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.

And today we lead with news markets are choppy after the Fed decision.

As widely expected, the US Fed did hold its policy rates unchanged at today's meeting. But it added the phrase "in determining the extent of additional policy firming that may be appropriate ..." signaling the more hikes are probable. They reinforced the importance of getting to their 2% inflation target. Their own median forecasts suggest two more rate hikes this year, adding another +50 bps in 2023. So it's more of a 'skip' than a 'pause'. This caused the US dollar to slip, equity markets to retreat, and bond yield to rise.

American May producer prices rose only +1.1% from year-ago levels, up +2.8% without food and energy. They fell -0.3% in May from April, following a +0.2% rise in April. Markets had expected only a -0.1% month-on-month drop. Goods prices went down -1.6%, the largest decrease since July 2022, mainly due to a -14% drop in petrol prices and a -1.3% fall in food prices. Prices for services rose +0.2% in May. All this paints a picture of rapidly receding inflation.

American mortgage applications rose rather sharply last week, up +7.2% from week-ago levels but are still substantially below year-ago levels. However, it was their first rise in five weeks. Mortgage rates declined for the second straight week, with the 30-year fixed rate decreasing to 6.77% plus points but that is more than +100 bps higher than a year ago. Industry sources are noticing more first home buyers in their housing market.

In Beijing, officials are worried about their faltering economy. A wide range of emergency support measures are now being considered by their State Council and decisions could come late this week or early next. On the agenda are more and deeper rate cuts, direct support for their struggling real estate sector, and tax incentives and credit support for the car market, especially electric vehicles. Tax breaks are also under consideration for high-end manufacturing companies. But it seems not under consideration is a redux of the large-scale infrastructure spending. That was considered wasteful and inefficient the last few times it was used, and put added pressure on local governments who are now a key part of the current weakness.

'Hidden debt' - that is debt owned by Local Government Financing Vehicles - and ultimately the liability of China's local government has now swelled to more than NZ$13 tln. (At the end of 2022 it was ¥59 tln or 33 times New Zealand's economic activity.)

The situation is certainly unnerving wealthy Chinese. China’s millionaires keep leaving, but now outflows may be ‘more damaging than usual’, a new report says. China isn't the only country where the rich are escaping. Russia, the UK, and India also feature. Where are they going to? Australia, UEA and Switzerland are the top three. New Zealand makes it into the top ten list.

In South Korea, their jobless rate fell to 2.5% in May, falling for the third consecutive month to a record low, indicating that the country’s labour market remains resilient despite weakish manufacturing activity, tighter financial conditions and slowing economic growth. Regionally, Japan has an unemployment rate of 2.6%, in China it is 5.2%, in Taiwan it is % and in Singapore it is 1.8%. New Zealand is 3.4%. It is hard to have a recession when just about everyone is employed.

Australia will release its labour market data later today and a minor +15,000 additional jobs are expected with their jobless rate staying at 3.7%.

In the EU, they did get their expected bounce-back in industrial production in April from March, but it wasn't quite as strong as they hoped and doesn't change the lackluster track.

The UST 10yr yield will start today at 3.81% and down -4 bps after yesterday's large +10 bps jump. Rates are on the move following the Fed 'hold' decision. 

The price of gold will start today little-changed, up just +US$2 at US$1944/oz.

But oil prices have slipped back today to now be just under US$69/bbl in the US. The international Brent price is now jdown -US$1 to just under US$73.50/bbl.

The Kiwi dollar starts today much firmer, up +¾c at 62.3 USc and a three week high. Against the Aussie we are +½c firmer at 91.3 AUc. Against the euro we are up as well at 57.4 euro cents and almost a +½c gain. That means the TWI-5 is now up +50 bps at over 70 which is now a three week high.

The bitcoin price is little-changed since this time yesterday at US$25,989 and up only +0.6% from yesterday at this time. Volatility over the past 24 hours has been low at just on +/- 0.5%.

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 inflation seems to be in retreat in all major economies.

The closely-watched American CPI inflation result for May got the benefit of falling petrol prices. The headline level came in +4.0% ahead of year-ago levels, which was marginally better than the expected 4.1% and much lower than the +4.7% level in April. From April it is only up +0.1%.

But excluding food and energy costs, American inflation was up +5.3%, so inflation clearly isn't beaten yet. Food prices rose. Still, even at this level it is their lowest since November 2021.

Faster-falling inflation levels, no matter which index you choose to watch, does support the idea that the Fed may choose to pause its current cycle of monetary tightening. That is what most analysts are picking. But +5.3% is still way above their policy target and still quite sticky, and an early signal that they have done enough might unleash a new burst of animal spirits that reignites inflation's embers. They certainly don't want that. It is no certainty they will pause on Thursday (NZT). Bond market signals aren't buying the 'pause' view.

Having said that, there certainly is no energy left in American retail sales growth. Revenge spending has ended. Apart from the pandemic period, same-store year-on-year growth last week is now at its lowest since the 2009 GFC period. And given inflation, in real terms it is shrinking rather fast. So perhaps a few more animal spirits are what is needed.

Lackluster conditions are not only in the US. China’s central bank unexpectedly cut its short-term policy interest rate, easing its monetary stance to help aid their economy’s faltering recovery. Overnight, China cut its reverse repo rate to 1.7% from 2.0% in another turn of the stimulus tap, and this was the first reduction in the rate since August 2022. The yuan fell. Benchmark bond yields fell. This sudden action comes just days after the central bank pleaded for patience. And their May new yuan loan levels bounced back weaker in May than expected after the dire April levels. Data out later this week is expected to point out growing economic weakness.

Going against the retreating trends, Japan is now reporting an upturn in business sentiment. It's not major, but it does break a cycle of retreats. Their stock market enthusiasm is leading the change in attitudes.

German economic sentiment also stopped falling in the latest ZEW survey.

German CPI inflation fell from +7.2% in April from a year ago to +6.1% in May on the same basis, and was down -0.1% between the two 2023 months, so they are also making headway in their inflation fight. Their core inflation rate is down to +5.4%

In Australia, consumer sentiment unexpectedly improved, according to the Westpac-Melbourne Institute Consumer Sentiment index. It was only a small improvement, but no change was expected.

Meanwhile NAB said their business sentiment survey was unexpectedly weaker in May. Business conditions continued to ease, they said, with notable declines across the trading, profitability, and employment. The fall in conditions now appears to be accelerating and it hasn't been positive since January.

Separately, it has been reported that residential dwelling vales rose by AU$140 bln to AU$9.9 tln in the March 2023 quarter. There are now just over 11 mln dwellings in Australia, now worth on average AU$896,000. That is a gain of +1% for the quarter.

And we should also note that ASIC has put accountants and lawyers on notice about the looming challenge of providing advice to companies about how to comply with complex disclosure rules on sustainable finance and climate risk. Getting that wrong will bring legal and reputation risks for their clients, and then for them.

The UST 10yr yield will start today at 3.85%, up +10 bps from yesterday. 

The price of gold will start today down -US$14 at US$1942/oz.

And oil prices have recovered +US$2 from yesterday to now be just over US$69.50/bbl in the US. The international Brent price is now just under US$74.50/bbl.

The Kiwi dollar starts today up +¼c at 61.5 USc. Against the Aussie we are +¼c firmer too from yesterday at 90.8 AUc. Against the euro we are little-changed at 57 euro cents. That means the TWI-5 is now up +20 bps at 69.5 which is actually a two week high.

The bitcoin price is virtually unchanged since this time yesterday at US$25,821. Volatility over the past 24 hours has remained modest at just on +/- 1.3%.

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.

Following the spate of extreme, damaging and costly weather events in the North Island this year we shouldn't let a big disaster go to waste, Tower Insurance CEO Blair Turnbull argues.

Speaking in the latest episode of the Of Interest podcast, Turnbull says the realisation from frequent and extreme weather such as the Auckland anniversary floods and Cyclone Gabrielle is that we are seeing climate change, and we need to understand it better and adapt.

"We're starting to rethink how to respond to some of these flood events. One thing's very clear, Mother Nature always wins. So we can't just sit there and try and pipe away this excess water, we have to think differently," Turnbull says.

Auckland Council's Making Space for Water programme to help manage floods is "quite innovative," he adds.

Turnbull says the spate of extreme weather events is changing the way reinsurers, who provide insurance for insurers, look at New Zealand, which will lead to further price rises.

"This has been a bit of a surprise to some of them [reinsurers]," Turnbull says.

Parametric insurance and risk based pricing are two ways Tower's responding to potentially higher reinsurance costs.

Parametric insurance is a type of insurance contract that insures a policyholder against the occurrence of a specific event by paying a set amount based on the magnitude of the event, as opposed to the magnitude of the losses in a traditional indemnity policy.

Turnbull says a parametric insurance pilot in Fiji has gone well, with Tower set to also start offering it in Samoa and Tonga and likely NZ to.

"We do think it [parametric insurance] has application for here in New Zealand in areas that could have higher propensity for flooding and cyclones and where traditional comprehensive insurance may become too expensive for some households and communities. We would like to explore the option for offering parametric cover," says Turnbull.

"We're talking to a couple of iwi groups, which is quite exciting and they're giving us feedback."

Tower's risk-based pricing, linked to the risks of individual homes, already includes earthquakes and floods, and is being extended to cover coastal inundation and slips. Turnbull says risk-based insurance for drivers, using telematics, could also follow.

Meanwhile, Turnbull suggests NZ is moving closer to having areas regarded as uninsurable by private sector insurers after the recent run of extreme weather events.

"I think we are [closer than a year ago] ... I think it's really important that as a country, as insurers, as communities, that we do acknowledge them [the weather events], [and] don't let that big disaster go to waste. It's time to adapt and get out of the way of where there are flood prone areas," Turnbull says.

In the podcast he talks about other issues, including Tower's recent interim financial results, how the insurer has responded to high inflation, the future for insurance, and the response to Cyclone Gabrielle and North Island flooding.

You can find all episodes of the Of Interest podcast here.

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 financial markets are on tenterhooks for the Thursday US Fed rate decision.

In the meantime, US consumer inflation expectations over the next year eased in May, down to 4.1% and the lowest since March 2021 more than two years ago. Expectations for inflation for longer term periods however rose slightly. The rises were minor, but represent an upturn from previous surveys. Labour market expectations were mixed with expected earnings growth declining, but unemployment expectations and perceived job loss risk improving.

This expectation data comes ahead of tonight's May CPI data for the US, and analysts also see it coming in at 4.1% which would be a good drop from 4.9% in April.

And markets are expecting the Fed to pause its rate hike track when they deliver their latest decisions on Thursday, thinking they have inflation coming down quickly now and have done enough to keep that retreat locked in.

The US Government released its monthly Budget statement for May, and this came in almost exactly as expected. But it is on track for a slightly larger deficit this year than last, this year about -8% of GDP.

In China, there are more indications of their demographic malaise. The number of marriages registered last year fell for the ninth consecutive year to the lowest since 1986, when the figure started to be recorded. Only 6.8 million couples registered marriages in 2022, down -10.5% from the previous year and more than -49% lower than the peak of 13.5 million in 2013.

Japan's producer prices fell in May from April, only the third such drop in the past two years, and the steepest monthly drop (-0.7%) since 2016 (pandemic excluded).

Japanese machine tool orders weren't flash in May, unfortunately, down -22% from the same month a year ago. Orders from both local and export sources were equally weak.

The Bank of Japan also updates its monetary policy this week, on Friday.

India's CPI inflation rate rose slower, and by 4.25% in May from 4.7% in the previous month, the lowest in two years and lower than market forecasts of 4.4%. Food prices eased the most, with most key categories falling rather sharply.

April industrial production in India came in +4.2% above year-ago levels but it was quite a fall-off from the strong March levels.

The UST 10yr yield will start today at 3.75%, up +3 bps from yesterday. 

The price of gold will start today down -US$5 at US$1956/oz.

And oil prices have fallen -US$3 from yesterday to now be just under US$67.50/bbl in the US. The international Brent price is now just under US$72/bbl.

The Kiwi dollar starts today still little-changed at 61.2 USc. Against the Aussie we are almost -½c lower from yesterday at 90.6 AUc. Against the euro we are softer but less so at 56.9 euro cents. That means the TWI-5 is now at 69.3 and little-changed.

The bitcoin price is again a little lower since this time yesterday at US$25,807, down -0.7%. Volatility over the past 24 hours has remained modest at just on +/- 1.1%.

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 upbeat economic signals are harder to find.

But first, let's take a look at what economic signals we can expect in the next few days.

It will be a busy week in the US, with the Fed interest rate decision on Thursday (NZT) and no change is expected by financial market pricing, and their CPI inflation rate comes on Wednesday (NZT). The week will also feature data on retail sales, and the University of Michigan consumer sentiment reading.

Elsewhere we will be following the ECB and Bank of Japan monetary policy decisions.

And China will be releasing industrial production, retail sales, and fixed asset investment data, while India will announce its inflation rate and industrial production figures. From Australia we will get consumer and business confidence and their May labour market data this week, also on Thursday.

Of course, locally our current account position for March will come out on Wednesday, along with our Q1-2023 GDP result. Financial markets expect a tiny contraction to come after the Q4-2023 contraction, so the headlines will scream 'technical recession'. Bank analysts aren't coming down on the side of contraction however. Not so technical will be the REINZ data for May which we should get this week. It is unlikely to uncover any green shoots.

Over the weekend, and as we have noted elsewhere, we got confirmation China has no consumer inflation. Their official data for May reported their annual inflation rate edged up to +0.2% in May 2023 from April's 26-month low of +0.1%, but less than market estimates of +0.3%. Between April and May, prices slipped slightly. None of this paints a picture of substantial demand. Milk, beef and sheep meat prices all fell faster than the overall level.

However, China does have deflation in its industrial sector. Producer prices fell -4.6% year-on-year in May, faster than a -3.6% drop in April and worse than market forecasts of a -4.3% drop. It was the eighth straight month of producer deflation and the steepest fall since February 2016. It comes amid weakening demand and moderating commodity prices.

China is losing investor favour faster now too and in a wider set of sectors. Foreign investors pulled a net -US$7.2 bln worth of funds from Chinese bonds in May, according to the Institute of International Finance Capital Flow Tracker. That marked the fifth consecutive month of outflows. In April, a total of -US$10 billion was withdrawn from Chinese debt. But Chinese equities posted +US$126 mln worth of inflows from overseas funds in May, compared with April’s outflow of -US$808 mln. This was minor and there is still a considerable fund-outflow pressure in China’s capital markets, particularly in bonds, over the past few months, amid a weaker yuan. The Chinese currency has lost -3% against the US dollar since the start of the year.

Beijing officials are clearly worried but not unnerved yet. Their central bank governor appealed for confidence and patience after the weak price data triggered concerns over deflation that is hampering their post-pandemic recovery.

In the US, concerns about the health of more regional banks is returning, especially over the valuation of their loans for commercial real estate.

In Canada, their jobless rate rose to 5.2% in May from 5% for the five previous months. It is the first increase in their unemployment rate in nine months. Their labour market is clearly cooling. -17,300 jobs were lost, largely by younger workers, the first decline in nine months, and this was a big surprise because analysts had expected a rise of +23,200.

Good rains in the US mean that they will have a substantial surplus this year in their wheat crop, with output rising to over 800 mln tonnes. But Russia, India, the EU and Ukraine are also all expected to have bumper wheat harvests. American corn and soybean exports are expected to be smaller however. All this comes from the latest USDA WASDE June update. They signaled no significant changes in beef and milk production or prices.

In Australia, more economists are now warning growth is evaporating there and the chances of a recession in the lucky country are now 50:50 in Q3 and Q4-2023. The latest to come to this view are CBA and HSBC. It didn't help that business turnover fell in April in Australia, and kind of sharply.

We should also note that it is a public holiday in much of Australia today (although not Queensland or WA).

The UST 10yr yield will start today at 3.74%, unchanged from Saturday but up +5 bps from a week ago. 

The price of gold will start today unchanged at US$1961/oz. But that is up +US$10/oz from a week ago.

And oil prices have stabilised from Saturday at just under US$70.50/bbl in the US. The international Brent price is still just under US$75/bbl.

The Kiwi dollar starts today little-changed at 61.3 USc. Against the Aussie we are little-changed from Saturday at 91 AUc. Against the euro we are marginally firmer at 57.1 euro cents. That means the TWI-5 is still at 69.4 and little-changed.

The bitcoin price is a little lower since this time Saturday at US$25,987, down -1.7%. Volatility over the past 24 hours has been modest at just on +/- 1.1%.

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 the global economic impulse seems to be weakening further.

US jobless claims rose last week to +219,000. When seasonal factors are added, this rise was significant. Seasonally, there should have been a decrease. Perhaps we are now getting the American labour market reaction to the slowing economy other data has been pointing to. The bond market is wondering and benchmark rates fell on the data. But there are still only 1.6 mln people on these benefits which is little-changed in a week.

One place the effects of an economic slowdown might show up is in inventory holdings. And while they have been rising on an inventory:sales ratio basis for more than a year, it has been off an unusually low base - and inventories actually fell in the April data released earlier today from March. So no confirmation of a slowdown there.

Japan reported a strongish +0.7% GDP advance in Q1-2023 over Q4-2022. But that only leaves them +1.3% ahead of year-ago levels. However the more recent bursts higher is a good sign for them. And their current account surplus in Q1-2023 has been impressively high as well.

The recent round of deposit interest rate cuts by state-owned Chinese banks is being seen as a harbinger for an official rate cut by the Chinese central bank later this month. They need to do more to try and get some economic momentum back into their economy, especially their factory sector.

The EU economy unexpectedly shrank -0.1% in Q1-2023 from the prior quarter. The expectation was that it would rise +0.1%. Data for the final quarter of 2022 were also revised to show a -0.1% fall, instead of a flat reading, which means the eurozone has now entered a small technical recession. A decrease in household expenditures led the retreat.

When New Zealand trade negotiators deal with the EU, we end up having to take what they will give, which hasn't been much. That is because we don't have anything they really need. It is not the case with Australia however. The Aussies are warning Europe that it risks losing access to critical minerals unless it sweetens a free trade deal for Australian farmers. Hopefully our MFN clauses will allow us to benefit if the Australians win that one.

In April, the Australian trade surplus was huge again, but less than expected. Goods exports shrank -7.0% from March but were down a lesser -3.2% from the same month a year ago. Rural exports were the hardest hit in April. Services exports (largely travel and education) are however recovering very rapidly. And imports rose +1.2%.

We should note that coal prices have fallen dramatically in 2023. From the start of the year, they are down by two thirds but that is only back to levels we last had in July 2021. Analysts see large falls ahead, still to come.

Global container shipping freight rates were stable last week, unusual because this is the first week in the past 82 that they haven't fallen.

The UST 10yr yield will start today at 3.72% and down -7 bps from yesterday. 

The price of gold will start today at US$1963/oz and recovering +US$19 from yesterday.

And oil prices have fallen -US$1.50 today from yesterday at just on US$71.50/bbl in the US. The international Brent price is now just over US$76/bbl.

The Kiwi dollar starts today +½c higher at 61 USc. Against the Aussie we are unchanged at 90.8 AUc. Against the euro we are firmish at 56.6 euro cents. That means the TWI-5 is up to 69.1 with a +30 bps rise and off its six month low.

The bitcoin price is virtually unchanged since this time yesterday at US$26,487. Volatility over the past 24 hours has been modest at just on +/- 1.3%.

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 central banks seem to have called time on their brief interest rate pause signals.

Just like the RBA on Tuesday, the Bank of Canada did the unexpected and hiked their policy interest rate by +25 bps to 4.75%, saying their monetary policy was not sufficiently tight enough yet "to bring supply and demand back into balance" and return inflation sustainably to their 2% target. Essentially they admitted their earlier guidance that they had done enough was wrong.

Growing global concerns that inflation is stickier than expected strengthened expectations that the US Fed will also deliver another rate hike when they next meet a week from today. Currently financial markets price a 2:1 chance that the US central bank will deliver at least one +25 bps rate hike at that meeting or the next. Investors now await the key US inflation data due Wednesday next week, with a hot reading set to solidify another Fed hike after the latest payrolls report showed that the US added a remarkable +339,000 jobs in May.

It is not only Canadian interest rates that are affecting Americans. Bad air quality drifting down from Canadian wildfires is blanketing the eastern states and airports are having to close. China isn't the only place with bad air at present.

US consumer credit levels rose a bit more than expected in April, but at about the same pace as in March, with the gains equally split between revolving (like credit cards) and nonrevolving (car loans etc.). There are no stress signals in this data.

Separately, there is still no light at the end of the tunnel that is the American residential housing market. Mortgage applications fell yet again even as interest rates slipped back last week, with their 30 year fixed for at 6.81% plus points.

US exports fell -3.6% in April and imports rose +1.5%. Their trade deficit in goods and services came in at -US$74 bln for the month, less than expected and that was far below the -US$105 bln in the same month a year ago. Their imports from China have fallen a long way and China's share of American imports has fallen to its lowest in seventeen years.

Across the Pacific, China's exports grew +8.5% in April from a year ago. But they slipped back -7.5% in May on the same basis. Imports fell -4.5%. As a result China's trade surplus shrank sharply.

Taiwanese exports fell sharply on a year-on-year basis, down more than -14%. But they did rise in May from April, suggesting the steep pressure is easing.

German industrial production rose in April in real terms but that was mainly because construction was up. Otherwise industrial production volumes are meandering along as they have for years with little change. They seem unable to get back to the strong expansion they had in the four years prior to the pandemic. But they aren't going backwards either.

And we should note that the Turkish currency, already depreciating fast, has sunk dramatically further in the past few days.

The Aussies released their Q1-2023 GDP data today and it wasn't too special. They expanded +0.2% in Q1-2023 from Q4-2022, below market forecasts of a +0.3% increase, and after an upwardly revised +0.6% rise in Q4-2022. This was the sixth consecutive period of economic growth but the softest pace in the sequence, as household consumption rose the least in six quarters due to persistent cost pressures and elevated interest rates. As the RBA feared, productivity slumped. The household savings ratio fell to 3.7%, the lowest since Q2-2008, from the prior 4.5%. Year-on-year, Q4-2023 was +2.3% higher. New Zealand's GDP result which will be released next week on June 15, 2023.

We should probably note that Australia's new 4.10% official policy interest rate is being talked about as a level that will trigger a wave of house selling as distressed borrowers find their mortgage payments too much to cope with. Remember, most Aussies are on floating rate mortgages so these increases hit almost immediately. The RBA has pushed through an extra +4% from May 2022 with relentless rises up from +0.1%. And they are probably not done yet.

The UST 10yr yield will start today at 3.79% and up a sharpish +9 bps from yesterday. 

The price of gold will start today at US$1944/oz and down -US$21 from yesterday.

And oil prices have risen +US$1 today from yesterday at just under US$73/bbl in the US. The international Brent price is now just over US$77/bbl.

The Kiwi dollar starts today -¼c lower at 60.4 USc. We seem to be matching the weakness of the Chinese yuan. Against the Aussie we are lower too, down at 90.8 AUc and near a four month low. Against the euro we are lower at 56.4 euro cents. That means the TWI-5 is down another -30 bps at 68.8 from where we left it yesterday, and that's a six month low.

The bitcoin price is little-changed at US$26,505 and down a mere -0.7% from this time yesterday. However, volatility over the past 24 hours has been moderate at just on +/- 2.1%.

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 the 'surprise' rise in the official Australian interest rate benchmark comes as the Chinese yuan weakens sharply past 4.1 to the USD. A weaker Chinese economy and higher regional interest rates will cause inevitable ripples in New Zealand.

But first today, there was another dairy auction this morning and another weakish one. For a second consecutive time, prices fell -0.9% in USD terms, but this time that was more than made up by a weakening NZD. In local currency, prices rose +1.7%. The main weakness was the WMP price, down -3.0% from the last event three weeks ago, and a reflection of weak Chinese demand. At the other end of the scale, cheddar cheese rose +7.4%. Today's overall fall just adds to the downward direction we have had almost continuously for the last 15 months now. And it justifies the conservative, falling farm gate payout price indications from both Fonterra and the wider analyst community.

The American retail impulse continues to weaken, up a meager +0.6% last week from the same week a year ago on a same store basis, far less than is needed just to keep up with inflation. (This isn't measuring all retail sales of course, only those in traditional store premises.)

The US Logistics Manager's Index has reached a new all-time low and for the first time in its 6.5-year history it has moved into contraction territory. This is the third consecutive month of record lows.

Canada reported grim residential building consent data overnight, sharply lower in April than March. And their widely-watched local PMI wasn't too flash either, falling to a modest expansion when a rise to a good expansion was anticipated.

In China, most large state-owned banks are now sharply cutting deposit rates for customers. Not only is loan demand anaemic, but Beijing is concerned about very high savings rates as households worry about their future prospects. Lower savings rates may induce some to spend rather than save. The Chinese financial institutions’ deposit-loan gap grew to a staggering US$6.8 tln at the end of April.

In Europe, the destruction of the giant Ukrainian dam on the Dnipro River is causing widespread havoc downstream. It is likely to cause wheat prices to rise globally too as a key part of that trade is now shut down.

In a surprise to analysts, the RBA raised its cash rate target by +25 bps yesterday to 4.10%. It was their 12th rate rise in a row. It was a surprise because it was different to what those analysts had interpreted the RBA guidance, not from what many thought they should do. With strong labour markets, the RBA's focus is now clearly on the inflationary threats from rising labour costs and inflation expectations.

Globally, the World Bank says the world economy is expected to grow by +2.1% in 2023, up from a +1.7% expansion they projected in January. This is due to greater-than-expected resilience in major economies, including the US they said. However, the 2023 expansion will be much less than the 2022 +3.1% global expansion, and at the new +2.1% it is still weak.

The UST 10yr yield will start today at 3.70% and little-changed from yesterday. 

The price of gold will start today at US$1965/oz and up +US$4 from yesterday.

And oil prices have slipped -50 USc today from yesterday at just under US$72/bbl in the US. The international Brent price is now just over US$76/bbl. The Saudi-announced production cuts have had little impact to date.

The Kiwi dollar starts today little-changed at 60.7 USc. Against the Aussie we are sharply lower, down -¾c at 91 AUc. Against the euro we are little-changed at 56.8 euro cents. That means the TWI-5 is down another -20 bps at 69.1 from where we left it yesterday.

The bitcoin price has bounced back a bit today, recovering some of yesterday's large SEC-Binance induced fall. It is now at US$26,699 which is a partial recovery of +3.6% from this time yesterday. Volatility over the past 24 hours has been moderate at just on +/- 2.7%.

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 the global service sector is expanding faster and keeping the long-awaited economic retreat at bay.

First in the US, there were two PMIs out for their services sector. The widely-watched ISM one retreated from a modest expansion to a minor expansion in May. This wasn't expected because a faster expansion was anticipated. (However new order growth was notably strong.) The internationally benchmarked Markit one rose to a moderate expansion, but not by as much as was anticipated. (New order growth as a feature of this one too.) Markets took their cues from the ISM one.

But there was little growth in US factory orders in April. They did grow from March but it was modest, but from a year ago, they fell -1.1%. Given inflation in that period, that is a substantial retreat.

And this is reflected in American May vehicle sales which were a bit of a disappointment. They ran at about a +15.0 mln annual rate and well down on the +16.1 mln annual rate in April. 

Over the weekend, not only did the US Congress approve the debt-limit compromise and their President sign it, their labour market showed much more strength than expected in May. At a headline level, the US economy created +339,000 jobs in May, compared to market expectations of +190,000 and following an upwardly revised +294,000 in April. Job gains occurred across the board in professional and business services, government, health care, construction, transportation and warehousing, and social assistance.

Across the Pacific, China's services PMI expanded at a good pace in May, according to the Caixin survey, and faster than the official version.

Japan's service sector is expanding even faster now and at a record pace since this survey began in 2008

India's service sector is expanding faster as well. There has been a slower, but historically strong, expansion in new business in May. But this survey reveals inflation is now at its joint-highest since July 2017.

In Australia, consumer inflation expectations rose to 5.0% in May from 4.6% in April, reinforcing the view that inflation is far from beaten there.

And staying in Australia, home loan approvals fell a surprise -2.9% in April, when a solid +2% rise was expected. This follows a strong +5.3% gain in March. Some analysts blamed the timing of Easter, but that was hardly unexpected. More likely it is an overall reflection of the state of the new house building market. The supply of new homes is set to continue to decline under the weight of rising interest rates designed to rein in inflation. They have a lot of work to do on that front.

Meanwhile, their official pay review body raised pay rates for their lowest paid workers by +8.65% and workers under their Award system will get +5.75% effective July 1, 2023. It will apply to about a fifth of the Australian workforce. Data out Monday shows wages and salaries rose at a fast +11.4% year-on-year. That probably means the RBA will raise rates again soon. Inflation was running at 6.8% in April.

And the record-breaking grain production in Australia is now expected to come to an end as favourable weather conditions fade. In fact, the volume reductions will be quite sharp and may affect global food prices.

The UST 10yr yield will start today at 3.69% and little-changed from Saturday. 

The price of gold will start today at US$1961/oz and up +US$10 from Saturday.

And oil prices are up +US$1 today from Saturday at just on US$72.50/bbl in the US. The international Brent price is now just on US$77/bbl. The Saudi announcement that they will be cutting supply for longer to try and raise the price has had only minimal impact. Cheap Russian oil flooding many markets undermines them.

The Kiwi dollar starts today little-changed at 60.8 USc. Against the Aussie we are still at 91.8 AUc. Against the euro we are little-changed at 56.7 euro cents. That means the TWI-5 is down -20 bps at 69.3 from where we left it Saturday.

The bitcoin price is sharply lower today at US$25,759 which is a full -5.0% from this time yesterday. Volatility over the past 24 hours has been high at just on +/- 3.8%. The US Securities & Exchange Commission has filed charges against Binance, accusing it of a 'giant web of deception'.

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 markets want to move on from the US debt-ceiling debate but there are details to deal with.

In Washington DC, the House of Representative has approved the Biden-McCarthy debt deal compromise. It is unlikely to fail in a Senate vote soon. The Biden Budget is largely intact in the end. All eyes will now turn to the bond markets as the US Treasury races to raise the necessary funds to avoid default. They will come at a higher cost than it these theatrics hadn't played out.

US-based employers announced 80,089 cuts in May, a +20% increase from the 66,995 cuts announced one month prior. This tally is rising; so far this year, companies have announced plans to cut 417,500 jobs, a 315% increase from the 100,694 cuts announced in the same period last year. But these layoffs are tiny compared to both their overall labour force, and even the expansion of those employed.

The pre-cursor ADP jobs report came in way stronger than expected, reporting private payrolls expanded +278,000 in May when +170,000 was expected. But they did report pay growth was slowing. Markets are still expecting tomorrow's non-farm payrolls report to deliver +190,000 extra jobs for May.

American initial jobless claims totaled 208,000 last week, little-changed from the prior week and really no evidence their labour market is tightening. There are still just 1.6 mln people on these benefits.

However on the factory floor, things are tightening. There were two factory PMIs out overnight and both reported a contraction in activity. New orders are slowing and this weaker demand is dragging on performance. The widely-watched ISM Manufacturing PMI retreated further as expected to a seventh consecutive month of contraction. However, production rose, employment rose and at a faster pace, and price pressures eased. The internationally benchmarked Markit PMI for the US reported similar conditions.

In China and in a bit of a surprise, the private Caixin factory PMI actually expanded in May, in contrast to the official version which said the sector contracted further. No analyst picked the Caixin PMI reversal. Certainly, the Beijing stats masters aren't gilding anything this month.

Belt & Road project bad debts are piling up. New analysis shows Chinese overseas loans went sour at a far worse rate in recent years as the pandemic and inflation took a toll on the economies involved in Beijing's signature infrastructure initiative. Almost US$77 bln in debt was renegotiated or written off from 2020 to 2022. This figure is more than four times the US$17 bln in problem debt for the preceding three years. These write-offs and write-downs however tie these countries even tighter to China.

Debt levels are a key focus at home too, especially those owed by local governments. A leading Chinese economist says China could be courting disaster if it permits local governments to default on their debts as part of a strategy to encourage greater fiscal discipline.

In Europe, consumer inflation retreated somewhat although it remains high. It fell to 6.1% in May, down from 7.0% in the previous month and below market expectations of 6.3%. A year ago, it was 8.1%. Core inflation is now significantly lower, only 5.3% in May.

In Australia, house price rises are gaining momentum. They rose +1.2% in May from April, and annualised rise exceeding +14%. In Sydney that annualised rate is nearer +20%, the city’s highest monthly gain since September 2021.

Global container freight rates slipped yet again last week. Bulk cargo rates fell too.

However, global air passenger travel is in a strong recovery mode, now back to 90% of pre-pandemic levels. But international travel is lagging that.

The UST 10yr yield will start today at 3.61% and down another -2 bps. 

The price of gold will start today at US$1977/oz and up +US$10 from yesterday.

And oil prices are up +US$2 today from yesterday at just under US$70.50/bbl in the US. The international Brent price is now just over US$74.50/bbl.

The Kiwi dollar starts today +½c firmer at 60.7 USc. Against the Aussie we are -½c softer 92.2 AUc. Against the euro we are unchanged at 56.4 euro cents. That means the TWI-5 is up +10 bps at 69.2.

The bitcoin price is marginally lower today at US$26,971 which is down a mere -0.3% from this time yesterday. Volatility over the past 24 hours has been modest at just on +/- 1.3%.

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.

Remember, Monday is a public holiday in New Zealand.

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