Kia ora,

Welcome to Thursday’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 the world is waiting to see what direction inflation will take from here and how fast it will move.

But first, American mortgage applications rose again as another indication the US housing market is coming back to life. The rise from the prior week was minor, and this was despite virtually no change in the benchmark mortgage interest rates. It was the third consecutive rise, but to be fair it really isn't out of the lifeless pattern it has followed since late 2022. But at least it has halted the fall they had between the recent peak in late 2020 and late 2022.

There was other American data released overnight and none of it was market-moving. Both wholesale and retail inventories were little-changed in May. And the May merchandise trade balance came in slightly lower.

Later this morning the US Fed will release the results of its annual stress tests, their health check for a group of large American banks. It is expected to show they have ample capital to weather any fresh turmoil in the banking sector. Each time they do this, they update the stresses they are being subject to, so it isn't strictly an "improvement from last time" exercise.

In Europe at the ECB Forum on Central Banking, Fed boss Powell said at least two more rate hikes are on the table this year because of the very strong labour market in the US. At the same talkfest, ECB President Lagarde and Bank of England Governor Bailey both said they expect further tightening measures to cool down inflation too.

In China, more indications of their economic funk. Profits earned by their industrial firms dropped by -19% from a year earlier in the first five months of 2023, on weak demand, and margin pressures. The decline followed a -21% plunge in the prior period and a 4% fall in 2022, with profits shrinking in both state-owned firms and the private sector.

The scale of early mortgage repayments in China is becoming clearer and showing why it is having a broad economic impact. Fitch reports early mortgage repayments climbed to a five-year high in China at the end of the first quarter and they also see a new record high for Q2-2023. The rate of early repayments was 14.5% in Q1-2023, up from 8.5% in Q4-2022, their report showed.

In South Korea, consumer sentiment continued to improve with another good gain in June.

In March in Australia, CPI inflation was running at 7.0% pa. But yesterday they released their May inflation indicator which has it easing to 5.6% pa. That's a 13 month low. The RBA next reviews its cash rate target on Tuesday next week, so the chance of a hold then might have gone up. But then again 5.6% is still way above their target and the RBA doesn't always do what the markets think the signals are. Besides, some are noticing a rise in inflation expectations.

The UST 10yr yield will start today at 3.72% and down -5 bps and in a yoyo pattern recently. 

The price of gold will start today at US$1912/oz and that's unchanged from yesterday.

And oil prices are +US$1.50 higher from yesterday to now be just under US$69.50/bbl in the US. The international Brent price is now just under US$74.50/bbl. An unexpected run down of US crude oil stocks might be the key reason here for this firming.

The Kiwi dollar starts today at 60.8 USc and down almost -1c from yesterday and back to where it was two weeks ago. Against the Aussie we have slipped slightly to 92 AUc. Against the euro we are -½c softer at 55.7 euro cents. That means the TWI-5 has fallen to 69.4 and down -60 bps since this time yesterday.

The bitcoin price has slipped from this time yesterday and now is at US$30,144 which is a -1.9% retreat. Volatility over the past 24 hours has remained modest at just under +/- 1.2%.

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.