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 more rises to our OCR may be off the table now but that doesn't mean our interest rates will stop going up.

This coming week, the big international focus will be on the US CPI change for June. We get that on Thursday, NZ time and an increase of 3.1% is expected, down from the May 4.0% rate. That would count as good progress, but markets still expect two (or three) more US Fed rate hikes in 2023 based on recent Fed speaker signals.

Later today we will also get China's June CPI inflation report, and that isn't expected to show any increase. India releases their June CPI result on Thursday.

This coming week we will also get central bank rate reviews from Canada on Thursday where a +25 bps rise is expected, and South Korea also on Thursday. And of course we will get our own RBNZ releasing their decision on Wednesday, and no change is expected here.

Australia's business and consumer sentiment survey results come out this week too and will be influential.

But most influential has been the US headline non-farm payrolls expanded +209,000 when analysts had expected +225,000. This headline June expansion is the lowest in almost three years.

Although the headline numbers cooled, economic activity hasn’t slowed as much as Fed officials expected, likely keeping the central bank on track to raise interest rates later this month to combat its persistent and above target inflation. The labour market has their backs for an increase.

Canada also released its June labour force data and that came in better than expected, up +59,900 in June from May when a +20,000 rise was anticipated. In fact, they had a +109,600 rise in full-time employment and a fall of -49,800 in part-time employment. So the net quality of the new jobs improved. This probably paves the way for another central bank policy rate hike there too on Thursday (NZT). Their policy rate it is already 4.75%.

For all its economic recovery issues, China's foreign exchange reserves rose in June when no change was expected. Yes, the rise was small in USD terms but is was a rise. They are now at US$3.193 tln, with less than US$0.9 tln held in US government debt.

Total vehicle sales in China came in at almost the same level as a year ago for June, but that built on their large May recovery. Total sales are now running at an annual rate of 26 mln, making this the world's largest vehicle market by some margin over the second place US. More than 2.5 mln vehicles were sold in June 2023 alone.

Taiwanese exports fell sharply in June from May, down more than -10%, and an uncomfortable -23% lower than June a year ago. Ameliorating the pain was that imports fell even more.

Japanese household spending remained low in May and is falling, with households there prioritising saving. If this trend embeds it will be hard for Japan to maintain its recent economic expansion, and it will be up to their Government to convert those savings into some sort of spending.

The latest update to the FAO world food price index shows prices continuing to retreat with the pressures well and truly behind us. It fell for a second month in June and to a fresh low since April 2021. The May increase was downwardly revised. Obviously global food supply and cost pressures have eased a lot since their peak in March 2022, falling by almost a quarter. Meat prices have remained stable since October last year, but dairy prices continue to ease.

The UST 10yr yield will start today at 4.07%, unchanged from Saturday but it is up +22 bps in a week and that is a big move, and to its highest level since the brief March spike and before that, November. 

For all the turmoil, we should note that the Fear & Greed Index is now strongly on the 'greed' side of things. Investors are shrugging off their fears, despite the bond market signals. But an upcoming earnings season that might deliver wavering results could quickly upend that.

The price of gold will start today at US$1924/oz and down -US$2 from Saturday. This price isn't signaling 'fear' either.

And oil prices are holding at just over US$73.50/bbl in the US. The international Brent price is now at just over US$78.50/bbl.

The Kiwi dollar starts today just over 62.1 USc and unchanged from Saturday. Against the Aussie we are still firm at just under 92.9 AUc. Against the euro we are holding at 56.6 euro cents. That means the TWI-5 is now just over 70.3, little-changed from Saturday but up +50 bps in a week.

The bitcoin price has risen marginally from this time Saturday and now is at US$30,276 which is a minor +0.4% shift up. Recall, this time last week this price was US$30,316, so little change from then too. Volatility over the past 24 hours has been low at just under +/- 0.6%.

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 tomorrow.