Indicators coming in weak

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 many global indicators are coming in quite weak today.

First, American existing home sales dropped -5.4% in June from May to an annual rate of 5.12 mln in June and a two year low and well below market forecasts of a 5.38 mln sales rate. It is the fifth consecutive month of retreat as tougher affordability continues to take a toll on potential home buyers. The median price for all housing types was US$416,000 (NZ$668,000), a record high and up more than +13% in a year. Total unsold inventory rose sharply, up almost +10% from May to 1,260,000 units.

It will be no surprise then that mortgage applications are falling. Last week they slid more than -6%, indicating that the June housing activity drop has continued into July, because this was the third consecutive weekly fall in mortgage applications - and the largest of them. The mortgage interest rate rose last week, after a few weeks of declines, and this won't help affordability or sales.

There was a well-supported UST 20yr bond auction earlier today and that brought a median yield of 3.33% which was actually lower than the 3.41% at the prior equivalent event a month ago.

Canada's inflation rate came in at 8.1% which was higher than May's 7.7% but well below the expected 8.4%. Analysts will need to start expecting these rises to be tamer than they had suddenly come to expect. To be clear, they are still unusually high, and this Canadian rate is a 39 year high, but some of the impetus is leaking away now. In May the annualised mon-on-month rate was 17% - in June it is back to just over 8%. Energy costs account for much of the leveling out.

China reviewed is Loan Prime Rates today, but left them both unchanged.

Some suppliers to Chinese real estate developers are refusing to repay bank loans because of unpaid bills owed to them, a sign that the loan boycott that started with homebuyers is starting to spread. Hundreds of contractors to the property industry complained that they can no longer afford to pay their own bills because developers still owe them money.

Separately, China is reporting large declines in road freight caused by renewed virus restrictions.

Meanwhile, Taiwanese export orders continue to recover strongly in June after the short and unexpected April drop.

German producer prices rose at a +7.2% annual rate in June from May, far less than the year-on-year +33% rise - and a clear indication the heat is going out of their producer price pressures.

The EU reported a deep and serious dive in consumer sentiment in July, driven by high energy and inflation costs, the war situation, and now unrelenting climate stress. Confidence sunk to an all-time low for a series that began in 1985.

Meanwhile the EU told member states to cut gas usage by 15% until March as an emergency step after Russia warned that supplies sent via the biggest pipeline to Europe could be reduced further and might even stop.

In Australia, the Westpac-Melbourne Institute Leading Economic Index declined by -0.2% from a year earlier in June, after a -0.1% fall a month earlier and pointing to the third straight monthly retreat.

Australia is about to renew its commitment to its 2-3% flexible inflation target and that could underpin a doubling of the official interest rate in coming months. A renewed focus on that is getting wide support, as a review of the RBA's performance gets underway.

Even though there are currently no direct flights from Bali to New Zealand, the Government is stepping up protections against the Foot & Mouth Disease outbreak there with enhanced border monitoring and controls. Australia faces a grave risk from this outbreak, and via there this is where our FMD risk will come.

The UST 10yr yield starts today at 3.03% and up +2 bps from this time yesterday. 

The price of gold will open today at US$1701/oz in New York which down -US$10 from this time yesterday.

And oil prices are down -US$1.50/bbl at just under US$99/bbl in the US, while the international Brent price is now at just over US$102.50/bbl.

The Kiwi dollar will open today little-changed at 62.2 USc. Against the Australian dollar we are a little firmer at 90.5 AUc. Against the euro we are also firmer at 61.2 euro cents. That means our TWI-5 starts today at just over 71.1.

The bitcoin price is virtually unchanged from this time yesterday, up by +0.1% to US$23,553 but another one-month high. Volatility over the past 24 hours has been moderate at just under +/-2.9%.

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.