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.

Today we lead with news equity markets are gripped by stagflation fears today, with substantial sell-offs underway worldwide, especially for tech firms.

An article by the Minneapolis Fed's Kashkari didn't help, suggesting a recession may be necessary to kill off inflation.

In the US, inflation expectations have fallen from record highs in data released overnight, but remain very elevated. For the year ahead they fell to 6.3% in April from a record high of 6.6% in March mainly because consumers see the price of fuel falling. They see house prices rising +6% and incomes up +3%. Three-year-ahead inflation expectations rose slightly to 3.9%.

Meanwhile, American wholesale inventory levels rose only a marginal +2.3% in price terms in March, confirming they remain very low in volume terms. More crucially, the inventory-to-sales ratio remains at cycle lows, showing there is no buildup usually associated with a looming recession.

In Canada overall building permit levels fell in March after a very strong February, mainly due to the non-residential sector and an absence of public projects in the month. But residential permit levels remained strong, rising almost +5%.

Exports from China rose by just +3.9% in April from a year earlier but beating market forecasts of +3.2% rise - and moderating sharply from an almost +15% rise in March. The latest data marked the slowest increase in shipments in nearly two years, as tighter COVID-19 curbs halted factory production and caused congestion at key ports. Sales increased to the US (+9.4%), the ASEAN countries (+7.6%), and the EU (+7.9%) but were worryingly weak elsewhere. China's imports didn't grow at all, emphasising the domestic stall underway there. Iron ore imports fell -7%, although oil imports were stable ('resilient'). It was a second consecutive month of zero import growth.

In contrast, Taiwanese exports rose +19% and imports rose +27% year-on-year in April, continuing their very healthy trade activity. April was only edged out as a record month by a couple of other recent months.

In the Philippines, the son of dictator Ferdinand Marcos is headed for a landslide win. He is from a family has been synonymous with kleptocracy for decades and is on the hunt to recover the wealth his family stole from the state in a prior period in power. The Philippines is about to become unstable again.

In Australia, early voting is now underway for their Saturday, May 21 federal election. Because of growing expectations the government will change, there is nervousness in the ruling party about how an incoming administration will define political corruption. And what a change could mean for Australian inflation going forward.

The UST 10yr yield starts today down -8 bps since this time yesterday at 3.06%. 

As expected, Wall Street has started its week lower. The S&P500 is down -2.6% in Monday afternoon trade. Overnight, European markets all fell about -2.3%. Yesterday Tokyo shed -2.5%, Hong Kong was closed for a holiday, and Shanghai ended little-changed. The ASX200 ended its Monday session down -1.2% while the NZX50 ended down almost -2.0%.

The price of gold starts today down -US$25 since this time yesterday at US$1858/oz.

And oil prices are sharply lower today at just under US$102/bbl in the US with a -US$7.50 drop, while the international Brent price is now just over US$105/bbl.

The Kiwi dollar will open today -¾c weaker again at 63.3 USc and another near two-year low. The devaluation since the start of April is now up to -9.2%. Against the Australian dollar we are slightly firmer at 91 AUc. And against the euro we are also sharply lower at 60 euro cents. That all means our TWI-5 starts today at 70.8 and its lowest since mid February. On a TWI-5 basis the devaluation since the start of April is now up to -5.2%.

The bitcoin price is down another -8.2% from this time yesterday at US$31,260. At the beginning of April it was at US$47,294 so it is now down -34% since then and down -54% since its November 2021 peak. Volatility over the past 24 hours has been extreme at just over +/- 5.9%.

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

And get more news affecting the economy in New Zealand from interest.co.nz.

Kia ora. I'm David Chaston and we’ll do this again tomorrow.