Kia ora,

Welcome to Monday’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 upbeat economic signals are harder to find.

But first, let's take a look at what economic signals we can expect in the next few days.

It will be a busy week in the US, with the Fed interest rate decision on Thursday (NZT) and no change is expected by financial market pricing, and their CPI inflation rate comes on Wednesday (NZT). The week will also feature data on retail sales, and the University of Michigan consumer sentiment reading.

Elsewhere we will be following the ECB and Bank of Japan monetary policy decisions.

And China will be releasing industrial production, retail sales, and fixed asset investment data, while India will announce its inflation rate and industrial production figures. From Australia we will get consumer and business confidence and their May labour market data this week, also on Thursday.

Of course, locally our current account position for March will come out on Wednesday, along with our Q1-2023 GDP result. Financial markets expect a tiny contraction to come after the Q4-2023 contraction, so the headlines will scream 'technical recession'. Bank analysts aren't coming down on the side of contraction however. Not so technical will be the REINZ data for May which we should get this week. It is unlikely to uncover any green shoots.

Over the weekend, and as we have noted elsewhere, we got confirmation China has no consumer inflation. Their official data for May reported their annual inflation rate edged up to +0.2% in May 2023 from April's 26-month low of +0.1%, but less than market estimates of +0.3%. Between April and May, prices slipped slightly. None of this paints a picture of substantial demand. Milk, beef and sheep meat prices all fell faster than the overall level.

However, China does have deflation in its industrial sector. Producer prices fell -4.6% year-on-year in May, faster than a -3.6% drop in April and worse than market forecasts of a -4.3% drop. It was the eighth straight month of producer deflation and the steepest fall since February 2016. It comes amid weakening demand and moderating commodity prices.

China is losing investor favour faster now too and in a wider set of sectors. Foreign investors pulled a net -US$7.2 bln worth of funds from Chinese bonds in May, according to the Institute of International Finance Capital Flow Tracker. That marked the fifth consecutive month of outflows. In April, a total of -US$10 billion was withdrawn from Chinese debt. But Chinese equities posted +US$126 mln worth of inflows from overseas funds in May, compared with April’s outflow of -US$808 mln. This was minor and there is still a considerable fund-outflow pressure in China’s capital markets, particularly in bonds, over the past few months, amid a weaker yuan. The Chinese currency has lost -3% against the US dollar since the start of the year.

Beijing officials are clearly worried but not unnerved yet. Their central bank governor appealed for confidence and patience after the weak price data triggered concerns over deflation that is hampering their post-pandemic recovery.

In the US, concerns about the health of more regional banks is returning, especially over the valuation of their loans for commercial real estate.

In Canada, their jobless rate rose to 5.2% in May from 5% for the five previous months. It is the first increase in their unemployment rate in nine months. Their labour market is clearly cooling. -17,300 jobs were lost, largely by younger workers, the first decline in nine months, and this was a big surprise because analysts had expected a rise of +23,200.

Good rains in the US mean that they will have a substantial surplus this year in their wheat crop, with output rising to over 800 mln tonnes. But Russia, India, the EU and Ukraine are also all expected to have bumper wheat harvests. American corn and soybean exports are expected to be smaller however. All this comes from the latest USDA WASDE June update. They signaled no significant changes in beef and milk production or prices.

In Australia, more economists are now warning growth is evaporating there and the chances of a recession in the lucky country are now 50:50 in Q3 and Q4-2023. The latest to come to this view are CBA and HSBC. It didn't help that business turnover fell in April in Australia, and kind of sharply.

We should also note that it is a public holiday in much of Australia today (although not Queensland or WA).

The UST 10yr yield will start today at 3.74%, unchanged from Saturday but up +5 bps from a week ago. 

The price of gold will start today unchanged at US$1961/oz. But that is up +US$10/oz from a week ago.

And oil prices have stabilised from Saturday at just under US$70.50/bbl in the US. The international Brent price is still just under US$75/bbl.

The Kiwi dollar starts today little-changed at 61.3 USc. Against the Aussie we are little-changed from Saturday at 91 AUc. Against the euro we are marginally firmer at 57.1 euro cents. That means the TWI-5 is still at 69.4 and little-changed.

The bitcoin price is a little lower since this time Saturday at US$25,987, down -1.7%. Volatility over the past 24 hours has been modest at just on +/- 1.1%.

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.