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 the US budget repair is having impressive results.

But first, their April CPI data was released earlier this morning and it came in at 8.3%, fractionally lower than March's 8.5% but slightly higher than the expected 8.1%. The core readings were lower at 6.2% year-on-year. But the monthly change from March actually rose at a faster pace than was expected, and this has grabbed market attention.

Separately, American mortgage applications rose marginally last week, a second consecutive increase, and despite a rise in borrowing costs as their Spring housing market enters its historically busiest time. Applications to purchase a home surged 4.5% while those to refinance a mortgage loan fell 2%. The average contract rate on a 30-year fixed-rate mortgage jumped by 17bps to 5.53%, the highest since 2009.

The better management of the US Federal Government is starting to show up in reduced deficits. In fact, their April result reported a spectacular surplus. That surplus was a remarkable +US$308 bln in the month, reducing the annual deficit to "just" -US$1.2 tln (5% of GDP) from -$2.8 tln (11.6% of GDP) on the prior full fiscal year. The April surplus was the largest ever recorded, built on fiscal restraint (spending was down -16% on the same month a year earlier), and fast rising tax revenues from the booming economy.

We should also note that American farmers are running out of time to plant crops in their spring season. Wet and cool weather in key parts of the Midwest has left farmers with just days to get their crops in the ground at a time when global grain supplies are already under pressure.

In Japan, they now seem to be getting some real economic expansion.

In China, they are starting to get some modest consumer price inflation. April CPI ran at an annual rate of 2.1%, up from an annualised 1.5% rate in March, above market forecasts of 1.8%. This was the highest since November, amid logistic disruptions caused by their strict pandemic measures. Food prices rose for the first time in five months, and its highest since October 2020. 

The reverse is occurring in their factory sector where high producer price inflation is easing, even if only marginally.

Separately, China is lashing out at the recent WHO comments that its zero-COVID policy is unsustainable. Further, it is more aggressively censoring local views that say similar things. China seems to have backed itself into a tough corner.

In Malaysia, their central bank pushed through an unexpected rate hike overnight, taking their policy rate up +25 bps to 2.0%. Their authorities said a better growth outlook, higher inflation expectations, the global rate hiking cycle, and a need to normalise, all played a part in this rise. More are expected in coming months now. Other Asian central banks are also expected to join the rate hiking bandwagon, the next being South Korea.

In Europe, the ECB has signaled that it will be raising its policy rates in July.

In Australia, the Westpac-Melbourne Institute Index of Consumer Sentiment fell -5.6% month-over-month in May 2022, the most since June 2015 and down for the sixth month in a row, amid a combination of surging prices and the prospect of faster interest rate hikes.

The UST 10yr yield starts today down another -7 bps since this time yesterday at 2.92%. 

The price of gold starts today up +US$7 since this time yesterday at US$1852/oz.

And oil prices have moved higher today by +US$4.50 at just under US$104/bbl in the US, while the international Brent price is now just over US$106.50/bbl.

The Kiwi dollar will open today marginally firmer at 63.1 USc and off its two-year low. Against the Australian dollar we are also slightly firmer at 90.8 AUc. And against the euro we are also marginally higher at 59.9 euro cents. That all means our TWI-5 starts today at 70.6.

The bitcoin price has fallen -6.0% from this time yesterday and is now at US$29,789. Volatility over the past 24 hours has been extreme again at just over +/- 5.2%.

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.