Kia ora,

Welcome to Wednesday’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 demand worries kneecapped many commodity prices overnight. The NZD suffered from the trend.

The overnight dairy auction came in better than expected, but expectations were pretty negative. Overall prices were unchanged in USD terms when a -2.4% drop was anticipated. But in NZD terms it did record a -1.4% retreat. And that was on the lowest volumes sold since June 2019. The key WMP price was unchanged in this event But butter gained +5.5%. However cheese fell -3.3% and SMP fell -2.3%. All up a forgettable auction.

In the US there was surprising strength in the number of new housing starts in May, up sharply from April to more than an annualised 1.6 mln rate. That was its highest build rate since April 2022 and way above the expected 1.4 mln annualised rate. It is also +11% higher than year-ago levels. And residential building consents rose in May from April too, but they are -13% lower than year-ago levels.

In Canada, more sawmills are closing due to the extending wildfires across the country from British Columbia to Quebec. This is putting upward pressure on international sawn timber prices, and potentially log demand - just as their southern neighbour has a house building industry needing more product.

As widely anticipated, China's central bank cut key lending rates yesterday in a move to spur investment and consumption after the country's post-pandemic recovery stuttered in recent months. They cut the one-year loan prime rate by -10 bps to 3.55% from 3.65%, while trimming the five-year rate also by -10 bps to 4.2% from 4.3%. This is their first cut in 10 months. The moves will lower borrowing costs for both companies and households. They had earlier cut some wholesale rates -10 bps to benefit property developers. Markets are unlikely to be impressed with the cut, being a modest -10 bps given the challenges they face. The yuan weakened noticeably. The action so far is unlikely to turn around their loss of economic momentum.

In Japan, industrial production slipped -0.7% in April from the same month a year ago, held back by its electronics sector. Otherwise it would have expanded.

German producer prices fell -1.4% in May from April, and were up only +1.0% from the same month a year ago. This is a massive settling from the raging producer price situation only six months ago. That pressure is off now.

Perhaps even more surprisingly, the Germans reported that their population grew sharply by more than +1.1 mln in 2022, driven by a fast rise in Ukrainian refugees. That offset a fall in their natural population, and boosted their under 20yr demographic by a massive +2.8% in the year.

The UST 10yr yield will start today at 3.73% and down a sharp -9 bps from this time yesterday. 

The price of gold will start today down -US$12 at US$1937/oz and that's a three month low.

Oil prices are down -US$1 from yesterday to now be just over US$70.50/bbl in the US. The international Brent price is now just over US$75.50/bbl.

The Kiwi dollar starts today at 61.6 USc and down another -40 bps from yesterday. Against the Aussie we are firmish at 90.8 AUc. Against the euro we are softer at 56.4 euro cents. That means the TWI-5 is just on 69.4 and down another -30 bps from this time yesterday.

The bitcoin price is up sharply from this time yesterday and now at US$27,791 with a gain of +4.4%. Volatility over the past 24 hours has been moderate at just under +/- 2.9%.

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.