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 markets seem to have decided China isn't doing anywhere near enough to reverse their economic challenges.

But first, Fed boss Powell has been presenting the central bank's Semi Annual Monetary Policy Report to Congress today and in testimony he said "Nearly all FOMC participants expect that it will be appropriate to raise interest rates somewhat further by the end of the year." He suggested that another +50 bps could come by the end of 2023 and taking their policy rate to 5.75% and taking it higher than even the rates that applied before the GFC. Bond markets ignored the comments but the currency markets marked the USD down. Equity markets dipped too.

And we should note that the debt-limit deal struck by the White House and congressional Republicans requires that the pause on student loan payments be lifted no later than the end of August. Analysts are starting to factor in some pretty significant economic implications when that happens.

The American mortgage market activity rose again last week from the prior week, and unusual expansion even if it was minor recently. Mortgage interest rates slipped slightly with their benchmark 30 year down to 6.73% plus points.

There was also a rise last week in a key retail sales indicator, but despite that it remains mired deeply less than inflation's surge.

Canadian retail sales surprised in April with more of a gain than expected and reversing out the March dip.

In China, equities dropped rather hard across the board yesterday after a smaller-than-expected interest rate cut by China's central bank. The pain was especially felt in Hong Kong. Shanghai dropped too as did the tech-hub Shenzhen markets. But other markets exposed to China are feeling the impacts too, like Australia.

China's yuan is weakening fast again too. It is down to 7.18 to the USD, a -1.4% devaluation since the start of the month and -3.1% from the start of the year. Against the NZD their devaluation is -3.8% since the start of the month

In the UK, their CPI inflation held at 8.7% in May when a fall was expected. Month-on-month it is running at about the same annualised rate, so they aren't making any noticeable progress. Worryingly, their 'core inflation' rate actually rose in May from April. Markets there are now expecting more rate rises soon.

The UST 10yr yield will start today little-changed at 3.72%. 

The price of gold will start today down another -US$2 at US$1935/oz and a new three month low.

But oil prices are up +US$2 from yesterday to now be just over US$72.50/bbl in the US. The international Brent price is now just on US$77/bbl.

The Kiwi dollar starts today at 62.1 USc and up +½c from yesterday. Against the Aussie we are +½c firmer too at 91.3 AUc. Against the euro we are little-changed at 56.5 euro cents. That means the TWI-5 is now just on 69.9 and up +50 bps from this time yesterday.

The bitcoin price has again jumped sharply from this time yesterday and now at US$30,044 with another gain of +4.0%. Volatility over the past 24 hours has been extreme at just over +/- 5.4%. In the past seven days this price has surged +19.6% in USD terms, a bit less in NZD terms because the NZD has risen too. The tiny opening up moves from traditional fund platforms like BlackRock or Fidelity has been enough to move this market, emphasising just how thin this markets is.

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.