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 markets are roaring with positivity today.

First, US jobless claims came in as expected last week at +203,000 and the total number of people on these benefits remained steady at 1.45 mln, and still an historic low.

But the Q1 GDP number did not come in as expected, recording a surprising fall from the prior quarter when a rise was expected. But this was mostly due to a record trade deficit, softer inventory growth, and a drop in government spending. Meanwhile, personal consumption and non-residential and residential fixed investment remained strong. This same data showed that the inflation pressure might have eased in the period too, which was also a surprise. But we must note that these are 'advance' results, and there are two more revisions due over coming weeks, so they could change. And in nominal terms, American GDP rose at a +6.9% annual rate in the first quarter to be running at a rate of US$24.383 tln of economic activity and +10.6% higher than a year ago.

Markets picked up on the strong consumption data, seeing the other Q1 factors weighing on the overall result as temporary, and have turned bullish. The US dollar is surging.

Meanwhile, the Kansas City Fed's factory survey reported a continuing strong expansion, even if it was down from the March boom result.

The US Treasury has another bond auction overnight, this one for their 7-year bond and it too was well supported. The median yield was 2.84% vs 2.43% at the month-ago prior event.

In China, employment is being ‘hit quite hard’ by the pandemic. Tough enforcement of pandemic restrictions has forced factories and businesses to close over the last two months. The country's unemployment rate had already risen to 5.8% in March, and now a record 10.8 million college graduates are set to enter their jobs market this year, compounding the strain. There will be a growing cadre of disappointed workers there.

Meanwhile, China has cut its tariff on imported coal to zero, reinforcing the perception it is facing energy stress. It's a very rare move from Beijing.

Japanese housing start data for March surprised. It rose strongly in February and was expected to revert in March, but in fact that +6% expansion continued into March.

Taiwanese Q1 GDP was also released overnight and that came in marginally better than expected at a +3.1% annual rate. Although this was well down on year-ago rates the expansion in Q1-2022 over Q4-2021 surprised on the high side.

German inflation for April was reported overnight and it came in higher than expected at 7.4%. Some major costs like energy prices actually fell, which was a surprise. But that was more than covered by sharp rising food prices.

And Germany, which had been one of the main opponents of sanctioning the EU’s oil and gas trade with Russia, is now ready to stop buying Russian oil, clearing the way for an EU-wide ban on crude imports from Russia, government officials said. That comes just as energy utility Uniper said it would start paying in rubles for the gas it buys for Germany.

Sweden raised their official rates from 0% to 0.25% overnight and signaled that more hikes are on their way. This is something of a u-turn in policy, unexpected, and the Swedes are now joining in the global fight against inflation.

The slowdown in the Chinese economy is resulting in lower container shipping rates with yet another small retreat last week. But we are not really seeing the same trend for bulk cargoes.

The UST 10yr yield starts today up +4 bps at 2.86% as markets lock in their Fed bets for next Thursday's announcement. 

On Wall Street, the S&P500 is roaring today, up +2.7% in late afternoon Thursday trade. Overnight, European markets all rose another +1% overnight led by Frankfurt. Yesterday Tokyo ended its Thursday session up +1.8% and more than making up the prior day's retreat. Hong Kong was also up +1.7% on the day. And Shanghai gained a further +0.7% on the stimulus announcements. The ASX200 ended yesterday up +1.3%. The NZX50 ended also ended up +1.3%.

The price of gold starts today down -US$1 since this time yesterday at US$1890/oz.

And oil prices are up +US$2 at just on US$104/bbl in the US while the international Brent price is now just under US$107/bbl.

The Kiwi dollar will open today softer again at 65 USc and nearing a two-year low. Against the Australian dollar we are soft too at 91.5 AUc. And against the euro we are marginally softer at 61.9 euro cents. That all means our TWI-5 starts today at 72.5 and that is only a two-month low.

The bitcoin price is up +2.6% from this time yesterday at US$40,108. Volatility over the past 24 hours has been moderate at just over +/- 2.0%.

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.

This podcast is taking a break for a week.

Kia ora. I'm David Chaston and we’ll do this again on Monday, May 11.