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.

And today we lead with news we are in the shadow period until the US House votes on the debt deal. The chatter accentuates the risks of failure, so markets are holding their breath. But they also assume it will get passed.

Meanwhile, the data being released is all quite bland, and will be until the May non-farm payrolls report is available. American consumer sentiment as monitored in the Conference Board survey held in May when a small dip was anticipated. This is consistent with the good personal income data we had recently, and a declining inflation rate. But overall levels are still low; the Expectations Index has now remained below 80, a level associated with a recession within the next year, for every month since February 2022, with the exception of a brief uptick in December 2022. But the endless signals of recession just don't seem to materialise, probably because of the strong labour markets.

We get the May US non-farm payrolls report on Saturday NZT and it is expected to show a modest +190,000 gain - although don't be surprised if it beats that estimate yet again.

The Dallas Fed survey of factories in their oil patch is quite subdued in May which is probably no surprise given the languishing oil price. And with today's oil price retreat it will probably be even lower in June.

According to the US Federal Housing Finance Agency, American house prices rose in the year to March at about their long-run average of ~4%, ending the pandemic turmoil period when for a few years they were up almost +20%. Separately, the Case-Shiller index on house prices in major urban areas fell in the year to March and below their long-run average. Analysts tend to watch the Case-Shiller Index more.

In China, they have been getting a lot of late-season rain and that is causing havoc with crop harvesting. They have lost millions of tonnes of wheat right before harvest, with global price implications. The unseasonal rains have infected crops with blight and caused pre-harvest sprouting. That sets China up for some massive imports, disrupting global prices - and their own plans at a time when local food security is a high-level concern.

And staying in China, a strong echo from their brutal pandemic lockdown is starting to play out in their economy. Memories of that has reinforced the urge by households to save, and at such a level that it seems to be inhibiting their economy from recovering. They have a liquidity trap which is frustrating efforts by Beijing to expand domestic demand and increase consumption’s share of national GDP. And this is putting severe pressures on local governments.

These two big trends in the Chinese economy has seen their yuan devalue further.

In Japan, their jobless rate fell back to the 2.6% level it was a few months ago, which was a better result than expected. An expanding economy is having a positive effect on employment and wages now.

EU sentiment is still in the doldrums and fell in May to a six month low. There was little change in consumer sentiment, but manufacturer sentiment eased lower.

In Australia, they are about to hand down a NZ$485 mln financial penalty on the Crown casino business for breaches of its AML-CFT laws. As such it will be one of the largest money-laundering penalties imposed on a casina anywhere in the world. But no-one went to jail. Despite its size, Crown casinos won't be crippled financially - it just seems like a cost of doing business in the world of gambling.

The UST 10yr yield will start today at 3.70% and down -7 bps as Wall Street trades again after their holiday weekend. 

The price of gold will start today at US$1959/oz and up +US$3 from yesterday.

And oil prices are a lot lower today from yesterday at just over US$69/bbl in the US and that is down -US$4/bbl. The international Brent price is now just on US$73.50/bbl.

The Kiwi dollar starts today marginally softer at 60.4 USc. Against the Aussie we are marginally firmer 92.8 AUc. Against the euro we are softer at 56.3 euro cents. That means the TWI-5 is down -10 bps at 69.3.

The bitcoin price is almost unchanged today at US$27,739. Volatility over the past 24 hours has been low at just on +/- 0.9%.

You can find links to the articles mentioned today in our show notes.

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.