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 that hotter-than-expected American jobs data raises the likelihood of higher interest rates for longer.

But first, US jobless claims rose sharply and by +251,000 last week to leave 1.74 mln people on these benefits, the highest it has been since February.

However American job cuts levels shrank sharply as tech layoffs eased.

And the ADP employment report, the pre-cursor to tomorrow's US non-farm payrolls report on their June labour market, came in with a surprisingly strong jobs surge. It was enough to move financial markets sharply. They reported almost +500,000 new jobs added in June. The gains were widespread in both the factory and services sector, noticeably in SMEs (but not in large firms), and nationwide (except in the South). Pay rates rose again, but just not as fast as previously but for those changing jobs they were still up an impressive +11%.

Analysts are still only pencilling in a non-farm payroll rise of +225,000 for June so there is plenty of upside potential here if the ADP data is any indication.

We should probably also note that the May JOLTS report said job openings retreated in the month to 9.8 mln. But we have moved a long way on from then.

Also unexpectedly more positive was the wide-watched ISM services PMI. It unexpectedly jumped to an index level of 53.9 in June, pointing to the strongest growth in the services sector in four months, and well above 50.3 in May and forecasts of 51.

Not so positive were American mortgage application levels last week. They fell rather sharply ending a string of four weeks of gains. Perhaps that was because their benchmark fixed 30 year interest rate rose to 6.81% plus points. They are now back at levels approaching the recent November highs.

Moving north, Canada posted a surprise goods trade deficit in May as imports surged but exports went in the opposite direction.

Across the Pacific, Australia recorded another large trade surplus for both goods and services in May, +AU$10.4 bln and a level that is being normalised for them. Over the past 12 months that surplus is now just under +AU$150 bln. That's equivalent to 5.9% of their AU$2.5 tln nominal GDP.

In China, their heat wave is burning in substantial damage, especially in northern China. They have had the highest number of scorching days on record in the first half of this year. Cities like Beijing saw temperatures soaring above 41oC, threatening lives and crops. Beijing reported 15 days in June when the average temperature exceeded 35oC. This makes last month the hottest June on record. In the southwest of China, the story is different with damaging seasonal flooding.

In Germany, we should note that factory orders there turned up sharply in June; some calling it a boom. It certainly is an impressive turnaround for them after some lackluster months.

Global air travel is booming again. Strong growth continued in May as airline load factors rose back to 2019 levels. But Asia/Pacific volumes are still dragging the chain even though the May yar-on-year data was encouraging.

Meanwhile, container shipping rates fell yet again last week although some outbound China rates seem to have bottomed out. Bulk cargo rates fell as well, basically giving up all of their recent gains.

The UST 10yr yield will start today at 4.05% and up another sharp +11 bps from yesterday. That is its highest since early March and approaching its November highs.

The price of gold will start today at US$1910/oz and down -US$9 from yesterday to a four month low.

But oil prices are down -50 USc at just over US$71.50/bbl in the US. The international Brent price is firmer too at just under US$76.50/bbl.

The Kiwi dollar starts today just over 61.5 USc and down nearly -½c from this time yesterday. Against the Aussie we are firm at 92.9 AUc. Against the euro we are nearly -½c lower at 56.6 euro cents. That means the TWI-5 is now just under 70.2, and down -30 bps on the day.

The bitcoin price has fallen marginally from this time yesterday and now is at US$30,268 which is a -0.8% fall. Volatility over the past 24 hours has been moderate at just under +/- 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 on Monday.