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 inflation's bite is getting worse, and the policy pushbacks are ramping up now. The stagflation risk is now very real.

American producer prices were up 11.2% in March from the same month a year ago, the biggest increase since the data started being collected twelve years ago and topping estimates. The increase from February was +1.4%, so recent rises are now running faster than the annual average. This will cement the Fed's inflation-fighting drive and probably lock in an outsized rate hike when they meet in early May.

The US Treasury had a small 30 year bond auction today for $25 bln, one that was well supported garnering US$50 bln in bids. The median yield achieved was 2.73%, up only modestly from the 2.32% pa for the same event a month ago.

As expected, the Canadian central bank raised its policy rate overnight by +50 bps taking it to 1.0% and explicitly started a monetary tightening phase. Canada's headline inflation rate is 5.7% and its economic expansion is running at +3.3% real.

Yesterday we reported a sharp jump in machine tool orders in Japan in March. Today we should note that February overall machinery orders were weak and much weaker than expected. Machine tool orders tend to be export focused, whereas overall machinery orders have a larger local component, and that is the part that was weak in February. But perhaps there was a bounce-back in March?

China's export growth slipped in March, although not by quite what was expected, and came in +15% higher than the year-ago level. But eye-catching in this data was the absolute decline in imports, down -0.1% when an +8% rise was expected, itself a drop from the February +16% rise. It is a massive negative turnaround, indicating very weak local demand. It is more stark when you note that energy imports were up +39% by value in March. The sharp divergence between exports and imports juiced their trade surplus up to +US$47 bln in the month, with their US surplus nearly touching +US$60 bln. But none of these March results are records, far from it. In March, they ran a -US$9.5 bln trade deficit with Australia and a -US$1.8 bln deficit with New Zealand which was unusually large.

China has signaled that a reserve ratio cut is in the works to help keep their economy from slipping back amid heavy domestic economic headwinds. They also have their banks raising vast amounts of new bond funding. With all this liquidity being readied, you do have to wonder what the quality of the projects that are to be funded will be.

In Australia, the respected Westpac/Melbourne Institute consumer confidence survey posted a modest fall in April from March, but it now sits at its lowest level since September 2020 when pandemic fears were dominating. Now they are worried about geopolitics, floods, inflation, and interest rates. These fears are not enough to overcome the juicy election Budget, further strength in the labour market and a significant recent fall in petrol prices there. It is also not good news for the incumbent government which is suffering from serious distrust issues by the electorate.

The UST 10yr yield has slipped today, down -3 bps to 2.69%. 

The price of gold starts today at US$1979/oz and up another +US$8 from this time yesterday.

And oil prices are up +US$3.50 today at just over US$103.50/bbl in the US while the international Brent price is now just on US$108/bbl.

The Kiwi dollar will open today almost -1c weaker at 67.9 USc. Against the Australian dollar we are -¾c softer at 91.2 AUc. Against the euro we have sunk a fill -1c to 62.4 euro cents. That all means our TWI-5 starts today at just 73.7 and its lowest in a month.

The bitcoin price is up 2.5% from this time yesterday at US$40,988. Volatility over the past 24 hours has been moderate at +/- 2.5%.

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 because it is the long Easter holiday weekend here, we’ll do this next again on Tuesday.