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.