Kia ora,

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

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

Today we lead with news there are meetings underway by two powerful economic groupings today - the G7 and the BRICS countries.

The G7 has about twice the economic activity of the BRICS countries, and the BRICS are in a bit of a rut at present, which is unusual for them. The BRICS are meeting 'virtually' and India seems to be a weak link, also meeting on the sidelines with the G7. It is noticeable that the G7 is active while the BRICS are defensive.

The G7 are about to roll out an extended set of sanctions on the invading Russians, including around gold transfers, insurance, and the oil price. A number of BRICS members (like China) could be boxed in by these moves. The G7 leaders morph into NATO leaders in a few days later.

The annual inflation rate in Japan was at +2.5% in May, unchanged from April's 7½-year high but in line with market expectations. This was also their 9th straight month of rising consumer prices, with food inflation hitting its highest in over 7 years, now topping +4%. The Bank of Japan has shown no signs of changing course from its ultra-easy money policies designed to raise inflation, but some sort of change must be getting closer.

Meanwhile, very hot temperatures are causing concern over how to keep the electricity system from suffering blackouts, especially in the Tokyo area.

In China, the sluggish economy is really putting the squeeze on job seekers. Their jobless rate for 16-24 year olds is now more than 18%, far above the high general jobless rate of almost 6%, which is also rising. (The equivalent NZ levels are 10.2% and 3.2%; for the US they are 10.4% and 3.6%.)

Keep an eye on flooding in the vast southern Pearl River system. It has been worse than prior years and isn't over yet. Officials are calling the situation 'grim', but things do seem to have eased somewhat over the past day or so. But new flood warnings are now in place for the northern Yellow River system, also likely to be serious. And in other parts of the country, including around Shanghai, excessive heat seems to be a big issue too.

Singaporean industrial production took off in May, rising much faster than anyone expected, especially after the dour prospects that were reported in April. The May recovery was broad-based.

Separately, the early PMI readings for the US are out, and they suggest that factory activity is slowing now, although still expanding modestly. The same is true of their services sector, although that expansion is a little stronger. But not so hot is that new order levels are now lower than previously, the first contraction in new orders since July 2020.

In its latest updated review, the US Fed released the results of its annual bank stress tests, which showed that banks continue to have strong capital levels, enough in the regulator's judgment to allow them to continue lending to households and businesses even in a severe recession.

Sales of new American single-family houses in May were at an annual rate of 696,000. This is almost +11% above the revised April level and comes after a string of slowing months. Still, this latest level is still almost -6% lower than for May 2021.

Meanwhile, American petrol prices seemed to have topped out and are now off their peak. They are currently at US$3.80/gallon in their futures market, a far cry from the US$5/gal that the AAA reported recently. Even that AAA price is lower, although not by a lot. But the November 2022 futures pricing is down at just above US$3/gal. The December futures pricing is now below US$3. If those signals play out as in-money market traders suggest, American CPI inflation could retrace quite quickly.

The widely-watched Economist Liveability Index has dumped Auckland and Wellington from near the top of their rankings. Cities in New Zealand and Australia are listed among the biggest fallers in these rankings, including Wellington and Auckland, which tumbled by -46 and -33 places respectively. 

Container shipping rates fell -3% last week alone for trans-pacific cargoes out of China. This is their biggest fall since when they came off their peak in September last year. Interestingly, rates from the US back to China are actually rising, against the trend. American imports seem to be shifting away from China, to a variety of ASEAN countries, especially Vietnam, and US exports are picking up.

The UST 10yr yield starts today up +1 bp from this time Saturday at 3.14%. 

The price of gold was at US$1826/oz in New York and down -US$5 at the end of last week. The gold price may open this week with some turbulence as markets absorb the G7 sanctions on Russian gold trading.

And oil prices are -50 USc/bbl lower from this time Saturday at just over US$106/bbl in the US, while the international Brent price is now just under US$109/bbl.

The Kiwi dollar will open today at just over 63.1 USc. Against the Australian dollar we are a tad softer at just under 91 AUc. Against the euro we are little-changed at 59.9 euro cents. That all means our TWI-5 starts today at just on 71.1.

The bitcoin price has moved up from this time Saturday and is now at US$21,212, up +1.3%. Volatility over the past 24 hours has been high at +/- 3.8%.

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

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

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