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 pandemics, war and now floods are compounding pressures on the global economy.

In the US, Fed Chairman Powell is giving testimony to Congress today and tomorrow, and today acknowledged that a soft landing for the giant American economy will be "challenging" and he also acknowledged that a recession is a real possibility there. That dose of realism has put a huge damper on financial markets today, but Wall Street is actually up, presumably on the basis that his comments on the outlook weren't worse.

American mortgage applications rose again last week, a second successive weekly gain after a long period of declines. They also reported that the average 30 year mortgage rate is almost touching 6% there. It was just 3% at the beginning of 2022.

In more positive news the US retail Redbook index shook off its prior week slowdown to return to its 'normal' strong recent year-on-year gain, well above what can be accounted for in inflation.

There was a US Treasury bond auctions earlier today. The 20yr one was very well supported and came in with a median yield of 3.41% compared to 3.22% at the prior event a month ago.

Canada reported May consumer price inflation earlier today at 7.7% and well above the 7.4% expected which in turn was above the 6.8% they reported in April. Fuel and food drove their sharp rises. This level is a 40 year high for them. Recall the US CPI is rose +8.6% in May, so Canada's impact is less than its southern neighbour.

In China, their southern manufacturing hub in Guangdong raised its flood warning to the highest level due to the worst rains in decades in the Pearl River basin, spurring more evacuations and threatening further supply chain disruptions in an economy reeling from Covid-related lockdowns.

And pressure, already extreme, is still rising on the Chinese property development sector. Sales have been very weak, with most of their large listed companies reporting they are only achieving less than 30% of their sales targets, and that is even after more than 200 cities have rolled out policy measures to support the struggling housing market. Nothing authorities are doing there is helping yet.

That is having a direct impact on commodity prices, like copper and iron ore.

In the EU, consumer sentiment is in the toilet and back near its early pandemic record low. Inflation's bite and the invasion to their East isn't making them feel good at all. Russia is now deliberately bombing grain terminals and infrastructure, completely insensitive to the food crisis it will worsen.

And Europe has been told to prepare for the upcoming winter without Russian gas supply.

The UK also reported their CPI inflation for May and it rose +9.1% there from a year ago (on the same basis other countries report - they have some weird local versions that are lower.) This was a fresh 40 year high too.

The UST 10yr yield starts today down -8 bps at 3.15%. 

The price of gold is now at US$1841/oz in New York and up +US$5.

And oil prices are -US$1.50/bbl lower from this time yesterday at just under US$107/bbl in the US, while the international Brent price is now just over US$110/bbl.

The Kiwi dollar will open today at just under 63 USc and -20 bps softer than this time yesterday. Against the Australian dollar we soft 90.7 AUc. Against the euro we are much lower at 59.5 euro cents. That all means our TWI-5 starts today at just under 70.8, an down -50 bps from this time yesterday.

The bitcoin price has moved up from this time yesterday and is now at US$20,235 and up +1.9%. Volatility over the past 24 hours has been high again at +/- 3.6%.

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 tomorrow is a public holiday in New Zealand, Matariki, we’ll do this again on Monday.