Kia ora,

Welcome to Thursday’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 of some very large global tensions starting to boil hotter.

But first, mortgage applications in the US rose by +0.9% in the second week of June, extending the +16% surge from the previous week, which was the sharpest weekly increase since the start of 2023. Their monitoring of the benchmark 30 year mortgage rate showed it slipped below 7% last week, its lowest since late March.

The NAHB/Wells Fargo Housing Market Index in the US fell in June from May, and to below market expectations. It was the lowest reading since December 2023, attributed to mortgage rates remaining around 7%. However it is back at about its average level since mid 2022. The industry also said home builders there are also dealing with higher rates for construction and development loans, chronic labour shortages still, and a dearth of buildable lots.

In Japan, their huge agricultural bank, Norinchukin, has said it has made a massive mistake in its bond portfolio, betting that rates would stay down. They haven't and it said it would unwind its position between now and March 31. That will involve selling ¥10 tln (NZ$105 bln) of US and European sovereign bonds and take an expected ¥1.5 tln loss for the year. For perspective its total investment portfolio is NZ$585 bln.

Japanese exports surged in May, up from ¥7290 bln in May 2023 to ¥8277 bln in May 2024, a +13.5% jump. The jump was expected, but it came in better than anticipated. Meanwhile Japanese imports rose too but by less than expected.

We should keep an eye on the spreading impacts of excessive heat in northern India. Its inability to cool at night is life-threatening for many. The spreading heat emergency has also hit Saudi Arabia, and hundreds have reportedly died in their haj pilgrimage to Mecca.

In China, their central bank signaled it will be getting more aggressive in the way it supports the economy, a tacit move that acknowledges the tough spot they are in. They are likely to start trading government bonds in the secondary market, a change of how the central bank injects money into the economy and regulate liquidity. They are also likely to shift to a single short-term rate to guide markets, like almost all other central banks.

Tensions near the Philippines in waters claimed by China are getting worrisome with China's forces capturing a Philippines resupply vessel temporarily and forcing it away from a Philippine outpost. China's illegal claims based on their very doggy "nine-dashed-line" sea grab threatens a major international crisis.

In Australia, the RBA has been looking at the Buy-Now-Pay-Later and doesn't like what it sees. Their key concerns are not so much on the unregulated credit side, rather on the fee side. That say BNPL fees average 3.5% of the transaction cost, compared to 0.4% for debit cards, 0.8% for credit cards. BNPL makes Visa and Mastercard look good (!). A crackdown is coming, allowing retailers to pass on those costs to customers (until now the BNPL industry has prohibited that). But the RBA needs new powers to make that change.

Join us at 10:45am this morning when the Q1-2024 GDP result will be released. Markets are picking we exited recession on an overall basis, but with essentially no growth. (Of course, on a per capita basis, this result is likely to be a bit grim.)

The UST 10yr yield is now at 4.23% and up +1 bp from this time yesterday. 

The price of gold will start today virtually unchanged, up and insignificant +US$1 at US$2329/oz.

Oil prices are unchanged at US$80.50/bbl in the US while the international Brent price is now just on US$84.50/bbl.

The Kiwi dollar starts today a little softer at just on 61.3 USc. Against the Aussie we are -¼c softer at 91.9 AUc. Against the euro we are marginally softer at 57.1 euro cents. That all means our TWI-5 starts today up +30 bps at just on 71.2.

The bitcoin price starts today at US$65,049 and up +0.7% from this time yesterday. Volatility over the past 24 hours has again been modest at just on +/- 1.3%.

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.