Here's our summary of key economic events overnight that affect New Zealand, with news we are probably facing new supply-chain stresses as the fallout over the Pelosi visit to Taiwan echoes over coming months.
But first, after declining for eight of the past 12 weeks, and four of the past five weeks, American mortgage applications actually rose last week. It wasn't a big rise, but it was unusual, even in the whole 2022 context. The recent yield declines followed through to lower mortgage interest rates, which undoubtedly helped, especially as higher rates are anticipated for the rest of the year.
Also rising, and unexpectedly strongly, was their services sector activity in July. The widely-watched ISM measure was particularly upbeat with strong gains in new orders and activity levels while the price pressure eased noticeably. They also noted that these businesses are struggling to replenish inventories, and that bodes very well for the factory sector in coming months. The internationally benchmarked Markit PSI was however as negative as the ISM one was positive, so there is a good opportunity to reinforce confirmation bias here.
Meanwhile, American factory order growth beat forecasts in June to be +15% higher than year-ago levels, and that makes this data elevated for four of the past six months, impressing markets.
US carmaker Ford said is North American sales jumped by more than a third in July from a weak year-ago level. This was driven by a huge leap in electric car sales, and a +70% jump in SUV sales.
The US logistics management index (LMI) is now reporting that freight prices are falling in July - not by much, but it is the first time that has happened since the start of the pandemic. Other components of the LMI are going in buyers favour as well, although warehouse capacity is still shrinking.
In the background, the Fed is almost sure to raise rates by another +50 bps at its next meeting in September. It would be 'reasonable' for the Federal Reserve to raise interest rates by that level if the US economy evolves as expected, San Francisco Fed President Mary Daly said, as she signaled policymakers are united in reducing decades-high inflation. Meanwhile, the cost of borrowing as measured by 3-month LIBOR just hit its highest point since 2008. Fed speakers are making markets into believers, despite some earlier scepticism.
In China, the private Caixin Services PMI rose in July from June to a good moderate expansion, pointing to the second straight month of growth. This was a better result than the official version and is the fastest pace of expansion in their service sector in 16 months. It comes after an easing of some lockdown measures with new orders rising the most since October 2021. However, new export orders fell for the seventh straight month, and employment fell modestly again amid a slight decline in the backlog of work.
China's car sales are recovering with good sales gains in July.
But the Chinese government still finds it necessary to inject ¥320 bln (NZ$75 bln) in public funds into small and midsized banks in a bid to help regional lenders reeling from their economic slowdown (not to mention some well-publicised cases of fraud).
The EU reported retail sales volumes for June, and these were sharply negative. Their rise in producer prices extended into June too, but apart from energy cost, there is a sense non-energy costs are losing some upward momentum there.
Giant reinsurer Swiss Re is pointing out the fast rising risks from climate change. They say global estimated insured losses from natural catastrophes in first half of 2022 at US$35 bln, +22% above the average of the past ten years. Floods in Australia set a new record for insured flood losses at close to US$3.5 bln, the costliest natural catastrophe for the insurance industry in the first half of 2022. Other perils such as hailstorms and flooding continue to drive insurance losses globally, exacerbated by rapid urban development and wealth accumulation in disaster-prone areas. Swiss Re returned to profit after pushing through +12% premium increases.
In international trade, June air cargo data basically went sideways, and putting a dampener on earlier optimism. The easing of restrictions in China and reduced disruption in global supply chains is likely to be good news for world trade and air cargo volumes in coming months. However, the impact of high inflation and rising interest rates will work against this expected recovery. In June, Europe was sharply negative, the US sharply positive, and the Asia/Pacific region quite lack-luster.
China's attempt to blockage Taiwan in retaliation to the Pelosi visit will also have a severe, even if temporary impact on Asia/Pacific air and sea cargo activity, messing with supply chains again in a significant way that will be felt globally.
These new extreme tensions will be particularly hard on HSBC, caught in the middle of this struggle in a fundamental way.
The UST 10yr yield starts today at 2.73% and unchanged from this time yesterday. The UST 2-10 rate curve is also unchanged today, now at -35 bps and their 1-5 curve is also unchanged at -25 bps. Their 30 day-10yr curve is now at +60 bps and again steeper than this time yesterday. The Australian ten year bond is down -1 bp at 3.13%. The China Govt ten year bond is also down -1 bp at 2.74% and still near its low for the year. And the New Zealand Govt ten year will start today unchanged at 3.32%.
Wall Street is in its Wednesday session with the S&P500 trading +1.5% higher. Overnight, European markets closed up about +1% although London only managed a +0.5% rise. Yesterday Tokyo ended with a +0.5% gain, Hong Kong with a +0.4% rise. but Shanghai ended with another retreat, down -0.7%. The ASX200 ended down -0.3% while the NZX50 starred, up +1.5% in Wednesday trade.
The price of gold opens today at US$1763/oz in New York which is down -US$6/oz from this time yesterday.
And oil prices start down -US$3 at just over US$91/bbl in the US, while the international Brent price is now just over US$97/bbl.
The Kiwi dollar opened today little-changed from this time yesterday to 62.6 USc. Against the Australian dollar we are marginally softer at 90.2 AUc. Against the euro we are unchanged at 61.6 euro cents. That all means our TWI-5 starts today at just under 71.1.
The bitcoin price has moved up from this time yesterday, up +1.3% to US$23,484. Volatility over the past 24 hours has been moderate at just over +/-2.0%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».