The US Fed gives itself an uppercut over SVB; US PCE inflation falls; consumer sentiment rises; China on Golden Week after weak April PMI; Japan mulls end of QE; UST 10yr 3.55%; gold up and oil down; NZ$1 = 61.9 USc; TWI-5 = 69.5

Here's our summary of key economic events over the weekend that affect New Zealand, with news today is a holiday in many countries, including China and India, and a number of European countries.

This week is set to be busy on the global economic front, with a number of key events scheduled. Locally, all eyes will be on Wednesday's labour market report for March. Analysts are expecting little-change with the jobless rate staying at 3.5%. The same day there is a dairy auction. And the same day the RBNZ releases its Financial Stability Review. Later in the week, investors will closely follow the US labour report, and before that both the US Fed and the ECB will update their monetary policy settings. The central banks in Australia, Brazil, Malaysia, and Norway will decide on interest rates, while inflation rates will be released for the Euro Area, Italy, the Philippines, Switzerland, South Korea, Indonesia, and the Netherlands. Finally, PMIs are due from the US, India, Canada, Italy, South Korea, and Russia this week.

But first in the US, their central bank faulted itself over the weekend for failing to “take forceful enough action” to address growing risks at Silicon Valley Bank ahead of the lenders collapse, one which raised turmoil across the global banking industry. It is a brutal self-review, reflecting very poorly on supervision by the San Francisco Fed. But behind it all was a 2018 roll-back of post GFC rules, handicapping regulators. Another US agency also released their review as well. The Fed said it will revisit the range of rules that apply to banks with more than US$100 bln in assets, including stress testing and liquidity requirements.

Confidence in American financial institutions by American is currently falling, although it isn't yet down to the 2011 or 2008/09 levels.

But a lack of confidence has killed another US bank, the regional (California) First Republic Bank. The FDIC has taken it over, firing all the senior management and wiping out all its equity investors. JPMorgan Chase and PNC are among the likely bidders to take over its carcass, a valuable regional market position.

Staying in the US, their PCE inflation came in with its smallest increase since July 2022 with this inflation measure up +4.2% from a year ago, and running at a rate of under +2% in March from February. This data will be influential at the Fed.

Perhaps the sense of control returning to inflation is helping the mood, despite angst about banks. The widely-watched University of Michigan consumer sentiment survey improved in April with the biggest recovery in the 'current situation'.

Also improving, but more sharply, the Chicago PMI jumped in April from its weak 2023 first quarter. It is still contracting, but only barely now. It wasn't an improvement that anyone expected.

In China, it is Golden Week, a week-long public holiday where a lot rests on healthy retail shopping. Chinese economic data releases will be few this week.

And staying in China, their steel exports are surging, up +50% from year-ago levels. But this is not a good sign. Rather it is a sign that the Chinese post-pandemic recovery is in trouble. Prices for industrial materials are plunging, with steel near a five-year low. The Chinese economy is slowing quite quickly now resulting in supply gluts. Prices had been on the rise since the end of last year in anticipation of an economic recovery after China abandoned its zero-COVID policy, but the expected growth isn't coming. Chinese producers with excess supply are ramping up exports, depressing prices globally.

Confirming the post-recovery wobbles, their official factory PMI contracted in April following three months of expansion. It was an unexpected retreat. Their official services PMI is still expanding however at a healthy clip. What won't help their manufacturing sector is their tough new rules about "national security' which are being expanded to include anything Beijing doesn't like. It will be hard for foreign investors to risk getting caught up in that. Some already have and it can get ugly quickly (not unlike being invested in Russia).

Late Friday the Bank of Japan issued its Monetary Policy Review and made few changes. But in a light-handed way, new Governor Ueda did signal that change is coming, now that inflation is embedding above 2%. Their very loose monetary policies are now under review even if the regulator still isn't fully convinced that a virtuous cycle of wage growth and price hikes is working.

Meanwhile, Japanese retail sales came in +7.2% higher in March that year ago levels, better than the +5.8% expected and almost matching the February burst. Industrial production wasn't as strong however.

In the past we have noted the Chinese concerns about food security. Well Japan is waking up to them as well, especially after seeing what is happening in Ukraine and it is increasingly concerned about Chinese expansionist activities in its own neighborhood. If New Zealand get punished by China for not toeing the Beijing line, it appears that Japan may become a more stable alternative. Apparently, Japan sources only 38% of its own food from domestic supplies, the lowest level among G7 nations.

While our house prices are generally falling and becoming more affordable, in Australia they are going the other way. House prices there rose at a +10% annual rate in March and a +8.5% annualised rate in April. In Sydney, the rises were even faster. Lack of supply, the interest rate pause and booming immigration is fueling this market. They also are suffering through a very severe rental crisis as well.

The UST 10yr yield starts today at 3.43%, and down -11 bps from this time Friday but most of that fall happened Saturday NZT. The UST 2-10 rate curve is little-changed at -59 bps. Their 1-5 curve inversion is now at -129 bps and more inverted. And their 30 day-10yr curve is now inverted at -82 bps with this inversion back with a rush. The Australian ten year bond is down -12 bps at 3.27%. The China Govt ten year bond is still at 2.79%. But the New Zealand Govt ten year is up +3 bps to 4.14%.

Internationally, earnings reports for Pfizer, AMD, Uber, Qualcomm, and Apple will set the tone for the coming week's equity markets.

The price of gold will start the week at US$1991/oz and very little-changed from week-ago levels.

But oil prices have recovered their Friday drop to be just over US$76.50/bbl in the US. The international Brent price is just on US$80/bbl.

The Kiwi dollar is marginally firmer against the USD and now at 61.8 USc. Against the Aussie we are firmer too at 93.5 AUc. Against the euro we are up marginally at 56.1 euro cents. That means the TWI-5 is now at 69.9 and actually little-changed since Saturday.

The bitcoin price is still meandering today, although back up to US$29,620 and up +1.3% from this time yesterday. Volatility over the past 24 hours has stayed modest at +/- 1.4%.

The easiest place to stay up with event risk today is by following our Economic Calendar here ».