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 stress is driving protests in countries as diverse as the Netherlands and China.

But first, there was a US Treasury 3 year bond auction earlier today delivering higher yields. It was very well supported delivering a median yield of 3.04%, up from 2.87% at the prior equivalent event a month ago.

In the US we should also note that now more than 5% of new car sales are electric, which is considered a tipping point from where mass adoption of EVs will rise fast from here. (In New Zealand we are at about 3%.)

More electric demand is problematic for some states there. Demand due to summer heat alone is drawing warnings in Texas that they face blackouts again this year.

Wall Street is getting ready for their Q2 earnings reports and expectations are low for what is to come. Overall, earnings growth of +4.3% is anticipated for this upcoming set, the lowest gains since 2020. Big banks and other financial companies will dominate the early part of the scheduled releases later this week. PepsiCo will report tomorrow and Delta Air Lines on Thursday, NZT. They start a flood of releases.

In Japan, machinery order data for May was weak, but no weaker than expected for that month. They fell -5.6% in May from April, posting their first drop in three months and nearly matching forecasts for a -5.5% contraction. But they were up +7.4% from year ago levels which was better than expected. Analysts suggested that Japanese firms could be delaying spending due to rising energy and raw material prices that have been aggravated by soaring import costs due to a weakening yen.

The arguably more important Japanese machine tool order data for June came in a very strong +17% higher than a year ago, maintaining the same strong level as for May.

China is successfully pumping bank debt out the door is a rather spectacular way. In June, new yuan loans increased by ¥2.81 tln (+NZ$0.7 tln), a year-on-year increase of +24% taking their total bank debt to ¥205 tln (NZ$50 tln) or 173% of annual economic activity. For perspective, the same ratio in New Zealand is 148% and for the US is just 70%.

China isn't shaking its pandemic risks and new lockdowns seem inevitable, keeping supply chain troubles bubbling away.

Meanwhile, China has a new and explosive bank-run risk. A large crowd of angry Chinese bank depositors faced off with police on Sunday, some roughed up as they were taken away, in a case that has drawn attention because of earlier attempts to use a COVID-19 tracking app to prevent them from mobilising. Hundreds of people held up banners and chanted slogans on the steps of the branch of China's central bank in the city of Zhengzhou, Henan Province, about 620 km southwest of Beijing. Video taken by a protester shows plainclothes security teams being pelted with water bottles and other objects as they charge the crowd. The protesters are among thousands of customers who opened accounts at six rural banks in Henan and neighbouring Anhui Province that offered higher interest rates. They later found they could not withdraw their funds after media reports that the head of the banks' parent company was on the run and wanted for financial crimes. This is the type of bank run by depositors that Beijing fears.

In Holland demonstrations of a different nature where "huge protests" have swept the country triggered by the introduction of laws designed to cut nitrogen and ammonia emissions by -50% by 2030, and by -75% in protected nature reserves known as Natura 2000 areas. The latest demonstrations were sparked by a government announcement in June suggesting some farm closures were inevitable when they released a detailed map showing which areas needed reductions from -12% to -95%.

And we should also note that foot & mouth cattle disease has broken out in Indonesia, and travelers from Bali especially are at risk of bringing it back. The risk is much higher for Australia of course, but it is not trivial for us either.

The UST 10yr yield starts today back down at 2.99% and an -9 bps fall from yesterday.

The price of gold will open today at US$1736/oz which is -US$7 lower than this time yesterday.

And oil prices have moved back down -US$1 to just under US$101.50/bbl in the US, while the international Brent price is still just over US$105/bbl.

The Kiwi dollar will open today down more than -½c from this time yesterday at 61.3 USc. Against the Australian dollar we are +½c firmer at 90.8 AUc. Against the euro we are unchanged at 60.8 euro cents. That means our TWI-5 starts today at just on 70.4 and a minor -20 bps lower.

The bitcoin price has slipped fractionally since this time yesterday and is now at US$20,595 and down +1.4%. Volatility over the past 24 hours has been moderate at +/-2.2%

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.