Kia ora,

Welcome to Tuesday’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 financial markets have turned cautious, unsure of what to make of the set of 'tariff letters'.

In Washington, because they couldn't complete tariff deals in the "90 deals in 90 days" to July 9, they have moved the 'deadline' to August 1. The shambles extends. And the capricious tariff letters are starting to be issued, first to Japan and South Korea at 25%, and then a bunch of developing countries including Malaysia (25%) and South Africa (30%).

Essentially, the US is pushing countries into China's orbit, and creating conditions where many will shy away from buying US goods due to the bald insult. US businesses are likely to suffer, not only from financial market reactions, but also on the demand front. Other governments' trust in the US is in free-fall.

Separately, we can also report that the NY Fed's Global Supply Chain Pressure index was neutral in June, back to its long run 'normal level'. That amounts to an easing of the May pressure as the rush to beat the tariff-taxes faded.

Across the Pacific, China said its foreign exchange reserves rose by +US$32 bln to US$3.317 tln in June and that is the highest level they have had in nearly ten years (December 2015).

Singapore's foreign exchange reserves stayed very high in June, even if they did dip marginally from their record high level in May.

In the EU, they report retail sales by volume (inflation adjusted) and it slipped in May from April. But it stayed higher than year-ago levels although by less than +1%.

Meanwhile, Germany reported its May industrial production turned up and by much more than expected. Although to be fair, it is in a bit of an overall yoyo pattern. Still, on a volume basis it too is +1.0% higher than year ago levels.

So overall, even though some of it is over a month old, this set of second tier data, from the US, to Asia, to Europe isn't painting a picture of special stress.

How the Australian central bank see it will be revealed later today when the RBA issues its decision on its cash rate target. Market pricing has only two-thirds of a -25 bps cut priced in although most economists think it will happen, and take their policy rate down from 3.85% to 3.60%. That will flow through to homeowner's household budgets quickly because most have variable rate deals.

However it its far from certain this will give the Aussie domestic economy the boost a rate cut should deliver. It almost certainly will juice up house prices, which are already rising in anticipation. But existing borrowers seem to have decided en masse that the cash gains from lower rates will be used to pay down debt rather than be spent in generating more economic activity, which is why the RBA is cutting. To get that effect, the central bank may have to cut again later in the year. There are reviews in August, September, November and December yet to come, so plenty of opportunities for more cuts.

The UST 10yr yield is now at 4.39%, and up +6 bps from yesterday.

The price of gold will start today at US$3,332/oz, and down -US$4 from yesterday.

American oil prices are up +US$1 at just under US$67.50/bbl while the international Brent price is now just over US$69/bbl.

The Kiwi dollar is now just on 60 USc, down an outsized -60 bps from yesterday. Against the Aussie we are down -10 bps at 92.4 AUc. Against the euro we are down -20 bps at 51.3 euro cents. That all means our TWI-5 starts today at just under 67.7 and -30 bps lower from yesterday at this time.

The bitcoin price starts today at US$107,923 and down -0.9% from this time yesterday. Volatility over the past 24 hours has remained low at just on +/-0.8%.

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.