Kia ora,

Welcome to Friday’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 the rise of the US economy and the slowdown in China that Beijing can't seem to arrest is twisting a vast cast of supporting economies and their currencies. The NZD and AUD are devaluing faster now.

First up today, the giant American economy grew much more than expected as reported by their 'advance' Q2-2024 release. It was up +2.8% when +2.0% rise was expected after the Q1-2024 +1.4% expansion. This was driven by strong consumer spending which broadly confirms the weekly retail impetus that we track. Consumers are acting 'positively'. Growth of +2.8% is 'moderate' in the grand scheme of things - until you realise that it is a +US$360 bln (nominal) expansion from Q1, almost +US1.6 tln from the same period a year ago. Nowhere else has expanded like that (and more than double China's +US$784 bln equivalent expansion). The American economy had economic activity of US$28.6 tln in the past year.

Prices (PCE) were up +2.6% in Q2, a lesser rise than the +3.4% rise in Q1. Getting there, but not there yet.

Meanwhile, US initial jobless claims fell more than expected last week at 225,000 from the 281,000 of the prior week. These levels are nearly back to where they were a year ago. There are now 1.9 mln workers on these benefits, a tiny slice of their 364 mln workforce.

But new orders for durable goods slumped -6.6% in June from May, after four consecutive monthly increases and missing market expectations of a +0.3% rise. Transportation equipment drove the decrease. From a year ago, these durable goods orders were down a startling -11%. Orders for capital goods were worse, down -27% on the year-ago basis. (However, excluding aircraft, there was little change.)

The next July regional factory survey is from the Kansas City Fed, and they reported little-change from June. Basically it mirrors the national durable goods order data.

Earlier today there was a well-supported UST 7yr bond auction and that brought a 4.11% median yield. That is slightly lower than the 4.22% yield at the prior equivalent event a month ago.

China's central bank unexpectedly cut the rate at which it lends to financial institutions, the first such cut in nearly a year. It lowered the one-year medium-term lending facility (MLF) rate to 2.3%, from 2.5%. The bank issued ¥200 bln in loans to banks at this rate.

This rate cut is part of Beijing's attempts to spur a sluggish economic growth. This was just a part of actions taken yesterday. It is also expanding a subsidy program to get more people buying cars and consumer electronics. This will cost them ¥300 bln, paid for out of their issue of ultralong special treasury bonds. The subsidies for those trading in their passenger cars for new energy vehicles will double to ¥20,000, compared to the ¥10,000 subsidy announced in April. Trade-ins for petrol vehicles will rise to ¥15,000 from ¥7,000 per vehicle.

Global container shipping rates stayed very high last week, but they did slip a small -2% from the week before and are just off their peak. That makes them +268% higher than a year ago. There seems no relief in sight yet. Bulk cargo rates were little-changed last week to be +24% higher than year-ago levels.

The UST 10yr yield is now at just on 4.27% and down -2 bps from this time yesterday. 

The price of gold will start today down a very sharp -US$60 from yesterday at US$2352/oz. That is down -2.5% on the day.

Oil prices are +50 USc firmer at just over US$78/bbl in the US while the international Brent price is just on US$81.50/bbl.

The Kiwi dollar starts today weaker, down another -40 bps at just under 59 USc. That is a -3.4% devaluation since the start of the month. Against the Aussie we are down -10 bps at 90 AUc. Against the euro we are down a full -½ at 54.3 euro cents. That all means our TWI-5 starts today at 68 and down -40 bps from yesterday and that is near a two year low.

The bitcoin price starts today at US$64,827 and down -2.6% from this time yesterday. Volatility over the past 24 hours has been moderate, also at +/- 2.6%.

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 on Monday.