Kia ora,

Welcome to Wednesday’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 RBA governor has set some specific limits to where pay rises shouldn't go - to avoid monetary policy consequences.

But first up today, the dairy auction brought slightly lower overall prices, down -1.3% in USD. But our lower currency turned that into a +0.9% rise from the prior event in NZD. In a reverse of what the derivatives market signaled, WMP prices dipped a little while SMP prices rose. The big mover however was the Cheddar cheese price which dived -9%. Volumes offered and sold were modest in the big scheme of these auctions. Nothing in today's result is by itself going to change farm gate payout prices but todays slip in prices is the sixth in the past seven events and since mid-March when this slide started, overall prices have fallen -9%. However, from the start of the 2021/22 season in August, prices are up +21%.

In the US, analyst talking heads are out in force warning of recession. But financial markets are ignoring those.

Meanwhile, the Chicago Fed National Activity Index fell to an eight-month low of +0.01 in May from April. Production-related indicators dipped sharply, while the contribution of the personal consumption and housing category fell as well. But jobs, sales, and new orders all rose on that same basis.

American existing home sales activity continues its slide, recording sales at the annualised rate of 5.4 mln units in May, a heady drop from the 6.5 mln rate in January. From a year ago, that is an -8.6% retreat. It is the modestly-priced end of the market that is falling fastest, so the median price is getting skewed to more expensive houses and is up almost +15% in a year, with the median breaking above US$400,000 for the first time ever (NZ$630,000).

North of the border, Canadian retail sales beat estimates in April and are now +9.2% higher than a year ago. Much of that may be inflation's impact however. But not all, so there is 'real' growth in volume terms.

In China, it is the rainy season and flooding is back. It is hard to know whether it is worse this year of not, but it is extensive - just as it has been in many previous years. It certainly looks bad.

Hong Kong inflation is failing to fire as demand stays very weak. It rose just +1.2% in May when a +1.6% rise was expected.

We've noted it before, but the iron ore price continues to waken. In fact it is now at its lowest point on the year as Chinese stimulus demand just isn't eventuating. A good dose of over-optimism is being unwound.

Also falling is the price of wheat and that is despite the ongoing export issues from the Black Sea. Coordinated international efforts are having an impact to reduce the impact of that supply, despite Russia's best efforts to choke off Ukrainian sources.

In Australia, their central banks has been out explicitly warning of the consequences of excessive pay hikes. Anything over +3.5% is a problem for them they say and have warned regular pay rises of 4% to 5% risks entrenching higher inflation and bringing tougher monetary policy measures. (These warnings were in comments after the speech, not in the speech itself.)

The UST 10yr yield has started the week in New York at 3.31% with a +8 bps rise. 

The price of gold ended yesterday at US$1834/oz and down -US$2.

And oil prices are little-changed from this time yesterday to just over US$109/bbl in the US, while the international Brent price is now just over US$112.50/bbl.

The Kiwi dollar will open today at just on 63.4 USc and +20 bps firmer than this time yesterday. Against the Australian dollar we are softer at 90.9 AUc. Against the euro we are also softish at 60.1 euro cents. That all means our TWI-5 starts today at just under 71.3, unchanged from this time yesterday.

The bitcoin price has moved up strongly from this time yesterday and is now at US$21,226 and a gain of +6.8%. Volatility over the past 24 hours has been very high again at +/- 4.7%.

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.