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.

Today we lead with news yesterday's optimism seems to have turned to custard today.

Earnings reports from Walmart and Target show that retailers can't raise prices fast enough to maintain margins and earnings are taking a hit. Investors have quickly forgotten the prior day's upbeat mood.

US mortgage applications were down a sharpish -11% last week but at least their mortgage interest rates did not rise further.

American housing starts remain high but in a rut principally due to supply chain inhibitions because completion levels aren't rising. Building permit approvals remain at historically high levels.

Canada's CPI inflation rate came in at 6.8% in April, marginally above the 6.7% in March but making it a 30 year high. But more recently, prices seem to be running at an annualised 8.5% rate, so they are in a nervous position. Food and housing costs are driving their increases, rather than energy costs.

Japan's economy shrank in the first quarter of 2022 at an annualised rate of -1.0%, continuing a recent trend of oscillating between growth and contraction. Accelerating inflation and a surge in pandemic cases contributed to gross domestic product, adjusted for inflation, dropping -0.2% from the previous quarter. A decline was expected, in fact a decline of -0.4%, so in the circumstances they might take this as a 'win'.

Average new home prices in China's 70 major cities rose by just +0.7% in the year to April, slipping from a timid +1.5% gain a month earlier. But 50 of those 70 cities recorded house price falls from the prior month, 4 recorded no change, and of the 16 that recorded a gain, none exceeded +1%. Shanghai recorded no change, presumably because it was locked down. This was the weakest rise in new home prices since October 2015, as Beijing's deleveraging campaign triggered a liquidity crisis in some major property developers.

In all of Shanghai, population 25 mln (in a greater metro region of 41 mln people), their car dealers sold zero new cars in April. Not even one. But because they order in advance, they still had to buy inventory. It must be tough.

A senior Chinese central banker is "being investigated" for suspected leaking of official economic statistics, after Beijing criticised the central bank for not adequately aligning itself with the party. There is no comeback for him now. The Central Commission for Discipline Inspection said that Sun Guofeng, who was until earlier this month head of the monetary-policy department, is being investigated for “suspected serious violation of laws and discipline.” It didn’t disclose any specifics but it earlier issued a report saying "the building of financial regulations is relatively sluggish" and blames the bank for not meeting President Xi's targets for "promoting deepening financial reform".

The EU settled on its final inflation data for April at 8.1%, up from 7.8% March, and marginally lower than their initial estimate. 

Australian wages rose +2.4% in the year to March, marginally better than the +2.3% in the year to December, but not as strong as expected (+2.5%). Even the q-on-q was a tad disappointing (annualised +2.8%), and this won't really bolster the RBA's case for a quicker return to 'normal' for monetary policy. But the weakish data will accentuate the political points at the end of their election campaign that wage earners are losers in the cost of living pressure. Also, this weak data probably rules out any outsized interest rate hike at their next review on June 7.

The UST 10yr yield will start today -8 bps lower at 2.89%. 

On Wall Street, the S&P500 could not hold yesterday's gain and is down a very sharp -4% in Wednesday afternoon trade. 

The price of gold starts today down -US$2 since this time yesterday at US$1816/oz.

And oil prices are -US$3.50 lower today and now just over US$106.50/bbl in the US, while the international Brent price is now just over US$107.50/bbl.

The Kiwi dollar will open today almost -½c weaker against the US dollar, now at 63.2 USc. Against the Australian dollar we are little-changed at 90.5 AUc. Against the euro we are almost unchanged at 60.3 euro cents. That all means our TWI-5 starts today at 70.6 which is down -30 bps from this time yesterday.

The bitcoin price has fallen -3.5% from this time yesterday and is now at US$28,989. Volatility over the past 24 hours has been high at +/- 3.4%.

You can find links to the articles mentioned today in our show notes.

And 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 tomorrow.