Kia ora,

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

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

Today we lead with news 'growth' is to be sacrificed to get the inflation genie back in the bottle, and the resulting pain accepted as the cost of doing so.

First, softer consumer spending and higher inventories put the US Q1 GDP further into 'negative territory' in their final revision on economic activity in the March quarter. Although these latest revisions were minor, they did feed into recession jitters in financial markets.

But American mortgage applications rose slightly last week while their benchmark 30 year fixed mortgage rate fell. That juiced up refinancing activity.

Meanwhile, speaking at an ECB meeting, the US Fed boss reiterated the US central bank's commitment to do-whatever-it-takes to control high inflation includes risking a recession. He said the bigger risk is to fail to restore price stability. Powell said there is a risk the US economy will slow more than they want to see but painful shocks may be a price that has to be paid. He also confirmed the Fed will raising rates fast and aims to move into restrictive territory fairly quickly. Either another +75 bps or +50 bps increase is expected at their July 28 meeting.

More positively, Japanese retail activity is rising, and by more than was expected. It rose by +3.6% in May from the same month a year ago, and the April data was revised up to +3.1%. This is now the third straight month of increase in retail trade and the steepest pace since May 2021, boosted by some somewhat surprising strength in consumption.

In China, their central bank said it is preparing a new round of "vigorous" monetary stimulus to support their flagging economy. At least they don't have material inflation.

Singapore reported its May PPI rise and it was worryingly high, up more than +31% from a year ago as energy cost rises punished them. But, the month-on-month rise was running at a slower rate.

Germany reported its June inflation rate and unexpectedly it came in less than the 8% forecast, in fact at 7.6%. On an EU harmonised basis it is running at 8.2% which is lower than the 8.8% expected and the 8.7% in May. The month-on-month change was very little (+0.1%) so maybe they have topped out.

In Australia, retail sales rose by +0.9% month-on-month in May to AU$34.2 bln, topping market forecasts and matching the April gain. This was also their fifth straight month of growth, as the Aussie economy recovered further from pandemic disruptions. The rise from a year ago exceeded +10%, handily beating inflation. Department stores had the largest month-on-month rise, up +5.1%, followed by cafes and restaurants. Given Australian consumer sentiment is low, this free-spending is a puzzle - not too dissimilar to the same track in the US. Makes you suspect "sentiment" is now hijacked as political, whereas the spending track tells the real economic story.

Meanwhile, Australian energy is getting a 'green' push from their regulator. They say Australia must accelerate a move away from coal to renewables and storage and urgently approve more than AU$12 bln of transmission projects to escape the ­energy crisis.

The UST 10yr yield starts today -10 bps lower from this time yesterday at 3.10%. 

The price of gold is at US$1818/oz in New York and down -US$3 from this time yesterday.

And oil prices are -50 USc/bbl softer at just under US$110/bbl in the US, while the international Brent price is unchanged at just over US$113.50/bbl. High petrol prices in the US "driving season" (summer holiday season) is causing more families to stay at home this year, revealed by low volume demand for petrol.

The Kiwi dollar will open today lower at 62.2 USc. Against the Australian dollar we are little-changed at 90.4 AUc. Against the euro we are marginally firmer at 59.6 euro cents. That means our TWI-5 starts today at just on 70.4 and down fractionally.

The bitcoin price has moved a little lower since this time yesterday and is now at US$20,011 and down -2.8%. Volatility over the past 24 hours has been modest at +/- 1.9%.

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

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

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