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 global trade is facing a tough challenge in containerised freight costs.

But first, initial new US jobless claims actually fell modestly last week to +195,000 (although the seasonally adjusted level rose). There are now 1.67 mln people on these jobless benefits. All this is a tiny 1.1% of their workforce and unchanged in a year.

But all eyes are now on tomorrow's non-farm payrolls report when a rise in +185,000 is expected, and a continuation of the high levels of employment.

The reported level for job cuts was very similar to the very low April level, so not special signs of stress there.

A strong labour market would drive demand, including for imports and that is what we are seeing. May US imports were higher than in March, although the gain was modest. And there was a modest gain in exports as well. Although the US deficit in both goods and services is running higher than 2023 levels it is far lower than 2022 levels. For calendar 2024 it will come in just over 3% of their total economic activity, a decrease from 2023.

US banks are starting to raise deposit rates for savers to retain and grow their funding. But, as Bloomberg is pointing out, they are also back raising funds by collateralising their mortgage books. Readers with memories of the GFC might be surprised to know how much collateralised mortgage obligations (CMOs) have risen. These are on top of other mortgage-backed securities. One to watch.

Separately, it is starting to look like the US bird flu outbreak in parts of the US will be more serious for their dairy industry that initially hoped. It is likely that milk production declines will have an international echo.

Despite lingering price pressures, the ECB lowered its three key interest rates by -25 bps overnight as earlier signaled and expected, marking a shift from nine months of stable rates. Inflation has retreated by more than 2.5 percentage points since September 2023. The main refinancing operations rate was lowered to 4.25%, the deposit facility rate to 3.75%, and the marginal lending rate to 4.5%. Because it was well signaled there has been little market reaction. However they gave no clue about where their policy rates are headed from here.

This came as German factory orders did not bounce back in April from the March dip, as was expected. There has been no interruption to the now long-established downtrend there.

EU Parliament elections are currently underway. Results won't be known until early next week, but nationalist and far-right candidates are expected to make gains.

Many countries released trade data overnight and this included Australia late yesterday. Their exports dipped in April, but their import demand unwound rather heavily especially for consumer-related products. From that, their trade surplus rose.

China's April trade data will be released later today and rising levels of exports (+6%?) are expected. It is a surge that may other countries worry about because of it is driven by "excess capacity" and "dumping" arising from lower domestic demand.

And staying in China, their housing industry is probably not going to drive any economic activity there for a long time. China has moved to bar housing construction in some areas in its latest attempt to shrink a mountain of unsold homes that is weighing on prices. The new restrictions stop local authorities from selling land usage rights to developers in cities with unsold housing inventories that would take three years or more to clear -- a criterion that more than 40% of major cities meet. And that in turn is going to hurt local authority revenues hard.

Container freight rates rose another +12% last week from the week before in an increasing jump in the cost of global trade. These freight costs are now +180% higher than year-ago levels. Ther same culprits are at work - security, canals, and capacity. Outbound from China is the main pressure point. Inbound to China costs are falling and are just one seventh of the outbound rates. Bulk cargo rates are little-changed however, and still very low, near where they were first 30 years ago.

The UST 10yr yield is now at 4.28% and down another -1 bp from yesterday. 

The price of gold will start today up another +US$19 from yesterday at US$2379/oz.

Oil prices are up +$1.50 at just on US$75.50/bbl in the US while the international Brent price is now just under US$79/bbl and a smaller rise.

The Kiwi dollar starts today marginally firmer from yesterday at just over 62 USc. Against the Aussie we are still at 93 AUc. Against the euro we are marginally firmer at 57 euro cents. That all means our TWI-5 starts today at just on 71.2, unchanged from yesterday and still its highest since late February.

The bitcoin price starts today at US$71,007 and down -0.9% from this time yesterday. Volatility over the past 24 hours has also been modest however at just on +/- 0.7%.

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.