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.

Today we lead with news there does seem to be an export-led trade recovery underway for some key Western economies, one that isn't attracting much attention from markets so far.

But first we should report that initial American jobless claims rose a very minor +12,000 last week from the week before. There are now 1.378 mln people on these benefits, and still near all-time record lows.

But reports of job cuts are rising even if they are still at low levels.

The US trade deficit of both goods and services remained at an historically high level even if it did fall in May from April. The reduction was due to stronger exports and restrained imports although both hit monthly record high levels. Their deficit with China fell. It seems that world trade is in good heart. And as we have noted before, their annual trade deficit is 'only' -4% of US economic activity, so isn't a heavy load for them especially when it is paid for by their domestic currency.

Supporting that is international air cargo data out for May, showing North America leading this recovery, and by a substantial margin.

Bulk cargo shipping rates are holding their recent lower levels. But the falls in shipping container rates we have seen since March stopped last week on stronger demand for cargoes from China to the US.

Canada's trade surplus rose in May (nothing like Australia's record-breaking surplus however), and it was on the back of stronger exports and restrained imports.

Meanwhile, China's foreign exchange reserves fell in May and are now just over US$3 tln, their lowest since the pandemic, and down to the low range since 2016. The -US$57 bln monthly fall was large for them.

German industrial production rose in May from April, but not by as much as was expected. However it is still lower than year-ago levels. 

There was a big surprise in the Australian trade data reported yesterday for May for both goods and services. Most analysts expected a +AU$10.7 bln surplus, but in the end a +AU$16 bln was recorded, and a new all-time monthly record. That takes their annual surplus to AU$135 bln and also a stunning record high and +60% more than for the May 2021 year. Further, the April surplus was revised higher to +AU$13.2 bln. These are very juicy numbers for them, driven by exports, up almost +10% when a +1% rise was expected. Shipments of coal were especially strong - to China.

The Americans are easing import rules to allow foreign makers of baby formula stay on their market for the long term, in an effort to diversify the industry after the closure of their largest domestic plant sparked a nationwide shortage.

Back in China, reports suggest that their battle with the pandemic isn't easing. Shanghai (and even Beijing) may face renewed lockdowns. Patience with China's part in the global supply chain network must be wearing thin. And the endless trouble in their property development sector seems far from over. All this is prompting Beijing to promise ever higher support and stimulus activity to keep their economy from listing too badly. When their "positive" Q2-2022 GDP data is release, it will draw considerable scepticism.

The UST 10yr yield starts today back up at 3.01% and a +11 bps rise from this time yesterday. 

The price of gold is staying lower but up +US$3 from this time yesterday at US$1740/oz.

And oil prices have moved back up today, up +US$5 at just over US$101/bbl in the US, while the international Brent price is just over US$104/bbl. But the latest American crude oil inventory data (just released) surprised analysts, rising sharply when a fall was expected and that is starting to weigh on those oil price levels. (US petrol inventories fell however but only by a third of the rise in crude oil stocks.)

The Kiwi dollar will open today marginally firmer at 61.7 USc. Against the Australian dollar we are a little softer at 90.3 AUc. Against the euro we are +½c firmer at 60.8 euro cents. That means our TWI-5 starts today at just over 70.5 and +20 bps firmer.

The bitcoin price has risen since this time yesterday and is now at US$20,882 and up +3.1%. Volatility over the past 24 hours has been moderate at +/-2.5%.

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 on Monday.