In the economic arm wrestle, the US outpaces China

Kia ora,

Welcome to Tuesday’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 American economic data is generally more positive while Chinese economic data is generally less positive.

First, American durable goods orders for May came in better than expected with a +12% rise from year-ago levels. As good, orders for capital goods also rose +12% on the same basis reflecting that board rooms are still investing strongly. For both measures, the month-on-month gains also beat forecasts.

Also positive, pending home sales broke a six-month skid with a slight rise of +0.7% in May from April. There was a noticeable surge in the Northeast region. Year-on-year they are down however -13.6%.

Not positive however is the Dallas Fed factory survey for June with a sharpish deceleration recorded. Of particular concern is the quick fall-off in new orders.

In Japan, new data shows that the Bank of Japan now owns half of all bonds there, a relentless buildup as they continue their easy money policies to bring back inflation.

Meanwhile, Russia has defaulted on its foreign debt. It can't pay largely as a result of sanctions inhibiting its ability to shift funds. It's their first default of foreign debt in 100 years. But during Russia’s financial crisis and ruble collapse of 1998, then president Boris Yeltsin’s government defaulted on $US40 bln of its local debt.

The struggles of China's industrial companies continued into May. In the month, profits were -6.5% lower than the same month a year ago, and it is little comfort that decrease was less than for April. That takes their year-to-date gains back to just +1.0%. The whole situation is actually much grimmer; manufacturing profits are almost -18% lower and utility companies -6% lower. The overall results are only restrained by profit surges in coal and other mining companies.

The Chinese central bank injected a total ¥100 bln (NZ$23 bln) into their banking system yesterday, by a seven-day reverse repurchase at a rate 2.1%, to ease pressure from rising cash demand toward the end of the first half of the year. They started pumping more cash into the financial system on Friday. Demand usually surges towards the end of the quarter, when commercial banks also have to shore up cash positions for an administrative quarterly health check by the central bank. But the size of this may suggest more is at play this time.

Taiwanese consumer sentiment fell in June, and the slip from May was sharp as it has been for a couple of months now, and it is now at its lowest since November 2009, lower than during the 2020 pandemic

In Australia, they released 2021 census data today and that shows some important trends in their demographics. For example the millennial demographic now equals the boomer population (both now at 21.5% of their population), and soon to outnumber it. And it also shows that more than half of their population is first or second generation immigrant.

The UST 10yr yield starts today up +6 bps from this time yesterday at 3.20%. 

The price of gold is at US$1823/oz in New York and down -US$3 from this time yesterday.

And oil prices are +US$3/bbl higher from this time Saturday at just over US$109/bbl in the US, while the international Brent price is now just over US$111.50/bbl.

The Kiwi dollar will open today at just over 63 USc. Against the Australian dollar we are unchanged at just under 91 AUc. Against the euro we are nearly -½c lower at 59.5 euro cents. That all means our TWI-5 starts today at just on 70.8 and down -30 bps.

The bitcoin price has moved lower from this time yesterday and is now at US$20,699 and down -2.4%. Volatility over the past 24 hours has been moderate at +/- 2.4%.

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.