Economy Watch

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.

And today we lead with news China is struggling to regain its economic momentum.

And perhaps the US is as well. Although not as weak as the May result, the June factory survey by the Dallas Fed in America's oil patch remains weak. Shrinking new orders are the key feature. Loan demand is weak. 

Factory sales rose in Canada in May in data released overnight. That is their third consecutive rise, and their seventh rise in the past nine months.

In China, complaints against banks are rising, and sharply. Most seem to revolve around banks not letting borrowers repay their mortgages early. Chinese households are prioritising savings over consumption as economic uncertainty rises. On the other hand banks stand to lose a lot if large numbers of borrowers repay early. And Beijing is clearly worried about excessive saving and what it is doing to economic activity. In this context, the apparent block against repaying loans early is frustrating borrowers and in some way making the negative sentiment worse.

And staying in China, we should note that a new article in the People’s Daily, the official newspaper of the ruling Communist Party, vows to build efforts to unleash the potential of artificial general intelligence. It wants to lead the "new wave of tech revolution ... industrial transformation" it says.

The recent holiday trading was notable for its lacklusterness. Authorities are worried about the growing spread of pessimism.

Meanwhile, China’s currency depreciated as much as -0.9% to 7.2380 per US dollar in Shanghai yesterday, and well worse that the official central bank setting as pessimism over the economic recovery continues to weigh on sentiment. That adds to a full -4% devaluation since the start of 2023.

Taiwanese retail sales rose in May. It was a modest rise from April, but a big surge from a year ago, but that was because the base was weak in 2022. But it was the inverse for their industrial production which recorded a sharpish fall from a year ago, again due to base effects. The month-on-month they recorded a rare rise.

Singapore's industrial production was also expected to rise month-on-month, but it didn't which would have disappointed them. Their year-on-year retreat was worse than expected.

Also disappointing was the latest German sentiment survey which came in less optimistic than expected. Europe's largest economy is struggling again after rising sentiment about future prospects from October through to April.

The UST 10yr yield will start today still at 3.72% and down -2 bps. 

The price of gold will start today at US$1925/oz and that's up a minor +US$5/oz from yesterday.

And oil prices are marginally firmer from yesterday to now be just under US$70/bbl in the US. The international Brent price is little-changed at just over US$74.50/bbl.

The Kiwi dollar starts today at 61.7 USc and up +¼c from yesterday. Against the Aussie we are also +¼c firmer at 92.4 AUc. Against the euro we are firmer too at 56.6 euro cents. That means the TWI-5 is still just on 70.1 and up +30 bps since this time yesterday.

The bitcoin price has eased again from this time yesterday and now is at US$30,081 with another dip of -1.5%. Volatility over the past 24 hours has been modest at just under +/- 1.2%.

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

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

Kia ora. I'm David Chaston. And we will 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.

And today we lead with news events in Russia are something of a gawkish sideline for us. It is China we should be watching.

But first this week, in the US the spotlight will be on the Fed's big bank stress test results out Thursday, NZT. There will also be data released on May personal income and spending, as well as the PCE price indexes. Additionally, we will be following durable goods orders this week, and among other things May's new and pending home sales.

Elsewhere, CPI inflation data for Canada, the EU, Germany, Italy, France, and Spain are all due. And in China, the official factory and services PMIs will be released on Friday, while locally we get both consumer and business confidence data, also on Friday.

In Western financial markets, Greed trumps Fear at the moment. Investors seem bullish, even if equity markets took a bit of a reversal last week.

Over the weekend in the US the first of their PMIs for June has become available and it told the tale of slowing growth, but a continuing expansion nonetheless. The factory sector is still contracting however and at a faster clip than in May. But their service sector is still expanding although that too is at a slower pace than for May even if it is still a good moderate expansion. New order growth eased, but was still the second-fastest in just over a year, while the pace of job creation slipped to its slowest since January.

Perhaps we should also note that China isn't the only place where commercial property is in trouble. The rise and rise of interest rates along with growing vacancy rates is depressing the value of retail and office buildings globally. A value-quake is close.

Internationally, there does seem to be a thaw in US-Chinese relations. Blinken broke the ice, and now Janet Yellen has been meeting senior Chinese leaders. Both are announcing broader cooperation deals. It is a good time for the NZ Prime Minister to visit. China's economic stumbles are making them more open to trying to build back trade with Western nations. It is very early days and it may only be tactical rather than strategic, but it seems both parties are willing to see what they can make of a thaw.

China needs a thaw. On Friday, yet another large real estate developer, Central China Real Estate Limited, told the stock exchange that it could not pay interest on a bond even after the grace period. They are not the only one this week, also CIFI Holdings. It has been estimated that total Chinese developer debt is 12% of Chinese GDP which is a huge burden. This type of news is driving down their whole equity markets. Only a big redirection can weight against such drags.

The Hang Seng China Enterprises Index of Hong Kong-listed Chinese companies gauge slumped more than -6% last week, its steepest weekly drop since March. The CSI 300 Index of mainland shares fell -2.5% through Wednesday before markets closed for holidays. The yuan also fell to the weakest since November, with analysts bracing for more declines.

And around the world, China is having to face up to its aggressive funding of third-world infrastructure projects gone-wrong with a growing list of debt writeoffs.

China might have been on the long Dragon Boat Festival break, but in northern China it is no fun at present. A temperature of over 41oC was recorded in Beijing late last week, its second highest on record (the highest was in July 1999). And it is expected to hit those same highs again at the end of this coming week. And it is not just Beijing being hit. The same heatwave is sweeping across vast areas of northern China. Officials are being exhorted to save farmland.

Maybe that was a reason travel spending during the holiday fell short of pre-Covid levels, but the shortfall does underscore the slowdown in consumption.

In Japan, the June PMI story is similar to the US except perhaps things are still running higher/better there.

Japanese inflation ran at 3.2% in May, now the 14th straight month it has been over the Bank of Japan's 2% target. But there was no change in May from April, leading to suggestions it might be topping out. But the yen slid anyway.

Singapore's CPI inflation rate dipped to 5.1% in May from 5.7% in April. The April-to-May pace was running lower than the annual levels. Food and energy prices are keeping it up, services are lower than the average.

In Europe, their flash PMIs also record a contracting factory sector and an expanding services sector, but they are underperforming both the US and Japan.

The Australian factory sector is still contracting too. But the retreat was less so in June than in the prior two months amid improvements in supply conditions. However, new orders are still retreating which isn't a good sign. And their services sector is no longer expanding, even if it is yet to contract.

Local observers are starting to see more cracks opening up in the Australian economy. Apparently AirBNB reservations are sliding, the number of home builders going bust is rising, and about half of small businesses are concerned about their financial future, according to a survey there by Xero. It isn't helping that the RBA's official cash rate at 4.1% is lagging most other central banks by at least 100 bps and that is keeping the Aussie dollar weak and importing inflation.

There is much talk that RBA Governor Lowe is about to be replaced in July. It is hard to know if that will turn confidence around or push more instability. Certainly, Lowe's defenders are now out saying now would be a bad time to make a change.

The UST 10yr yield will start today still at 3.74% and unchanged for the week. 

The price of gold will start today at US$1920/oz, but down -US$37/oz or -1.9% for the week.

And oil prices are staying low although +50 USc firmer from Saturday to now be just over US$69.50/bbl in the US. The international Brent price is now just on US$74.50/bbl. That is a -US$2.50 drop for the week.

The Kiwi dollar starts today at 61.4 USc and unchanged from Saturday. But that is a full -1c lower than this time last week. Against the Aussie we are firm at 92.1 AUc and up more than +1c in a week. Against the euro we have changed little at 56.4 euro cents. That means the TWI-5 is still just on 69.8, also little-changed, but down a minor -20 bps for the week.

The bitcoin price has eased from this time Saturday and now is at US$30,536 with rise dip of -1.4%. It actually didn't close on any day at NZ$50,000, falling fractionally short. Volatility over the past 24 hours has been low at just under +/- 1.0%.

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

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

Kia ora. I'm David Chaston. And we will do this again tomorrow.

If we were building Auckland from a blank canvas with the knowledge we have today there are lots of places where you wouldn't build, says Martin Brook, Associate Professor of Applied Geology at the University of Auckland.

Speaking in the Of Interest podcast, Brook says this year's spate of extreme weather events means we are talking more about the dangers of floods, slips and landslides, but there's a lot of work to do to better prepare ourselves for future such events.

"Generally if we were planning we'd avoid slopes and flood plains and obviously that includes a lot of Auckland. In fact GNS reports in 2009 stated that most of Auckland is at moderate or high risk of landslides...That encompasses a lot of the landscape of Auckland and it would mean that we wouldn't build in a lot of Auckland," says Brook.

"If you look at the Auckland Unitary Plan it doesn't encompass the geomorphology [the study of landforms and landform evolution], if you like, which is the land forms and the earth's surface processes that are currently shaping our landscape."

"I think we build too close to slopes. We love doing that, we cut trees down, we love building mansions on slopes so we have wonderful views. We have a history in New Zealand of building on unstable land, and part of that is the 1981 Local Government Amendment Act which absolved councils of civil liability if they permitted building on unstable land," Brook says.

He says landslides have killed more people in NZ over the last 150 years than earthquakes.

In parts of Auckland Brook says there's a lack of adequate building set-back distances, being the distance between a dwelling and slope or cliff, with set-backs from the bottom of slopes also very important.

Ideally, Brook says, a house on a 30-metre high North Shore cliff should be set-back about 100 metres from the cliff edge.

Brook suggests we have a general issue of politicians not liking to make difficult decisions, but is encouraged by Finance Minister Grant Robertson recently providing risk categories and definitions for properties affected by flooding and cyclones.

"People are talking more about hazards other than earthquakes and volcanic eruptions. Storms do cause floods and landslides and we seem to get them rather often unfortunately. So people are talking about this which I think is great. So let's hope some good does come out of it," says Brook.

In the podcast Brook also talks about managed retreat, places becoming uninsurable, the idea for a national geotechnical control office perhaps within the Earthquake Commission, warning systems and monitoring of moisture levels in slopes, and why he'd prefer "a more holistic storm based approach" than Auckland Council's Making Space for Water initiative.

**And you can find all episodes of the Of Interest podcast here.

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.

And today we lead with news bond markets are coming around to believing the US Fed signals, reversing their view that their call for high rates was 'just talk'.

But first, US jobless claims stayed up at 250,000 last week at about the level expected. There are 1.67 mln people still on these benefits unchanged as well and also staying up. Although both are now higher than year-ago levels, they remain historically low and don't alter the underlying tightness of their labour market. But you do get a sense the next movement will be an unwinding of their benign labour market conditions.

The Chicago Fed's National Activity Index turned marginally negative in May after a positive showing in April.

The Kansas City Fed's regional factory survey turned more negative in June as well, as did the Conference Board's index of leading indicators. Both were as expected.

Meanwhile American existing home sales edged marginally higher and by more than expected in May, an improvement on the April retreat.

China is on vacation for its Dragon Boat Festival, a three day break. They are expecting more than 100 mln tourist trips this year which is actually higher than pre-pandemic levels.

Although still deeply negative and below its long term average, EU consumer sentiment rose in June to keep the improvement that started in November going. And it is worth noting that this is now one of the steepest continuous rise in sentiment since this survey began in 2007 and the pace of improvement shows no sign of slowing down.

Overnight both Norway and England raised rates by more than expected. In Norway's case they rose +50 bps to 3.75%. In the UK case they also rose +50 bps to 5.0%. In both cases markets had expected a +25 bps rise. Norway has inflation running at 6.7% and the UK has it running at +8.7%, so both central bank policy makers clearly realised they aren't leaning against these price pressures hard enough. And the more important regional benchmark is the ECB policy rate which is 4.0% which was raised by +25 bps last week with inflation at 6.1%. With the ECB positions as backdrop the English and Norwegian rate increases make regional sense.

Separately, the central bank of Turkey raised its policy rate from 8.5% to 15% in the expected reversal of the prior unorthodox approach that brought raging inflation. You will recall that post-election the President changed out both his Finance minister and the head of their central bank in a clear signal things would change. Actually the +650 bps hike was less than markets had expected. Markets were expecting a bigger increase to 21%. The Turkish lira sank on a decision seen as timid.

In the widely-watched rankings of 'liveable cities', Vienna, Copenhagen, Sydney and Melbourne took out the top four spots in 2023. Auckland rose sharply to #10 and Wellington to #23. In conjunction with open borders, this is driving Sydney house prices higher.

And staying in Australia, regulator ASIC said 5.6 mln policy holders are on track to receive AU$815 mln in compensation after they uncovered pricing failures by 11 general insurers that led to clients being overcharged for their insurance. 6.5 mln policies were involved between January 2018 and October 2021.

The cost of shipping containers continues to fall, down -3.5% again last week. It is saying something about the state of global trade and it is not positive. The bulk cargo shipping costs are however rising again and are at about at a long-run average level

The UST 10yr yield will start today rising at 3.79% and up +7 bps. 

The price of gold will start today down another -US$19 at US$1916/oz and it hasn't been this low since early March.

And oil prices are down a sharp -US$3.50 from yesterday to now be just over US$69/bbl in the US. The international Brent price is now just on US$74/bbl.

The Kiwi dollar starts today at 61.8 USc and down -¼c from yesterday. Against the Aussie we are marginally firmer at 91.5 AUc. Against the euro we are little-changed at 56.4 euro cents. That means the TWI-5 is now just on 69.8 and also little-changed.

The bitcoin price has firmed slightly from this time yesterday and now at US$30,132 with minor rise of +0.3%. Volatility over the past 24 hours has been modest at just over +/- 1.6% in sharp contrast to the past few days.

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

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

Kia ora. I'm David Chaston. And we will 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.

And today we lead with news markets seem to have decided China isn't doing anywhere near enough to reverse their economic challenges.

But first, Fed boss Powell has been presenting the central bank's Semi Annual Monetary Policy Report to Congress today and in testimony he said "Nearly all FOMC participants expect that it will be appropriate to raise interest rates somewhat further by the end of the year." He suggested that another +50 bps could come by the end of 2023 and taking their policy rate to 5.75% and taking it higher than even the rates that applied before the GFC. Bond markets ignored the comments but the currency markets marked the USD down. Equity markets dipped too.

And we should note that the debt-limit deal struck by the White House and congressional Republicans requires that the pause on student loan payments be lifted no later than the end of August. Analysts are starting to factor in some pretty significant economic implications when that happens.

The American mortgage market activity rose again last week from the prior week, and unusual expansion even if it was minor recently. Mortgage interest rates slipped slightly with their benchmark 30 year down to 6.73% plus points.

There was also a rise last week in a key retail sales indicator, but despite that it remains mired deeply less than inflation's surge.

Canadian retail sales surprised in April with more of a gain than expected and reversing out the March dip.

In China, equities dropped rather hard across the board yesterday after a smaller-than-expected interest rate cut by China's central bank. The pain was especially felt in Hong Kong. Shanghai dropped too as did the tech-hub Shenzhen markets. But other markets exposed to China are feeling the impacts too, like Australia.

China's yuan is weakening fast again too. It is down to 7.18 to the USD, a -1.4% devaluation since the start of the month and -3.1% from the start of the year. Against the NZD their devaluation is -3.8% since the start of the month

In the UK, their CPI inflation held at 8.7% in May when a fall was expected. Month-on-month it is running at about the same annualised rate, so they aren't making any noticeable progress. Worryingly, their 'core inflation' rate actually rose in May from April. Markets there are now expecting more rate rises soon.

The UST 10yr yield will start today little-changed at 3.72%. 

The price of gold will start today down another -US$2 at US$1935/oz and a new three month low.

But oil prices are up +US$2 from yesterday to now be just over US$72.50/bbl in the US. The international Brent price is now just on US$77/bbl.

The Kiwi dollar starts today at 62.1 USc and up +½c from yesterday. Against the Aussie we are +½c firmer too at 91.3 AUc. Against the euro we are little-changed at 56.5 euro cents. That means the TWI-5 is now just on 69.9 and up +50 bps from this time yesterday.

The bitcoin price has again jumped sharply from this time yesterday and now at US$30,044 with another gain of +4.0%. Volatility over the past 24 hours has been extreme at just over +/- 5.4%. In the past seven days this price has surged +19.6% in USD terms, a bit less in NZD terms because the NZD has risen too. The tiny opening up moves from traditional fund platforms like BlackRock or Fidelity has been enough to move this market, emphasising just how thin this markets is.

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

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

Kia ora. I'm David Chaston. And we will 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.

And today we lead with news global demand worries kneecapped many commodity prices overnight. The NZD suffered from the trend.

The overnight dairy auction came in better than expected, but expectations were pretty negative. Overall prices were unchanged in USD terms when a -2.4% drop was anticipated. But in NZD terms it did record a -1.4% retreat. And that was on the lowest volumes sold since June 2019. The key WMP price was unchanged in this event But butter gained +5.5%. However cheese fell -3.3% and SMP fell -2.3%. All up a forgettable auction.

In the US there was surprising strength in the number of new housing starts in May, up sharply from April to more than an annualised 1.6 mln rate. That was its highest build rate since April 2022 and way above the expected 1.4 mln annualised rate. It is also +11% higher than year-ago levels. And residential building consents rose in May from April too, but they are -13% lower than year-ago levels.

In Canada, more sawmills are closing due to the extending wildfires across the country from British Columbia to Quebec. This is putting upward pressure on international sawn timber prices, and potentially log demand - just as their southern neighbour has a house building industry needing more product.

As widely anticipated, China's central bank cut key lending rates yesterday in a move to spur investment and consumption after the country's post-pandemic recovery stuttered in recent months. They cut the one-year loan prime rate by -10 bps to 3.55% from 3.65%, while trimming the five-year rate also by -10 bps to 4.2% from 4.3%. This is their first cut in 10 months. The moves will lower borrowing costs for both companies and households. They had earlier cut some wholesale rates -10 bps to benefit property developers. Markets are unlikely to be impressed with the cut, being a modest -10 bps given the challenges they face. The yuan weakened noticeably. The action so far is unlikely to turn around their loss of economic momentum.

In Japan, industrial production slipped -0.7% in April from the same month a year ago, held back by its electronics sector. Otherwise it would have expanded.

German producer prices fell -1.4% in May from April, and were up only +1.0% from the same month a year ago. This is a massive settling from the raging producer price situation only six months ago. That pressure is off now.

Perhaps even more surprisingly, the Germans reported that their population grew sharply by more than +1.1 mln in 2022, driven by a fast rise in Ukrainian refugees. That offset a fall in their natural population, and boosted their under 20yr demographic by a massive +2.8% in the year.

The UST 10yr yield will start today at 3.73% and down a sharp -9 bps from this time yesterday. 

The price of gold will start today down -US$12 at US$1937/oz and that's a three month low.

Oil prices are down -US$1 from yesterday to now be just over US$70.50/bbl in the US. The international Brent price is now just over US$75.50/bbl.

The Kiwi dollar starts today at 61.6 USc and down another -40 bps from yesterday. Against the Aussie we are firmish at 90.8 AUc. Against the euro we are softer at 56.4 euro cents. That means the TWI-5 is just on 69.4 and down another -30 bps from this time yesterday.

The bitcoin price is up sharply from this time yesterday and now at US$27,791 with a gain of +4.4%. Volatility over the past 24 hours has been moderate at just under +/- 2.9%.

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

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

Kia ora. I'm David Chaston. And we will 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.

And today we lead with news of some truly huge industrial orders being announced in Paris.

But first we should note that the US is on a Federal holiday today and most financial markets are closed there.

However there was some interesting data out overnight. Their home builder confidence index rose to its highest reading since July last year, and easily beating what was expected. Although the improvement was off a low base, it was due to solid demand, a lack of existing inventory and improving supply chain conditions. And the improvement came even though credit conditions are tightening and construction loans became more difficult to get.

In Canada producer prices are sliding faster now and overall cost deflation is accelerating for firms. Prices dropped a full -1.0% in May from April to be a massive -6.3% lower than a year ago. The reason is almost all to do with falling energy prices which were down -33% in a year, so apart from that industry, no-one is particularly worried about that. Their producer prices have now retreated to where they were in January 2022.

Perhaps we should note that international natural gas prices are now quite low, back to where they were in 2014. They were first at this level in 1995. Coal prices have dived as well, back to levels first reached in 2011. In fact, shipments of coal from the key Australian port of Newcastle have hit a five year low.

However, the global economy is about to get a boost from some more very large aircraft orders. The Paris Air Show has opened and eye-popping orders are being announced. You will recall that earlier in the year Boeing and Airbus shared a 470 plane order from Air India. Well Airbus has now confirmed a 500 plane order from another Indian carrier, IndiGo. This level of ordering is placing extreme pressure on manufacturers, and recall that China has indicated it will be needing more than 1000 new aircraft in coming years. And it is not as though the homegrown Chinese aircraft industry can supply that; they have delivered just one aircraft so far. No doubt they will ramp up deliveries impressively soon, but that is unlikely to put a dent in international order backlogs. Look out for more eye-popping orders to hit the headlines from Middle-East carriers, as well as Chinese ones too at Paris. Of course, all of this demand is on top of enhanced military demand. It is a manufacturing sector that has the ability to drive global economic fortunes. But has been such a sudden burst, it also has the look of a dangerous bubble.

In China, there was an unexpected surprise change of tune in Beijing; President Xi met with US Secretary of State Binken. Blinken is there trying to lower the temperature of diplomatic rivalry and especially the prospect of a Chinese adventure to retake Taiwan by force. Just the fact that this meeting took place is a good sign even if neither party changed their positions.

China needs a break from the negative economic sentiment that has been building there

Separately, the IMF says it is working on a platform for central bank digital currencies (CDBCs) to enable transactions between countries. "CBDCs should not be fragmented national propositions... To have more efficient and fairer transactions we need systems that connect countries: we need interoperability," they said.

The UST 10yr yield will start today at 3.82% and up +5 bps from this time yesterday. 

The price of gold will start today down -US$9 at US$1949/oz.

Oil prices are slightly softish from yesterday to now be just under US$71.50/bbl in the US. The international Brent price is now up at just on US$76/bbl.

The Kiwi dollar starts today up at 62 USc and and down -40 bps from yesterday. Against the Aussie we are softish at 90.6 AUc. Against the euro we are also a tad softer at 56.8 euro cents. That means the TWI-5 is just on 69.7 and down -30 bps from this time yesterday.

The bitcoin price is unchanged from this time yesterday at US$26,631. Volatility over the past 24 hours has remained low at just under +/- 0.8%.

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

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

Kia ora. I'm David Chaston. And we will 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.

And today we lead with news the realities of the post-pandemic bounce are showing it isn't being sustained on a global basis.

This week won't be as busy on the economic data front as last week. It will be mainly Fed-watching in the US, plus PMIs and some key housing sector data there.

China will review its monetary policy positions tomorrow and that will come with eyes keenly watching for more economic stimulus measures. It is seen trimming its 1-year and 5-year loan rates by -10 bps to align with last week's surprise cuts for shorter-term rates that were trimmed to support their property development sector.

But it is more than their property development sector that needs shoring up. China was expected to recover and give the global economy a boost after it abandoned its tough zero-Covid policies and reopened its borders late last year. Yet, domestic consumer spending has tanked and trade has fallen. This weekend's retail event has always been an important retail shopping day, "618" and there are signs that is will also really drag this year. Not only are consumers tiring over the endless 'big' promotions, households are back prioritising savings.

Other country central banks will also be reviewing their positions this coming week, including Norway, Turkey and the UK. In our region Indonesia and the Philippines will do so too. May Inflation data will be released in Japan, Malaysia and South Africa. PMI survey results will also come in Australia, Japan, the UK, and the EU. The Japanese one might reveal a rising expansion, but it is unlikely any of the others will.

Despite getting a new Governor who was thought to be ready to declare victory over deflation, the Bank of Japan under its new leader late Friday kept its key short-term interest rate unchanged at -0.1% and that of 10-year bond yields at around 0% by a unanimous vote. It said it didn't move because of the high risks it sees in international economies.

Singapore's exports slumped in May, and crashing very much more than expected. They have had a good run over the past two years but from July 2022 there has been a steady and now increasing retreat. This data is kind of a regional canary.

The latest update of consumer sentiment in the US, this one from the University of Michigan survey, delivered a bounce that wasn't expected. June sentiment rose to its highest in four months reflecting greater optimism as inflation eased and policymakers resolved the immediate debt ceiling crisis. In fact that caps a year of rising sentiment, with this index up +27% from a year ago. 

In Australia, the pressure is coming in retail sales. At its monthly review, the RBA noted a "substantial slowing in household spending" and this past week many key retailers have been reporting retreating sales levels, some quite sharp. New data from BNPL operator Zip shows a -7.4% slide in spending in fashion and clothing in the first two weeks of June compared to the first two weeks in May. Some major retailers are signaling sales are down -20% recently. Discounting is being turbocharged and the retailing industry is worried.

The UST 10yr yield will start today at 3.77% and up +3 bps from Saturday. 

The price of gold will start today up +US$1 at US$1958/oz.

Oil prices are slightly softish from Saturday to now be just over US$71.50/bbl in the US. The international Brent price is now up at just under US$76.50/bbl.

The Kiwi dollar starts today up at 62.4 USc and little-changed from Saturday. But it is up more than +1c in a week. Against the Aussie we are firm at 90.8 AUc. Against the euro we are little-changed at 57 euro cents. That means the TWI-5 is just on 70 and little-changed but up +50 bps in a week.

The bitcoin price is firmer than time Saturday at US$26,632, up +1.3%. Volatility over the past 24 hours has been low at just under +/- 1%. We should note that Binance.US and the US Securities and Exchange Commission reached an agreement that avoids a total asset freeze at the cryptocurrency trading platform while the regulator’s suit against it proceeds. Meanwhile Binance is quitting the Netherlands, and is facing a regulators probe in France.

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

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

Kia ora. I'm David Chaston. And we will 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.

And today we lead with news hard data on the coming economic retreat is only marginally easier to find. Equities and commodities are up today.

But US jobless claims rose by +249,000 last week, about the expected seasonal rise. There are now 1.65 mln people on these benefits, the first actual rise since the end of February.

Meanwhile, retail sales unexpectedly rose +0.3% in May from April, following a +0.4% increase in April, and beating forecasts of a -0.1% slip. But these sales are only +2.8% higher than year-ago levels and far less than can be accounted for by inflation.

US industrial production however fell -0.2% in May from April when a small +0.1% rise was expected. This is a volume-based measure and year-on-year it is an insignificant +0.2% higher.

There are a wide variety of experiences at the regional level. The Philly Fed factory survey of that industrial heartland reported a small decline even if some sub indicators turned up. New orders weren't one of them. However the large New York state factory survey was more positive, and they did reveal a good rise in new orders.

China released a set of May economic activity data and it was relatively weak for them. Even the retail sales gain of +12.7% from year ago levels needs to be seen in context of the very low year-ago base. Real estate investment fell -7.2% year-on-year. But electricity production rose +5.6%. While their jobless rate remained unchanged at 5.2%, their troubling youth jobless rate worsened, hitting 20.8% at the end of May, up from 20.4% in April. The weak data triggered another unexpected cut to a key interest rate tied to their property development sector. The People's Bank of China announced it is trimming the rate on ¥237 bln (NZ$53 bln) worth of one-year, medium-term lending facility loans to banks by -10 basis points to 2.65%.

Against this dour data and somewhat unexpectedly, Japanese exports edged higher in May. That may be because Japanese machinery orders rose in April, according to data released today.

In Europe, the ECB raised interest rates by another +25 bps at its overnight meeting. That takes its key policy rate to 4%, the highest level since the 2008 GFC. It was the eighth consecutive rate hike, even though the region entered recession at the beginning of 2023. Both the headline and core inflation rates remain significantly above the ECB's target of 2%. They also revised their inflation forecasts higher and lowered their growth projections. They signaled they would likely raise rates again in July.

In Australia, there was an unexpectedly large surge in employment in May, with more than +76,000 new jobs added. Analysts had expected a gain of only +15,000. Their jobless rate dipped to 3.6% (from 3.7%). +62,000 of those new jobs were full time, +14,000 were part-time. Analysts now think the RBA will raise rates again to rein in the expansion.

Meanwhile, migrants are pouring into Australia. Their 2022 population topped 26.2 mln, up a fast +½ mln in the year, or +1.9%. That's their fastest growth since 2008. +387,000 of them were migrants. 

Globally, container shipping freight rates fell a rather sharp -5% last week, continuing their long retreat and now at a faster pace. However, they are still +20% higher than pre-pandemic levels which themselves were unusually low. Bulk cargo rates are holding their recent minor recovery however.

The UST 10yr yield will start today at 3.73% and down -8 bps. Bond markets don't seem to be buying yesterday's Fed projections. 

Wall Street is up more than +1.4% on the S&P500 in Thursday trade. 

The price of gold will start today much recovered, up +US$16 at US$1960/oz.

Oil prices are up +US$2 today to now be just under US$71/bbl in the US. The international Brent price is now up at just under US$75.50/bbl.

The Kiwi dollar starts today unchanged at 62.3 USc and back to a three week high. Against the Aussie we are -¾c lower at 90.6 AUc. Against the euro we are lower as well at 56.9 euro cents and almost a -½c retreat. That means the TWI-5 is now down -20 bps to 69.8.

The bitcoin price is lower since this time yesterday at US$25,043 and down -3.3% from yesterday at this time. Volatility over the past 24 hours has been moderate at just on +/- 2.6%. Overnight, two small South Korean crypto platforms halted withdrawals in quick succession, another reminder of the outsized risks even small knocks can give to this wild-west sector.

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

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

Kia ora. I'm David Chaston. And we will do this again on Monday.

If you're looking for profit-led inflation you should probe consumer facing industries rather than look across the whole economy, says UBS chief economist Paul Donovan.

Speaking in the Of Interest podcast, the London-based Donovan says profit-led inflation, whereby companies are able to expand profit margins and convince customers it's fair to do so, is the third wave of inflation experienced in developed economies since the Covid-19 pandemic. It follows a demand shock as developed country economies reopened and consumers had a "stockpile of savings" they spent on durable goods such as furniture, electronics and cars, and an energy supply shock after Russia invaded Ukraine, energy prices surged and demand reduced.

"What it [profit-led inflation] has really done is prolong the inflation. If we had not had the war in Ukraine I don't think we'd have got the profit-led inflation because Ukraine has been an important part of the story that companies have told to convince people to accept higher prices. I think if we hadn't had the war in Ukraine we would be sitting here talking about falling prices today," Donovan says.

"Right now we're starting to see profit-led inflation be challenged in a number of countries. But I'd say that it has probably accounted for about half of the inflation that we've experienced over the last six-to-eight months."

Lobby group Business NZ issued a report itcommissioned from consultants this week on profit-led inflation, or "greedflation" as it put it, saying it was "an imported narrative not supported by the evidence." Looking at data from 14 industries over the three years to December 2022, the report said 71% of price increases came from input costs, 15% labour costs and 14% gross profit increases.

Donovan says three years is too long of a period to look at for profit-led inflation, and you wouldn't expect to see it across the economy as a whole.

"I think this is one of the problems with a lot of the analysis that we've seen on profit-led inflation. There is this assumption that every company is raising profit margins and that absolutely isn't the case, it's a subset of companies that raise margins. And so if you look at economy-wide data you're going to find less evidence of profit-led inflation," says Donovan.

"In the case of New Zealand, if you're going to get profit-led inflation coming through, you don't look at the entire economy, you look at the consumer facing sectors [such as retail, restaurants, clothing brands or food brands], and see what's happening with margins there. That's the critical story."

In the podcast he also talks about how to spot profit-led inflation, consumers' naive views about what causes inflation, why he doesn't like the greedflation term, why central bankers should talk more about profit-led inflation, why it took off in the wake of Covid-19, and the role of social media.

"Two things made profit-led inflation easier this time. Consumers did have more savings, sort of a windfall of savings during the pandemic. No one's going to describe the pandemic as a lottery win but it was a bit like that. You got a sudden influx of cash that you weren't expecting to have. So that meant that people perhaps became a little bit more indifferent to prices," says Donovan.

*Donovan published a report on profit-led inflation earlier this year which we covered here.
 *And you can find all episodes of the Of Interest podcast here.