Growth impetus fades

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 that, apart from fossil fuels, we are seeing a broad retreat in most commodity prices today.

And first, even though the slip was small last week, American mortgage applications fell again week-on-week taking this downward trend to nine of the past twelve weeks. Benchmark mortgage interest rates fell for a second straight week.

April data for American durable goods orders came in marginally softer than expected. They rose +0.4% month-on-month to US$265 bln in April, following a downwardly revised +0.6% rise in March. They are now +10.5% higher than a year ago. This is a sign business spending moderated somewhat. In a good positive sign, orders for capital goods rose more than +14% year-on-year in a rising trend.

The release of the May US Fed minutes revealed that most of their policymakers judged that +50 bps increases in the fed funds rate would be appropriate at the next couple of meetings. They also recorded that a twist to a restrictive stance of policy may well become appropriate, and the timing of that shift will depend on the evolving American economic outlook. There is an urgency here that they want to recover lost ground as inflation has burst on them faster than they expected. But markets seem unconvinced of their commitment, especially as those minutes hinted a late 2022 pause may be needed.

The American federal budget situation is being repaired fast. This year's deficit is expected to be under US$1 tln, a sharp improvement from the -US$2.8 tln last year. Recall it hit -15% of GDP at the end of the Trump presidency. This year it may have recovered to -5% of GDP. Still, surpluses don't seem to be on the horizon any time soon.

China seems to be going the other way, worried things are slipping into dangerous territory. In a huge teleconference attended by 100,000 local officials, Premier Li warned China's economy is facing the risk of "sliding out of a reasonable range"... "for an economy as large as China, once the economic operations fall out of a reasonable zone, it will take a long time and huge costs to bring it back," he is reported to have said. Meanwhile, President Xi is nowhere to be seen dealing with the growing economic crisis. He is meeting with security officials.

Malaysia's CPI inflation came in at 2.3% extending the trend of modest to moderate inflation levels in ASEAN countries. Overnight their finance minister said there is now room for them to start raising interest rates.

Yesterday we noted a surprising improvement in German business sentiment. Today we can note an equally surprising, if minor, improvement in German consumer sentiment. It is still quite negative, but less so. In the circumstances of war and super-high inflationary pressures, it is not a result you might expect.

The ECB is warning a house price correction in Europe is looming as interest rates rise.

In Australia, the incoming administration is warning that their federal financial situation is worse than they expected, and with the RBA about to raise interest rates as inflation zooms, they are additionally constrained on spending plans over and above their election promises. They are saying economic pain could be with them for some time to come.

The UST 10yr yield will start today at 2.75% and little-changed. 

The price of gold is lower today, down -US$14 since this time yesterday at US$1851/oz.

And oil prices are virtually unchanged today and still just on US$109.50/bbl in the US, while the international Brent price is still just at US$111.50/bbl.

The Kiwi dollar will open today little-changed against the US dollar, now at 64.6 USc. Against the Australian dollar we are firmer at 91.4 AUc. Against the euro we are also firmer at 60.6 euro cents. That all means our TWI-5 starts today at 71.5 which is up +20 bps from this time yesterday.

The bitcoin price has risen +1.7% from this time yesterday and is now at US$29,788. Volatility over the past 24 hours has been modest at +/- 1.9%.

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.