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.

And today we lead with news bond markets are coming around to believing the US Fed signals, reversing their view that their call for high rates was 'just talk'.

But first, US jobless claims stayed up at 250,000 last week at about the level expected. There are 1.67 mln people still on these benefits unchanged as well and also staying up. Although both are now higher than year-ago levels, they remain historically low and don't alter the underlying tightness of their labour market. But you do get a sense the next movement will be an unwinding of their benign labour market conditions.

The Chicago Fed's National Activity Index turned marginally negative in May after a positive showing in April.

The Kansas City Fed's regional factory survey turned more negative in June as well, as did the Conference Board's index of leading indicators. Both were as expected.

Meanwhile American existing home sales edged marginally higher and by more than expected in May, an improvement on the April retreat.

China is on vacation for its Dragon Boat Festival, a three day break. They are expecting more than 100 mln tourist trips this year which is actually higher than pre-pandemic levels.

Although still deeply negative and below its long term average, EU consumer sentiment rose in June to keep the improvement that started in November going. And it is worth noting that this is now one of the steepest continuous rise in sentiment since this survey began in 2007 and the pace of improvement shows no sign of slowing down.

Overnight both Norway and England raised rates by more than expected. In Norway's case they rose +50 bps to 3.75%. In the UK case they also rose +50 bps to 5.0%. In both cases markets had expected a +25 bps rise. Norway has inflation running at 6.7% and the UK has it running at +8.7%, so both central bank policy makers clearly realised they aren't leaning against these price pressures hard enough. And the more important regional benchmark is the ECB policy rate which is 4.0% which was raised by +25 bps last week with inflation at 6.1%. With the ECB positions as backdrop the English and Norwegian rate increases make regional sense.

Separately, the central bank of Turkey raised its policy rate from 8.5% to 15% in the expected reversal of the prior unorthodox approach that brought raging inflation. You will recall that post-election the President changed out both his Finance minister and the head of their central bank in a clear signal things would change. Actually the +650 bps hike was less than markets had expected. Markets were expecting a bigger increase to 21%. The Turkish lira sank on a decision seen as timid.

In the widely-watched rankings of 'liveable cities', Vienna, Copenhagen, Sydney and Melbourne took out the top four spots in 2023. Auckland rose sharply to #10 and Wellington to #23. In conjunction with open borders, this is driving Sydney house prices higher.

And staying in Australia, regulator ASIC said 5.6 mln policy holders are on track to receive AU$815 mln in compensation after they uncovered pricing failures by 11 general insurers that led to clients being overcharged for their insurance. 6.5 mln policies were involved between January 2018 and October 2021.

The cost of shipping containers continues to fall, down -3.5% again last week. It is saying something about the state of global trade and it is not positive. The bulk cargo shipping costs are however rising again and are at about at a long-run average level

The UST 10yr yield will start today rising at 3.79% and up +7 bps. 

The price of gold will start today down another -US$19 at US$1916/oz and it hasn't been this low since early March.

And oil prices are down a sharp -US$3.50 from yesterday to now be just over US$69/bbl in the US. The international Brent price is now just on US$74/bbl.

The Kiwi dollar starts today at 61.8 USc and down -¼c from yesterday. Against the Aussie we are marginally firmer at 91.5 AUc. Against the euro we are little-changed at 56.4 euro cents. That means the TWI-5 is now just on 69.8 and also little-changed.

The bitcoin price has firmed slightly from this time yesterday and now at US$30,132 with minor rise of +0.3%. Volatility over the past 24 hours has been modest at just over +/- 1.6% in sharp contrast to the past few days.

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 on Monday.