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 food price signals belie talk of impending trouble.

But first, US mortgage applications were virtually unchanged last week (+0.8%) from the week before, taking them to -13% lower than the same week a year ago. But at least it was a third week of rises, even if small. Mortgage interest rates edged lower last week.

But new home sales in the US sank -11.3% in May from April, to be -16% lower than the same month a year ago as high prices and those still-high mortgage rates continued to weigh on buyers' decisions. It is the lowest reading in six months and well below what was expected. Still the April data was revised sharply higher.

Slightly elevated bidding (+2.5%) for the US Treasury 5 year Note pushed the median yield down to 4.27%, compared to the 4.48% at the equivalent event a month ago.

In Japan, the current focus is on the yen's falling exchange rate, especially to the USD. But while policymakers there say they are watching with concern, interventions so far have been modest and ineffective.

In India, their currency is unusually stable and not something we have seen for more than 15 years.

In China, the Beijing officials controlling the yuan have allowed it to sink a bit faster recently and it is almost back to its modern 'most weakest' levels of mid-2023.

In Australia, their monthly inflation indicator for May edged up to 4% from 3.6% in April, boosting the chance of another RBA rate rise as underlying price pressures clearly remain entrenched. Australian government bond yields leapt almost +20 bps on the news, and to their highest in 2024. The AUD rose +50 bps. The ASX200 tumbled sharply. Markets may have reacted sharply and pulled back somewhat later but economists had a much more measured view preferring to see the relatively small month-on-month change as 'not much'. Meanwhile, an RBA boss said their policy positions are on the right track and will get inflation under control.

We should perhaps note that prices for some of the world's key agricultural commodities are struggling, mainly because good growing conditions are delivering strong supply. The corn price is down to where it first was in 1996 and the bubble that started in 2020 is now all erased. Similarly for oats which are now below 1988 levels. The rice price is still highish, but below 2008 levels still. And canola is also a major-traded food export that has extinguished its recent bubble. Wheat is in the same boat, back to price levels it first hit in 1996. The world's food supply and price is currently no threat of availability or affordability issues. However, despite all this some still see "food wars" as a future risk, but that may just be a Singaporean trader talking his own book.

The UST 10yr yield is now at 4.32% and up +9 bps from this time yesterday. 

The price of gold will start today down -US$18 from yesterday at US$2301/oz.

Oil prices are little-changed from yesterday at just over US$81/bbl in the US while the international Brent price is now just under US$85/bbl.

The Kiwi dollar starts today down nearly -½c from yesterday at just under 60.8 USc. Against the Aussie we are down even more at 91.4 AUc. Against the euro we are down -¼c at 56.9 euro cents. That all means our TWI-5 starts today down -30 bps at 70.5.

The bitcoin price starts today at US$60,974 and down -1.0% from this time yesterday. Volatility over the past 24 hours has 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.

Tomorrow is a public holiday in New Zealand (Matariki). We will be publishing on our normal weekend schedule on Saturday and Sunday.

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