the contracted obligation in US dollars.

The big global news is that food prices rose very sharply in March, pushing on up to all-time records. In fact the rise from February was the largest one-month jump ever, and the rise from early 2020 has been relentless and fast. All categories of food rose fast, but it was most noticeable for cereals which jumped +17% in one month alone. We have a looming global food crisis, one that will hit developing and emerging markets hard and return billions to poverty. An ex-UN food boss is urging calm, but that is necessary because a sense of panic is developing over this situation. It is worth noting that meat prices are not rising as fast as grain prices, not yet at least.

The USDA World Agricultural Supply and Demand Estimates (WASDE) released over the weekend backed that up. American supplies are stable, but the international situation has created raging uncertainty and sharply higher prices. Global stocks of wheat are at a 5-year low.

In the US, re-worked supply chains are inducing a faster run up in wholesale inventories. But it turns out this is still a minor influence - strong sales in a strong economy is the major reason those stock levels are up. It may have expanded at a +4% pa rate in Q1-2022, and faster since. The inventory/sales ratio has remained lower than normal and is still sitting near historic lows.

After a very strong expansion in February, the Canadian labour market expanded further in March although this time pretty much as expected. Their rapid shift from part time to full time employment was in evidence again this month. Wages only rose at a modest +3.4% pace however.

And we should note that Turkey's troubles are only getting worse. It now has a consumer inflation rate of 61% (officially, at least), and producer prices are rising at the rate of +115%. An iron grip will be needed there to avoid an explosion of anger and misery, and the problem in Turkey is, those suffering most supported Erdogan into power.

The first round of the French presidential election shows the country very split. The incumbent president seems to be getting about 30% of the vote, the far-right candidate about 24%, and the left's candidate about 20%. A second round will be required between the top two, and the left looks like it will swing to Macron if only to prevent Le Pen from a victory - in a scenario that has run many times in France.

The Australian election has been called - for about the last possible legal date, May 21. The opposition starts ahead, and the incumbent government is counting on another 'miracle' recovery. The opposition needs to gain seven seats in their 151 seat parliament to win. But if the incumbent government loses just one seat, it will mean a hung parliament. Cross-bench parliamentarians are a very odd bunch, given their even odder voting system.

At the end of last week in the US, there was another heady rise in benchmark bond yields, although things settled back at the close of the Wall Street Friday session. The UST 10yr yield will start the week at 2.70% so that is a +32 bps rise for the week. 

The price of gold starts today at US$1947/oz and +US$4 higher than this time on Saturday.

And oil prices are a little-changed today from Saturday at US$97.50/bbl in the US. And the international Brent price is now just over US$102/bbl.

The Kiwi dollar will open unchanged at 68.5 USc. Against the Australian dollar we are marginally firmer at 91.9 AUc. Against the euro we are still at 63 euro cents. That all means our TWI-5 starts today still just over 74.2 and -30 bps lower for the week.

The bitcoin price is up fractionally from Saturday and now at US$43,076 and a +0.7% rise. Volatility over the past 24 hours has remained modest at +/- 1.0%.

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 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 the extent of China's economic stumble amid its latest pandemic crisis is becoming evident.

But first, the level of new American jobless claims continues to fall, sinking to new modern lows with 193,000 new actual claimants last week. There are now 1.65 mln people on these benefits, the lowest since 1968, and the lowest in more than half a century. Note that the US labour force grew by +100 mln in that time and is now 2.5 times larger so as a proportion of the workforce, this is easily the lowest ever.

A well-known Fed hawk is out pitching for a rate hike program totaling +300 bps, noting the US economy is booming and unless they act fast inflation will get away on policymakers. Essentially he is backing up Vice Chair Brainard's recent remarks.

There was clear evidence of the boom conditions in the US economy this morning. The Fed's data on consumer credit jumped far more than expected in March. It grew by +US$42 bln in the month, the most ever and reaching US$4.45 tln. Two thirds of the rise was for revolving credit, such as for credit cards. It isn't clear yet whether that is a sign of consumer stress, or consumer optimism. With the jobless rate being very low, and jobless benefit claims very low, it seem unlikely to be stress-related.

Later today, Canada will release its Budget for 2022/203 and it is widely expected to contain a plan to ban foreigners from buying houses, among other housing measures. This is in direct response to the continued rise and rise of house prices. Median house prices have risen more than +50 in the past two years alone, now topping NZ$1 mln as a country-wide average. Toronto is the flash-point, but Vancouver is also in the stratosphere. (Our median is NZ$885,000 and the median for the US is NZ$518,000.)

China's foreign currency reserves fell almost -1% in March from February. It was their third monthly fall and comes amid both an outflow of foreign investment and a strengthening of the US currency. The decline has been a long-term trend. They now stand at US$3.18 tln, about 21.5% of GDP. Five years ago they stood at 25.5% of GDP.

It is also becoming clear that China's 2022 growth target of "about 5½%" is going to undershoot. We are only a quarter of the way through the year and already analysts think it will be more like 4½%. But that assumes the stresses ahead don't get worse.

The growing pandemic crisis in China is having severe hardship consequences, and not only the well-publicised ones in Shanghai. Less than a year after President Xi claimed victory over "extreme poverty" some provinces are about to fall back into that condition. Oddly, Beijing's ‘common prosperity’ push is said to have been put on back-burner until their economy recovers, which is telling about the current state of their overall economy. It is clear that no-one in China actually knows how to get out of this situation, one forced on them by the combination of a healthcare system unable to cope, a vaccine that isn't very effective against Omicron, and widespread antivax sentiment especially among the older, traditional population.

The fallout on trade from New Zealand could be significant and over a longish period.

In Australia, all four economic teams at their big banks are now saying their central bank will start raising its policy interest rate in June.

A widely-watched local services PMI in Australia expanded much less in March than it did in February. But the high February level was the outlier, not these March results.

The UST 10yr yield opens today at 2.66% and up another +5 bps from this time yesterday. 

The price of gold starts today at US$1935/oz and +US$14 higher than this time yesterday.

And oil prices are down again, but only by -US$1 to just under US$95/bbl in the US. And the international Brent price is now just under US$100/bbl.

The Kiwi dollar will open lower than at this time yesterday at 69 USc. Against the Australian dollar we are firmer at 92.3 AUc. Against the euro we are little-changed at 63.4 euro cents and holding recent gains. That all means our TWI-5 starts today at just under 74.7 and very little-changed.

The bitcoin price has stayed down and slipped a further, and minor, -0.8% since this time yesterday and now at US$43,538. Volatility over the past 24 hours has been modest at +/- 1.7%.

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

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

Kia ora. I'm David Chaston and we’ll do this again 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 investors are about to learn whether the maxim "don't fight the Fed" is still valid.

Minutes from the March Fed meeting showed many officials would have preferred a +50 bps increase in their benchmark interest rate, instead of a +25 bps hike. Depending on economic and financial developments, they clearly want to move faster. These minutes also showed they are considering reducing their balance sheet by about -US$95 bln per month, a lot more than expected, and starting next month. 'Normalising' is now front and center, and is to quickly morph into inflation-fighting mode. The signal in these minutes is as clear as the stark one issued by Vice Chair Brainard yesterday.

Now out of the Fed, one ex-official says they will be trying, intentionally, to inflict losses on both stock and bond investors, as part of their inflation-taming strategy.

Housing investors, even homeowners, may face losses too. American mortgage applications extended their falls last week due to rapidly rising mortgage rates. That makes it drops in eight of the last nine weeks.

As a side note, we should report that Mexico is turning out to be a serious winner as American companies re-jig their supply chains away from China, and Asia generally.

There was another sharp fall recorded last week in trans-Pacific container shipping rates. They are far from normal (old normal) but they are heading in that direction now and have been for the past five weeks. Bulk cargo freight rates are declining too.

Going the other way global air passenger traffic is rising again and the recovery is quite fast, especially international travel even if it is off a low base.

And global air cargo traffic levels for February are stronger, even when compared to pre-pandemic 2019.

However, all this data is a month old. March data suggests the Russian invasion of Ukraine has taken the top off global trade in March, down -2.8%. Of course, that is mostly an EU thing.

But in China, their economic troubles are deepening. Their services PMI sunk sharply in March, according to the private Caixin survey. Unlike the 2020 one with was part of a short-sharp global retreat, they have this one on their own. Services activity fell at its quickest rate since February 2020 amid notable drop in sales. Input cost inflation picked up more than they expected. Business confidence dived to a 19-month low.

We have previously noted the food supply problems in Shanghai that is under a hard lockdown. We should also note that growing numbers of Chinese farmers are required to isolate, jeopardising harvests in some areas. It is not major at the moment, but if it spreads, it could be.

And it is pretty clear now that the long weekend Qingming/Ching Ming/Tomb Sweeping Festival holiday saw tourism activity fall at least -30% from normal as vast numbers of people stayed at home to avoid pandemic risks. This will have notable economic impacts.

In Australia, regulator ASIC has extended its product intervention order imposing conditions on the issue and distribution of contracts for difference (CFDs) for a further five years to 23 May 2027. CFDs enable speculation, not investing, they say.

And ASIC is being much more active in controlling crypto launches, including by the big banks. They clearly don't want a wild-west rush, one that seemed to have some momentum.

The UST 10yr yield opens today at 2.61% and up +5 bps from this time yesterday. 

The price of gold starts today at US$1921/oz and virtually unchanged since this time yesterday.

And oil prices are down sharply, down more than -US$4 to just over US$96/bbl in the US. And the international Brent price is now just over US$101/bbl.

The Kiwi dollar will open -½c lower than at this time yesterday at 69.2 USc. Against the Australian dollar we are firmer at 92 AUc. Against the euro we are also softer at 63.5 euro cents but holding recent gains. That all means our TWI-5 starts today at just over 74.8 which is an overnight -30 bps slip.

The bitcoin price is down a sharpish -4.6% since this time yesterday now at US$43,883. Volatility over the past 24 hours has been high at +/- 3.1%.

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 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 bond market has bared its teeth overnight, egged on this time by a hawkish Fed.

But first up today, there was another dairy auction this morning - and another overall dip in prices. There were down nearly -1.0% in USD terms, and down a massive -3.8% in NZD terms. And that is because of the other big economic move overnight - the rise of commodity currencies. We will come to that later, but the dairy price drop is largely due to the -1.5% fall in WMP prices, and in turn that is mostly about Chinese demand. The new difficulty shipping to China as it increasingly locks down is a part of that factor too.

But the auction also delivered higher prices for SMP, BMP, and cheese. These are key to the foodservice and ingredients business, and are benefiting from the return of foodservice industries worldwide. Nothing in this auction is likely change any farmgate milk payout forecast, but it might boost Fonterra's earnings from the upweighted foodservice and ingredients business.

The American retail impulse quickened last week and it was already quite upbeat.

And the US Logistics Managers' Index reached another new high in March. Conditions have been booming in the American logistics sector, and the March result is an all-time record high. Previous highs have featured excessive imbalances and supply-chain problems. They haven't been resolved, but this report suggests things are starting to return to a better balance, just at a high level.

The US reported another high trade deficit for goods and services March, but no more than for February. Not only are services exports rising again, but goods exports are now rising as fast as imports as imports stay in high demand while their local economy stays exhibiting strong demand and elevated consumer spending.

That is all consistent with a fast expanding services sector in the US, aided no doubt by relaxing of pandemic restrictions there. The widely-watched local ISM services PMI retained its high expansion level, while the internationally-benchmarked Markit one rose to match it. Both reported on-going cost pressure.

Canada also reported rising exports, along with rising imports. (Their exports were helped by higher oil prices.) Upbeat domestic conditions there saw their trade surplus dip a little bit in March.

The global bond market rout resumed overnight, with the US yield on the 10-year note, which sets the tone for corporate and household borrowing costs worldwide, surging above 2.56%, its highest level since May 2019. Investors anticipated an aggressive looming policy tightening cycle as major central banks sought to tame inflation, currently running at records levels in Europe and 40-year highs in the US. Market moves were exacerbated by surprisingly hawkish comments from Federal Reserve Governor Lael Brainard, who said they would rapidly reduce the Fed's balance sheet as soon as next month and is prepared for a more aggressive move when it comes to raising interest rates to bring down inflation. Meantime, Germany's 10-year Bund yield, the benchmark for Europe, rose to as high as 0.61%, closing in on its highest level since May 2018.

The BIS has weighed in on the side of raising policy rates sharply and possibly for longer than standard, to kill off the long-term threat of inflation.

Inflation risks were on the mind of the Reserve Bank of Australia yesterday. Although they kept all their policy settings unchanged, their statement was notable in that the reference to 'patience' was dropped, and signals were released that they expect the inflationary conditions will be there mid-year for a change in policy and higher rates. The main thing they want to see is some wage inflation, which has been absent till now.

And staying in Australia, regulator ASIC has commenced civil penalty proceedings in their Federal Court against Macquarie Bank for failing to adequately monitor and control transactions by third parties, such as financial advisers, on their customers’ cash management accounts.

China's credit easing is underway, trying to head off persistent economic headwinds. The local price for iron ore surged yesterday, and on outsized volumes. Markets are betting Chinese regulators are serious stimulus by using their usual playbook.

One of the puzzles we raised a few times now is why Australia and some Asian countries still have low CPI inflation. Well that situation is breaking up now, with South Korea reporting CPI at a 10 year high, and the Philippines also reporting higher CPI inflation, both now over 4%.

In Europe, Poland has vetoed the EU plan to implement a 15% minimum tax rate by the end of 2023, leaving the international overhaul agreed last year in limbo.

The UST 10yr yield opens today at 2.56% and up and unusually high +14 bps from this time yesterday. 

The price of gold starts today at US$1922/oz and down -US$8/oz from this time yesterday.

And oil prices are down -US$1.50 to just over US$100.50/bbl in the US. And the international Brent price is now just over US$105.50/bbl.

The Kiwi dollar will open firmer than at this time yesterday at 69.7 USc. Against the Australian dollar we are softer because there rose more against the main currencies and we are now at 91.7 AUc and a -½c fall. Against the euro we are also firmer at 63.8 euro cents and building on yesterday's big gain. That all means our TWI-5 starts today at just under 75.1 which is a new four month high.

The bitcoin price is up +1.5% since this time yesterday to US$45,990. Volatility over the past 24 hours has been moderate at +/- 2.2%.

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

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

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