Here's our summary of key economic events overnight that affect New Zealand, with news higher inflation ahead seems to be the prospect now for 2022.
The 'feared' surprise in American inflation has been recorded for May. Overall the headline rate came in at 8.6%, a new 40 year high. But worse, food price inflation came in at 10.1%, and also a 40 year high. Markets were expecting a headline rate of +8.3% and food prices up about 9%, so the actual results have shocked financial markets into some sizeable reactions. Equity prices fell, bond yields jumped, and the US Dollar gained sharply.
One likely reaction is that the Fed will raise its policy rate by +75 bps on Thursday, June 16 (NZT). Until now, the best estimate has been +50 bps.
With that as backdrop it is hardly surprising that consumer sentiment has dived. There was a survey out today and it recorded its lowest level on record. Sticker shock is pervasive, especially for petrol prices. And this survey suggests that the public is more sceptical the Fed's policy actions are likely to get inflation back down.
However, not all data released overnight was negative. The remarkable repair of the US Federal Government finances continues with a greatly improved May deficit. Analysts had expected a deficit of -US$120 bln for the month. But the actual result was just -US$66 bln. Over the past year, this deficit has shrunk more than half to just over -US$1.1 tln from -US$2.8 tln in the prior fiscal year. That is probably the fastest budget repair ever accomplished, all while their economy expands.
Canada released its May employment data and that was generally positive, coming in better than expected. There was a big shift toward full-time employment in May, and a smaller shift away from part-time work. Their jobless rate fell to 5.1%.
Chinese consumer prices were up just +2.1% in May from a year ago, but of concern will be that prices actually fell from April, a whiff of deflation there. Food prices fell, and as a part of that, prices for sheep meats actually fell rather a lot, down -1.4% in a month and taking the year-on-year retreat to more than -6%. Pork and vegetable prices fell much faster however, and it is clear that their livestock farmers will be in no position to pay sky-high animal feed prices on the international market.
Chinese producer prices were virtually unchanged in May from April, and that dragged the annual PPI increase down to +6.4% and its lowest in more than a year (February 2021). Raw material price rises are still very high there, but prices for consumer durables at the factory gate actually fell in May from a year ago. It's a squeeze that will hurt.
China may be struggling in the real economy, but they still know how to flood new loans on to companies. New yuan loans rose sharply in May, up by +11%, partly because they are switching out of foreign currency loans. Their banking system now has NZ$49 tln in lending on their books (¥210 tln). That is 183% of Chinese GDP. For perspective, New Zealand's total lending is 154% of our economic activity, and for the US, it is just 70% on the same basis.
India reported that its industrial production rose faster in April than was expected. It was up a creditable +7.1% from a year earlier when a +5.1% rise was expected.
Russia cut its policy rate by -1.5% to 9.5% overnight. Also falling and fast is the Russian population. Deaths exceeded births by 311,200 people in the first four months of this year, according to data published by their Federal Statistics Service.
In Argentina, there seems to be some sort of bank run underway. Savers fear the country will default and are pulling money out of inflation-linked savings accounts to protect themselves from the prospect these balances are growing so fast the Government can't possibly pay. On Thursday alone, almost -NZ$400 mln was withdrawn. They risk making it self-fulfilling.
In Australia, a key coal-fired power plant is out of action due to a technical failure, and it won't be restarted until late September. This will test an already-brittle eastern-seaboard power system. Certainly it will bump up power prices.
The UST 10yr yield will start today up +12 bps from this time yesterday at 3.16%, and that is a +20 bps rise for the week. Rate curves are flattening with shorter maturities rising faster than long. The UST 2-10 rate curve is flatter at +11 bps but their 1-5 curve is only little-changed at +74 bps. Their 30 day-10yr curve is also flatter at +205 bps. The Australian ten year bond is sharply higher again, now at 3.77% and up another +7 bps. The China Govt ten year bond is little-changed at 2.82%. But the New Zealand Govt ten year will start today up +4 bps at 3.91%.
On Wall Street, the S&P500 has ended their Friday session down -2.3% taking the weekly retreat to -5.1%. This is hardly surprising given the financial markets now know a major realignment in price/earnings ratios is underway and back to more traditional levels that we had prior to QE. There is probably some way to go in this readjustment. Overnight, European markets were all down more than -2%. Yesterday Tokyo closed down -1.5%, Hong Kong fell -0.3%, but Shanghai actually rose strongly and ended up +1.4% on the day for a weekly gain of +2.8%. The ASX200 ended Friday down -1.3% for a weekly fall of -4.2%, and the NZX50 fell a lesser -0.7% on the day for a weekly fall of -1.9%.
The price of gold is up +US$24 today from this time yesterday, now at US$1873/oz. A week ago it was at US$1849/oz.
And oil prices are down -US$1.50/bbl from this time yesterday, now just under US$118.50/bbl in the US, while the international Brent price is now just over US$120.50/bbl. Both levels represent about a +US$1 gain for the week.
The Kiwi dollar will open today -40 bps lower at just on 63.6 USc. For the week that is a -2.2% devaluation. Against the Australian dollar we are firmer at 90.2 AUc and little-changed for the week. Against the euro we are up +30 bps at 60.5 euro cents. That all means our TWI-5 starts today at just on 71.3, up slightly from yesterday but down -60 bps for the week as the greenback strengthens.
The bitcoin price has fallen by -4.3% from this time yesterday and is now at US$28,976. For the week it is down -2.4%. Volatility over the past 24 hours has been moderate at +/- 2.6%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
We welcome your comments below. If you are not already registered, please register to comment
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.