Here's our summary of key economic events overnight that affect New Zealand, with news both the US and China are slowing now in what will surely have global implications.
First, weaker American consumer sentiment is taking the wind out of Wall Street today, but it is also helping the Fed lower inflation expectations. The widely-watched University of Michigan consumer sentiment survey for May came in much lower than expected - in fact no change was expected, but it actually dipped to a six month low. Congress's debt limit crisis got a specific mention as a key reason for the sudden shift in attitudes. (We will have more on a novel solution to the problem in a podcast later this morning.)
As the days get closer to a June debt-limit crisis (which could come very early in the month), the US Treasury Secretary noted some American debt will inevitably be defaulted on if Congress doesn't act very soon. Short-term costs for insuring American bonds are skyrocketing, and the long-term effects of repeated flirtations with debt default are already a financial burden. These are costs that are spreading worldwide and even impacting our wholesale rates.
Separately, the USDA World Agriculture Supply & Demand Estimates (WASDE) have been refreshed with new big-data-based estimates. That has seen grain prices generally fall as American growing conditions are excellent and likely to result in bumper harvests. The exception is wheat where world stocks are low. They see larger crops in several countries, including Argentina, Canada, China, the EU, and India that are partly offset by sizeable declines in Australia, Russia, Ukraine, and Kazakhstan. They now expect higher beef imports into the US and higher beef prices. Dairy estimates are little-changed.
In Canada, their quarterly senior loan officer survey showed mortgage lending conditions tightened sharply in the March quarter. Other business lending showed tightening too, but not to the extent of mortgage lending. In fact mortgage lending was its tightest since their survey began in 2017.
In Japan, financial group SBI Holdings announced that it will make a takeover bid for its affiliate SBI Shinsei Bank and take it private, by acquiring the 27% of the lender it doesn't own for NZ$1.8 bln. SBI owns UDC.
Yesterday we pointed to deflating producer prices in China as a sign that their economy is misfiring. We can also note that loan demand has weakened much more sharply than expected too, confirming the funk. In the long term it is probably a good thing that debt levels aren't rising as fast, but this recent shift is caused by stuttering activity levels. Imports are very weak, suggesting the need for inputs is weak. And Chinese banks extended less than ¥720 bln in new yuan loans in April, less than a fifth of March's level and just over half of the amount expected by analysts. That is a massive change in just one month. Analysts had expected a fall to ¥1.4 bln so this came in at about half of what was expected. For a country as large as China, this is huge.
More than that, Chinese household bank deposits dropped sharply in April too, by nearly -¥1.2 tln (-NZ$280 bln), according to the same data release. That too is a massive one-month change.
India's industrial production growth unexpectedly slowed sharply in March, rising just +1.1% from year-ago levels which was quite unexpected given the strong rises in the prior four months.
Indian inflation also slowed sharply to 4.7% in April, the lowest since October 2021. That is a full percentage point drop from 5.7% in March (and 7.8% a year ago). Food inflation came in at 3.8% and the lowest since November 2021. Climate isn't hampering Indian food production.
In Australia, global leaders from accounting and consultancy firm PwC are flying in to try and rescue the firm from a deepening fraud disaster. Recall, partners there are accused of trading in confidential information they gained from helping the Government in its tax policy development, using that inside knowledge to brief other clients that would be affected. The scandal is affecting the firm globally now. And coming up will be a very public Parliamentary Inquiry in Canberra. We will hear a lot more details soon that are sure to unsettle PwC's reputation further.
The UST 10yr yield starts today at 3.46%, and back up +5 bps from yesterday. That puts it back to week-ago levels. Their key 2-10 yield curve is a bit more inverted at -55 bps. Their 1-5 curve is little-changed at an inversion of -136 bps. And their 3 mth-10yr curve is more inverted than yesterday, now by -221 bps. But this is the only one more inverted in a week. The Australian 10 year bond yield is now at 3.39% and up +5 bps from yesterday. The China 10 year bond rate is up +1 bp at 2.73%. But the NZ Government 10 year bond rate is now at 4.06% and down -10 bps from this time yesterday.
On Wall Street, the S&P500 was down -0.2% in its Friday session and a -0.3% weekly fall. Overnight European markets all rose about +0.4%. Yesterday Tokyo ended up +0.9% for a +1.0% weekly gain. Hong Kong ended its Friday session down -0.6% for a sharp -2.5% weekly drop. Shanghai was similar, dropping -1.1% on the day to be -2.1% down for the week. The ASX200 closed Friday little-changed to be up +0.5% for the week. The NZX50 was up +0.4% on Friday and the same for the week.
The price of gold will start today at US$2011/oz and down -US$20 from this time yesterday.
And oil prices have fallen another -US$1 from yesterday to be just under US$70/bbl in the US. The international Brent price is just under US$74/bbl. Downward pressure is still strong.
The Kiwi dollar is -1c weaker against the USD and now just under 61.9 USc. Against the Aussie we are also -1c lower at 93.2 AUc. Against the euro we are -¾c lower at 57 euro cents. That means the TWI-5 is now at 70.1 and -80 bps lower than this time yesterday, down -60 bps in a week.
The bitcoin price is lower again today, now at US$26,359 and down another -1.9% from this time yesterday. Bitcoin was at US$29,557 a week ago so it has retreated more than -14% since then. Volatility over the past 24 hours has been modest at just over +/- 1.8%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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