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.

And today we lead with news of some truly huge industrial orders being announced in Paris.

But first we should note that the US is on a Federal holiday today and most financial markets are closed there.

However there was some interesting data out overnight. Their home builder confidence index rose to its highest reading since July last year, and easily beating what was expected. Although the improvement was off a low base, it was due to solid demand, a lack of existing inventory and improving supply chain conditions. And the improvement came even though credit conditions are tightening and construction loans became more difficult to get.

In Canada producer prices are sliding faster now and overall cost deflation is accelerating for firms. Prices dropped a full -1.0% in May from April to be a massive -6.3% lower than a year ago. The reason is almost all to do with falling energy prices which were down -33% in a year, so apart from that industry, no-one is particularly worried about that. Their producer prices have now retreated to where they were in January 2022.

Perhaps we should note that international natural gas prices are now quite low, back to where they were in 2014. They were first at this level in 1995. Coal prices have dived as well, back to levels first reached in 2011. In fact, shipments of coal from the key Australian port of Newcastle have hit a five year low.

However, the global economy is about to get a boost from some more very large aircraft orders. The Paris Air Show has opened and eye-popping orders are being announced. You will recall that earlier in the year Boeing and Airbus shared a 470 plane order from Air India. Well Airbus has now confirmed a 500 plane order from another Indian carrier, IndiGo. This level of ordering is placing extreme pressure on manufacturers, and recall that China has indicated it will be needing more than 1000 new aircraft in coming years. And it is not as though the homegrown Chinese aircraft industry can supply that; they have delivered just one aircraft so far. No doubt they will ramp up deliveries impressively soon, but that is unlikely to put a dent in international order backlogs. Look out for more eye-popping orders to hit the headlines from Middle-East carriers, as well as Chinese ones too at Paris. Of course, all of this demand is on top of enhanced military demand. It is a manufacturing sector that has the ability to drive global economic fortunes. But has been such a sudden burst, it also has the look of a dangerous bubble.

In China, there was an unexpected surprise change of tune in Beijing; President Xi met with US Secretary of State Binken. Blinken is there trying to lower the temperature of diplomatic rivalry and especially the prospect of a Chinese adventure to retake Taiwan by force. Just the fact that this meeting took place is a good sign even if neither party changed their positions.

China needs a break from the negative economic sentiment that has been building there

Separately, the IMF says it is working on a platform for central bank digital currencies (CDBCs) to enable transactions between countries. "CBDCs should not be fragmented national propositions... To have more efficient and fairer transactions we need systems that connect countries: we need interoperability," they said.

The UST 10yr yield will start today at 3.82% and up +5 bps from this time yesterday. 

The price of gold will start today down -US$9 at US$1949/oz.

Oil prices are slightly softish from yesterday to now be just under US$71.50/bbl in the US. The international Brent price is now up at just on US$76/bbl.

The Kiwi dollar starts today up at 62 USc and and down -40 bps from yesterday. Against the Aussie we are softish at 90.6 AUc. Against the euro we are also a tad softer at 56.8 euro cents. That means the TWI-5 is just on 69.7 and down -30 bps from this time yesterday.

The bitcoin price is unchanged from this time yesterday at US$26,631. Volatility over the past 24 hours has remained low at just under +/- 0.8%.

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.