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 no-one knows what is going on in the Iran-US 'negotiations' - least of all Trump. Ships are transiting at trickle-pace, but they tend to be large Chinese tankers. The bottom line is essentially 'no progress'.

And although the benchmark 10 year bond yields are basically holding, yields for shorter terms are catching up, so a rate flattening is underway.

US jobless claims dipped last week, and by marginally more than seasonal factors would have expected.

Precautionary stockpiling by manufacturers is currently driving the US factory sector. New order growth slowed slightly but is still higher than normal in May, according to the latest S&P Global PMI for the US. But factory activity has taken a step up so output is rising at its fastest pace in four years. Driving all this is the need to get ahead of surging input costs, which are spiking in dramatic fashion.

But the activity surge isn't everywhere. The Philly Fed's factory survey unexpectedly contracted in May. The Kansas City Fed's survey was little-changed from a modest expansion. Both saw very little respite from elevated input costs.

US housing starts dipped in April from the good March levels. They are being held up on the same drive to get ahead of expected large cost increases.

Across the Pacific in Korea, they are feeling producer price inflation at disarmingly high levels. They rose +2.5% in April to be 6.9% higher than year ago levels. But factory input costs rose an average of +11.3% mainly for fuel and other oil-based inputs. And this is very interesting.

After a strong rise in February, Japanese machinery orders were expected to ease back in March, and they did, and by about the expected level. However, export orders remained very strong. They are expecting the April-June quarter to just be level-pegging with the same period a year ago. But this whole machinery manufacturing sector is in an upswing phase that started in 2023 and one that gathered some real impetus from mid-2025.

That Japanese factory order data is confirmed in April export data out yesterday. Japan's exports jumped almost +15% to a near-record high of ¥10.5 tln in April, accelerating from an +11.5% gain in March, the fastest pace in three months and topping market forecasts. Exports grew to China (+15.5%), the US (+9.5%), ASEAN (+19.9%), the EU (+26.9%), and India (+8.9%). The May Japanese factory PMI is still expanding quite quickly but cost pressures are surging.

In India, their PMI is little changed at a healthy expansion, but they report that further expansion is being capped by this rising cost pressure.

EU consumer sentiment has stayed very low in May, even if it did bounce back from the ugly April level. The EU economy is being forecasted to slow down amid rising inflation following the energy shock.

The Eurozone factory PMI is still expanding, but less so, and under heavy input cost pressure too.

The Australian labour market is weakening with a turn lower in April. The number of employed people fell by -19,000 in April, while the number of unemployed people rose by +33,000. Markets had expected employment to rise by +10,000. Their jobless rate is now 4.5%, the highest in seven months. (The New Zealand jobless rate was 5.3% in March 2026.)

The April PMIs are out for Australia, and they show weakening business conditions. The S&P Global factory PMI slowed to a stall with the private sector getting its steepest fall in new business in over four-and-a-half years. The service sector is now in contraction after March's stall.

And staying in Australia, there has been an outpouring of voices, a veritable cacophony, claiming the loss of low tax capital gains is an affront, "punishing aspiration". "stifling innovation". Since when did 'aspiration' and 'innovation' rely so heavily on discounted taxes on the gains made from this activity? Inequitable taxes on this activity is just distorting behaviour and it helps misrepresent what is being achieved. It also loads more tax on those that can't avail themselves of these distortions. They all want a "level playing field" - unless the playing field is unlevel in their favour. What we are seeing is a classic lesson for anyone designing a tax system. Make it neutral and fair to start with.

Global container freight rates rose +6% last week to be +10% above year-ago levels, driven largely by outbound rates from China to the EU. Bulk freight rates fell -5.7% in the past week, easing after the prior six week run-up reaction to Trump's Gulf War. But that still leaves them +125% higher than year-ago levels.

The UST 10yr yield is now just on 4.58%, up +1 bp from this time yesterday. 

The price of gold will start today up +US$20 at US$4553/oz. Silver is up +US$1 at just under US$77/oz.

Oil prices have dipped -50 USc to just over US$97/bbl in the US, while the international Brent price is now at just on US$103.50/bbl

The Kiwi dollar is up +10 bps from yesterday at this time at 58.8 USc. Against the Aussie we are unchanged at 82.1 AUc. Against the euro we are up +10 bps at just on 50.6 euro cents. That all means our TWI-5 starts today at just under 62.3 which is up +10 bps from yesterday.

The bitcoin price starts today at US$77,759 and up +0.3% from this time yesterday. Volatility over the past 24 hours has been low at just under +/- 1%.

You can 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 on Monday.