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.

And today we lead with news tariff-tax cost threats to inflation are being joined by seasonal climate threats in the US.

First, it is hot in large parts of the US, including the heavily populated North-East. Air-conditioners are working overtime. And that means electricity grids are overloaded. Retail electricity prices have spiked to nearly US$2,400/MWhr (NZ$4000/MWhr) during peak evening demand last night. Wholesale prices on Long Island topped US$7,000/MWh. Just for context, New Zealand prices this morning are about $60/MWhr. It's a crisis here they reach NZ$1000/MWhr.

Meanwhile, US mortgage applications rose last week slightly from the week before, but only because refinance activity rose. Applications to buy a new home were down sharply from the prior week although up from the same week a year ago. Interest rates were little changed.

But May sales of new single-family homes dropped sharply by almost -14% from the prior month to an annualised rate of 623,000 units and far below the expected 700,000 units rate and the sharpest decline since mid 2022. May 2025 was -6.3% below year ago levels. Getting the blame was uncertain economic conditions that is causing potential buyers to wait before committing to a purchase. And things could get worse - there are now 10 month’s supply of built but unsold homes at the current sales rate. We may start to see some aggressive discounting ahead - or more builders going bust.

The big US Treasury 5yr bond tender earlier today was well supported even if not quite at the level of the last event. This event delivered a median yield of 3.82%, a bit less than the 4.01% at the prior equivalent event a month ago.

And in Senate testimony, Fed boss Powell acknowledged that tariff-taxes could be a one-off threat to inflation, but he said that is not a law of nature, and they are worried they could also drive persistent rises in costs. He said they will stay on guard until they know the actual effect.

In China, their central bank injected ¥300 bln into financial institutions through a one-year medium-term lending facility (MLF) into the country's banking system. This is what was expected.

And in a first, President Xi will not attend the Brazilian-hosted BRICS meeting this year, the first time he has skipped that. The reasons why aren't clear, and that is fueling speculation.

In Australia, their monthly inflation indicator fell to 2.1% in May, down from 2.4% in both March and April. That is a seven month low, and lower than the 2.3% rate expected. The main influence for the reduction were fruit & vegetable prices (from +6.1% to +2.8%), and travel & accommodation (from +5.3% to +0.6%).

The UST 10yr yield is now at 4.29%, and down -1 bp from this time yesterday. 

The price of gold will start today at US$3,322/oz, and up an insignificant US$2 from yesterday.

American oil prices are up +US$1 from yesterday at just on US$65.50/bbl while the international Brent price is now just over US$68/bbl.

And we should probably note that the Wall Street Journal is reporting that Dutch oil company Shell is in talks to buy British rival BP. Currently, Shell is denying the report.

The Kiwi dollar is now just on 60.3 USc, up +10 bps from yesterday. Against the Aussie we are +10 bps firmer at 92.7 AUc. Against the euro we are unchanged at 51.8 euro cents. That all means our TWI-5 starts today at 68 and +10 bps firmer than yesterday.

The bitcoin price starts today at US$107,062 and up +0.9% from this time yesterday. Volatility over the past 24 hours has been modest at just on +1.2%.

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.