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Economy Watch

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  • Buckle in for a day of big announcements
    Kia ora,Welcome to Wednesday’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 we are in for a day of significant announcements, but locally and internationally.But first up today, the overnight full dairy auction brought higher prices, up +4.6% in USD terms and up +3.0% in NZD terms. Of note, the butter price hit a new all-time record high of US$74992/tonne. Also, cheddar cheese rose a very sharp +12.0% from the prior full event, and the dominant WMP price was up a heady +6.2%. This has been a very positive outcome, even if it was on relatively low off-season volumes.There seemed to be two big background drivers. First, EU production is slipping and today's NZ auction prices seem to be equalising with European pricing. And secondly, there was a substantial increase in demand from Southeast Asian buyers, shifting from EU supply. Today's result will bring upside to the payout - if it is maintaintained in future events.Elsewhere, there was a good rise in US retail sales last week, up +6.9% from the same week a year ago in the Redbook survey. But as we have noted previously, it is now hard to separate the inflationary effect of the tariff taxes from volume gains. It is about now that the tariff-tax impact will start happening. All eyes are on Apple, because they won't be able to avoid price hikes much longer now.Retaliatory tariff taxes also juiced up US exports in both goods and services in March but it was minor and similar to February. US imports however shot up to a new all-time record high. So the American trade deficit also hit a new record exceeding -$140 bln for the monthNone of this is helping sentiment. The latest survey, this one the RealClearMarkets/TIPP Economic Optimism Index retreated in May from April when a gain was anticipated. It was at its lowest in seven months.Meanwhile, the US logistics managers index returned to more usual levels, but allowing it to do that were rises in inventory and freight costs, rather than the efficiency components.There was a well-supported US Treasury 10 year bond auction earlier today, and that delivered a median yield of 4.28% which was down -6 bps from the prior equivalent event a month ago.Tomorrow will be dominated by the US Fed's meeting outcome. Changed interest rates are unlikely, but there will be intense interest in how they view the present and future economic landscape.In Canada, the widely-watched local Ivey PMI turned into contraction in April.In China, the Caixin Services PMI expansion eased back in April, down from March’s three-month high to be below analyst forecasts. This is now the softest expansion in their services sector in seven months. But this Caixin version reported a slightly faster expansion than the official version.There is a lot going on today, and amongst that we are expecting a significant Chinese briefing by their central bank and other regulators about new moves to respond to their economic pressures triggered by the tariff war.In Europe, their April services PMI didn't fall into contraction as expected. Rather it stayed just on the positive side. But it is an anemic expansion all the same.In Australia, household spending slipped in March from February, to be +3.5% higher than March 2024. Of special note was the very sharp -1.3% dive in Queensland.There was an even sharper retreat in building consents in Australia in March with a big -15% dive in consents for building apartments.The UST 10yr yield is now at 4.31%, down -3 bps from this time yesterday.The price of gold will start today at US$3414/oz, and up +US$101 from yesterday, and heading back towards its April 23 record high.Oil prices are firmer today, up +US$2 at just on US$59/bbl in the US and the international Brent price is now just under US$62.50/bbl.The Kiwi dollar is now at 60 USc, up +40 bps from yesterday at this time. Against the Aussie we are up +0 bps at 92½ AUc. Against the euro we are up +50 bps at 52.8 euro cents. That all means our TWI-5 starts today just under 68 and up +10 bps. The Japanese yen has strengthened to limit the TWI-5 shift.The bitcoin price starts today down a mere -0.3% from yesterday at US$94,563. Volatility over the past 24 hours has been low at +/- 0.9%.Join us at 10:45am for the release of the important March quarter jobs report for New Zealand. We are expecting no rise in employment and a rise in the unemployment rate to 5.3%. Variations from that might be market-moving.And then at 2pm we will be covering the RBNZ's half-yearly Financial Stability Report. This will be Christian Hawkesby's first big set piece presentation as Governor, a role he holds until at least October.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.
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    6:09
  • Focus turns to the US Fed
    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.And today we lead with news all eyes are now turning to the US Fed and the results of their meeting about to start.But first up in the US, the widely-watched ISM services PMI for April came in better than expected with a modest expansion, off a nine month low in March. New orders drove the result as did higher inventories. Employment contracted again. Activity was little-changed but still expanding. However price pressures jumped to their highest since February 2023.This contrasts with the globally-benchmarked S&P Global/Markit version which reported its slowest growth for 17 months amid subdued demand and a slump in business confidence and rising costs. Financial markets are preferring to look at the ISM one, however.All eyes now turn to Thursday's (NZT) US Federal Reserve board meeting where most observers think they will hold policy unchanged to see how the price impact of tariffs works out.There was a well supported UST 3yr bond auction this morning and that delivered a median yield of 3.77%, up slightly from 3.70% at the prior equivalent event a month ago.In Washington, there are still no tariff deals. There are negotiations but it seems no-one is rolling over in the way the new US Administration assumed.And as you will already probably know, Warren Buffett has announced his retirement as CEO at the end of this year, when he will be aged 95 years. But he will remain chairman of Berkshire Hathaway.In Canada, things aren't good with their service sector suffering a steep contraction of activity in April.And recession fears are putting a real downer on their real estate markets.Across the Pacific, China is still on holiday. Singapore's April retail sales weakened from March, down a sharpish -2.8% to leave them up just 1.1% from the same month a year ago. Car sales were a significant factor in the month-on-month drop, but not all of it.The results of the weekend's Singaporean general election are in and there was no surprise that they had engineered a dominant win for their ruling PAP party, enough to retain their two-thirds-and-more majority. They won 87 of the 98 seats 'contested' with 67% of the vote. Their courts ensured the opposition could only run weak candidates. They have a 'democracy' in name only.Post-election in Australia, the ASX200 fell -1.0%, and their benchmark 10 year bond rose +10 bps from pre-election levels. Investors think they are facing at least six more years of a Labor-led government, three at least with a majority-Labor government.The key trends in the Aussie election were a stark gender divide with women overwhelmingly repelled by the Liberals, immigrant votes, including Chinese votes, increasingly attracted to Labor, and the rise and rise of Teal candidates (who are social liberals, economic conservatives). The opposition Liberal Party are likely to compound their mistakes by selecting two older socially conservative men to the top leadership.The other notable trend from the Aussie election was the near wipeout of the Greens. Even their leader is having trouble holding his seat.Global food prices rose in April but are only back to the same level they were in 2023 and well below March 2022 levels. But the rise was largely down to rises for meat (up +4.3% from year-ago levels), and especially dairy (up +23% on the same basis).The UST 10yr yield is now at 4.34%, unchanged from this time yesterday.Oil prices are weaker again, down -US$1 at just on US$57/bbl in the US and the international Brent price is now just under US$60/bbl. These are still four year lows, hurt by the combination of easing global demand along with rising output.The Kiwi dollar is now at 59.6 USc, down -20 bps from yesterday at this time. Against the Aussie we are down -20 bps at 92.3 AUc. Against the euro we are little-changed at 52.3 euro cents. That all means our TWI-5 starts today just under 67.9 and up +10 bps.The bitcoin price starts today down -1.0% from yesterday at US$94,803. Volatility over the past 24 hours has been modest at +/- 1.1%.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.
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    5:21
  • Gold drops sharply from its recent highs
    Kia ora,Welcome to Friday’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 gold price is tumbling today, ending its recent spectacular rise.But first, American initial jobless claims rose to 223,600 last week, more than expected. There are now 1.907 mln people on these benefits, +153,000 more than at this time last year, a rose of +8.7%.But job cuts announced in April came in less than you might have thought at 105,400, certainly less than for March. But they are +62% higher than year-ago levels.The widely-watched ISM manufacturing PMI for April slipped into a deeper contraction than in March, although slightly less so than expected. Output shrank more sharply and prices rose faster. Meanwhile, new orders declined at a slower pace although new export orders fell steeply. This survey was quite a bit more negative than the S&P Global/Markit version we noted yesterday.One sector that has lost much of its momentum is the US construction industry. It atrophied somewhat in March, again.The expectation is that tomorrow's US non-farm payrolls report will deliver a rise of +130,000, about half the levels they had at the back end of 2024. But there may be downside risks to this estimate. A very weak result will put the Fed in a real bind, having to choose between rescuing jobs in a faltering economy, or pushing back on rising inflation. The last time they had serious stagflation was in the late 1970s, and then the Fed chose fighting inflation over preserving jobs and growth. It caused social unrest, but it beat inflation, and ended stagflation's curse - until now. But fifty years later, few people understand that curse and it's corrosive effects.Across the Pacific, the Bank of Japan held its key interest rate steady yesterday as the new American tariff policy casts a shadow over the Japanese economy. The central bank kept its policy rate at 0.5% during its first board meeting since Washington announced a wave of "reciprocal" tariffs in early April. The yen fell. The BOJ also stood pat at its March meeting following a +25 bps hike in January.And don't forget, China is on holiday, until Tuesday. So data releases there are sparse. It may be a good time for some of them to take a break; outbound export shipments to the US are reportedly down -50%. Despite that, there are signs the US is desperate to get trade talks going but Beijing is playing hard to engage.Australia reported a merchandise trade surplus of +AU$10.8 bln in March. This was a good improvement from the relatively low +AU$8.4 bln in March 2024, but similar to the average March in the prior five years (+AU$10.6 bln). (Australia usually reports seasonally adjusted values, and are much lower than the actual values this year, for some reason.)The Aussie federal election is in its final day now. Pundits seem to think the incumbent government will be returned but with a reduced majority, maybe even requiring a coalition partner. We will know soon enough.Global container freight rates fell -3% last week from the prior week to be -23% lower than year ago levels. Bulk freight rates were little-changed.The UST 10yr yield is now at 4.23%, up +5 bps from this time yesterday.The price of gold will start today at US$3214/oz, and down -US$95 from yesterday.Oil prices are holding lower at just on US$58.50/bbl in the US and the international Brent price is now just under US$61.50/bbl. These remain four year lows, down to level last seen in April 2021.The Kiwi dollar is now at 59 USc, down -40 bps from yesterday at this time. Against the Aussie we are down -20 bps at 92.6 AUc. Against the euro we are little-changed at 52.3 euro cents. That all means our TWI-5 starts today just on 67.4 and down -10 bps.The bitcoin price starts today up +2.8% from yesterday at US$96,810. Volatility over the past 24 hours has been modest at +/- 1.9%.This briefing is taking a few days off for a short break. We will resume on Tuesday, May 5, 2025.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 on Tuesday.
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    5:08
  • The US becomes a drag on the world economy
    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 consequences of US policy changes are now starting to show up in the data.The big overnight news is the Q1-2025 US GDP report. The American economy shrank at an annualised rate of -0.3% in the period, the first retreat since Q1-2022. This was a sharp reversal from +2.4% growth in the previous quarter and well below market expectations of +0.3% growth. A surge in imports was one key factor as businesses rushed to stockpile goods in anticipation of higher costs from the tariff announcements. But that didn't include consumers because their spending growth cooled to 1.8%, the slowest pace since Q2-2023. Federal government spending fell -5.1%, the steepest drop since Q1-2022.That 'cooled' consumer spending reversed in March with a tariff-stocking-up rise for them too (especially for cars) ahead of the April cost increases. PCE inflation cooled a little, but not yet back to mid-2024 levels. Personal disposable income rose less than spending in March.Financial markets reacted negatively to the larger than expected GDP shifts.This weekend we get the April non-farm payrolls report and currently markets expect a smallish rise of +130,000. But that may be an over-estimate. The ADP survey of private business only added +62,000 workers to their payrolls in April, less than half of the downwardly revised 147,000 payrolls in March and well below market expectations of +115,000.April data is weaker than for March, so prospects for Q2-2025 economic activity do not look flash for the giant US economy. US mortgage applications sank again last week, and for a third straight week. A pullback in new orders and production levels in April saw the Chicago PMI contract for its 17th consecutive month.But US pending home sales jumped in March from February, ahead of tariffs which are expected to make new home purchases more expensive. But they are -0.6% lower than year-ago levels which itself was a weak base.And still in the US, it is becoming clearer who will be paying the tariffs. Retail giant Walmart has raised the white flag, telling Chinese suppliers to resume shipments suggesting to them it will 'absorb' the new border costs. Of course they will be passed on to consumers.Across the Pacific, we are looking ahead to the Bank of Japan rate decision later today, although the landscape has changed there and they are unlikely to raise their +0.5% policy rate now.Japan's industrial production was weakish in March, coming in lower than expected from the prior month to be little-changed from March a year ago. At the same time they reported retail sales +3.1% ahead of the same month a year ago which was lower than expected, also with current weakness from February.Nearby, Korea said their industrial production came in better than expected in March although not as strong as for February. Korean March retail sales however gave back a small bit of the outsized rise in February.In China, their May Day holiday starts today and runs to May 5, inclusive. (They were required to work on April 27 (Sunday) to give them five consecutive "days of rest". They may not be resting; travel bookings for domestic trips are up through the roof this year. (Don't forget, in China, the standard working week is 8 hours per day, 40 hours per week, which is a five-day work week (Monday-Friday). However, it's important to note that the 996 work culture, where employees work from 9am to 9pm, six days a week, is a common reality, especially in their tech industry.)Once again the official factory PMI for China came in with a small contraction (a definite slowing), while the private Caixin version came in with a small expansion, although a slight slowing. Separately, the official services PMI came in with a slightly better expansion. In all cases, new order levels retreated.In Europe, the German economy expanded slightly in Q1-2025 from Q4-2024. Inflation was steady in April at 2.2%, and retail sales were up +2.2% on a volume basis from March year-ago levels, but little change from February.That all helped the overall EU GDP to expand +1.4% in Q1-2025 from a year ago, up +0.4% from Q4-2024. It is rate that the EU outperforms the US, and this isn't so much because the EU is rising, more that the US is falling.Whichever way you sliced it, Australia's inflation came in at 2.4% in March from a year ago. That was true for the quarterly CPI, and the monthly inflation indicator. Both were little-changed from the respective prior releases. There's now talk of a post-election rate cut from the current 4.10% cash rate target.The pre-tariff shoring up saw air cargo demand spike in March, led by activity in Asia/Pacific, and the US. Come April and May, this spike is expected to reverse quite sharply. Passenger air travel is flattening right out, especially in North America. But it is being held up by strong China and India domestic demand, and still-good Asia/Pacific international demand.The UST 10yr yield is now at 4.17%, unchanged bp from this time yesterday.The price of gold will start today at US$3309/oz, and down -US$10 from yesterday.Oil prices are down more than -US$2 at just under US$58.50/bbl in the US and the international Brent price is down more than -US$3, now just over US$61/bbl. These are four year lows, down to level last seen in April 2021.The Kiwi dollar is now at 59.4 USc, unchanged from yesterday at this time. Against the Aussie we are down -20 bps at 92.8 AUc. Against the euro we are little-changed at 52.3 euro cents. That all means our TWI-5 starts today just on 67.6 and essentially unchanged.The bitcoin price starts today down -1.3% from yesterday at US$94,182. Volatility over the past 24 hours has been modest at +/- 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.
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    7:26
  • Dumb policy brings dud results
    Kia ora,Welcome to Wednesday’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 negative data is starting to flow more aggressively in the US as the consequences of dumb policy show through. It been a track to decline for the first 100 days of Trump II.First, the US Redbook index of retail sales rose +6.1% last week from the week before, but the strong suspicion is that much of this is inflation-related.And that is supported by a sharp drop in consumer sentiment reported by the Conference Board, down to a 13 year low in April and confirming the UofM earlier sentiment survey.US job openings fell by -288,000 to 7.192 mln in March, down -901,000 from a year ago to the lowest level in six months and well below market expectations of 7.5 mln. The drop was broad-based. Their quit rate rose to an 8 month high.The US trade deficit in goods widened sharply to -US$162 bln in March, the largest on record, and well above the expected -US$146 bln gap as tariff threats drove US importers to front-load their purchases. Unsurprisingly, that alos generated a spike in wholesale inventories.This bad trade result probably cements a very weak Q1-2025 GDP result. The next AtlantaFed GDP Now update will come tomorrow, and is unlikely to be pretty.The Dallas Fed's services sector survey pointed to weaker conditions and a weaker outlook.The Canadian election has resulted in a narrow win for the center-left (in North American terms) Liberals and the Quebec coalition partner. This is an unusual fourth consecutive win for the Liberals, and an unlikely one, very much aided by Trump trolling. It will be a tough gig because they are clearly facing recession, also flowing from the newly-fractious US relationship.The ECB survey on consumer inflation expectations in the euro-zone rose in March with the year ahead expectation up to 2.9%, its highest in a year.EU consumer sentiment dropped in March and to its lowest since December.And we should probably note that Denmark says it wants the EU to join the CPTPP.In Australia, there are three days left of campaigning in their federal election. Polling is tightening. Despite those polls still showing Labour ahead, much will depend on how voters rank their preferences, which could make it rather close.The overnight dairy Pulse auction came in better than the futures market signaled. The SMP price rose as expected and to its highest in a year, but the WMP price did not fall as expected, rather it showed a small gain and to its highest in three years.The UST 10yr yield is now at 4.17%, down another -4 bps from this time yesterday.The price of gold will start today at US$3319/oz, and down -US$17 from yesterday.Oil prices are down -US$1.50 at just on US$60.50/bbl in the US and the international Brent price is down a bit less, now just under US$64.50/bbl. These are two-week lows as global trade tensions and weak US data dampened the demand outlook.The Kiwi dollar is now at 59.4 USc, down -0.2% from yesterday at this time. Against the Aussie we are up +10 bps at 93 AUc. Against the euro we are unchanged at 52.2 euro cents. That all means our TWI-5 starts today just on 67.6 and down -10 bps.The bitcoin price starts today up +1.3% from yesterday at US$95,401. Volatility over the past 24 hours has been low at +/- 0.9%.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.
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