Eyes on the RBNZ; Chinese yuan weaker with other markers; Japanese inflation rising; US Fed open to a pause; ECB reassesses deposit insurance; BNPL to be regulated in Australia; UST 10yr 3.69%; gold and oil firm; NZ$1 = 62.7 USc; TWI-5 = 71.3

Here's our summary of key economic events over the weekend that affect New Zealand, with news the timing of the next policy rate moves are top of mind in both the US, and New Zealand.

But first in the week ahead, the spotlight in the US will be on the debt ceiling negotiations, FMOC meeting minutes, and several Fed speeches. Additionally, investors will be closely monitoring data on personal income and spending, PCE prices, the second estimate of GDP growth, corporate profits, durable goods orders, services and manufacturing PMIs, as well as new and pending home sales.

More generally, fresh May PMIs are anticipated for the UK, Australia, the EU, Japan, France, and Germany. Finally, inflation rates for the UK and South Africa will be released, and monetary policy decisions are awaited for China, South Korea, Indonesia, Turkey, South Africa, and of course from the RBNZ on Wednesday.

There are now just 20 weeks until the October 14 election. There is an RBNZ MPS on Wednesday, and another on August 16 just 60 days ahead of the election. There are interim rate reviews on July 12 and October 4. Almost certainly the RBNZ would not move rates on October 4 because of the risk of being seen to influence the election. They might feel uncomfortable on August 16 for the same reason. Assuming those two dates are off the table and there is no big immediately pressing issue, the only opportunities to adjust rates until the post-election MPS on November 29, are on Wednesday and July 12. If their judgement is that Budget 2023 adds to inflationary pressures, the Wednesday MPS reassessment is the most likely time they will pull the trigger. A bit more than +35 bps is priced in, so the markets are unsure whether we are facing +25 bps or +50 bps on Wednesday. More here.

In China, their currency continues its devaluation, falling well past 7 to the US dollar, and now up to 4.43 to the NZD. From the start of April, the Chinese yuan has devalued -2.3%. Against the NZD the devaluation is -3.0%. It may have been more if it hadn't raced to put in place direct deals with many developing countries, oil exporters, and Russia. These effectively hide demand and supply transactions from the open market. That opacity is holding the yuan from falling further. At some point the non-Chinese traders will tire of having a discount imposed on them.

And it isn't helping that foreign buyers seem to be shunning the important Canton Trade Fair this year.

And as a marker for healthy economic activity, we should note that China's income tax take is declining in 2023.

Japanese inflation came in at 3.5% in April, well above the expected +2.5% and above March's 3.2%. Japanese inflation is settling in above the Bank of Japan's 2% target rate. That's twelve consecutive months higher than that target.

In the US, the debt level negotiations push on towards a critical point; the first or second week of June is when the taps run dry and a shutdown is most likely. After a theatrical pause, negotiations are underway again, and Biden and McCarthy will meet tomorrow.

Fed Chair Powell said that because of stress in the banking sector, it might be unnecessary to raise rates to curb inflation. Other Fed speakers chimed in with a pause view as well.

In Canada, data for March retail sales was weak coming in only +2.4% higher in value terms than year ago levels but falling from February levels. But in volume terms, retail sales were up 1.2% in Q1-2023, so the March result is a bit of an aberration. The same data shows that things will likely be back with a good +2.5% pa annualised rise in April from March. The falling petrol price is causing these signals to be a bit odd.

In Europe, they are assessing what lessons can be learned from the Credit Suisse meltdown and the recent American regional banking wobbles. The issue seems to be that large uninsured deposits flee at first signs of trouble, and the size of these shifts accentuates the problem. Having a limit on insured deposits 'causes' this problem. It's not protection of depositors that is now the issue, it is protection of overall financial stability.

German producer price inflation rose +4.1% in April from a year ago, the smallest increase since April 2021. The annualised rate between March and April was even lower.

Over the weekend there were elections in Greece, which is coming out of a twelve year crisis during which most Greeks endured substantial hardship. Perhaps surprisingly, the incumbent center-right government is emerging with a rising vote, sharing the spoils with the center-left party of the prior government who had to endure most of the restructuring. The genuine democratic stability in Greece contrasts with the dodgy 'stability' in the recent elections in Turkey.

In Australia, they are feeling left out of inbound travellers from China. There were 26,810 short-term visitors from China in March compared to 124,370 in March 2019. This semi-official snub has a flow-on impact on New Zealand where only 7119 short-term visitors from China arrived here compared to 41,063 in March 2019. China may be punishing Australia, but we get blowback too.

And Australia has decided how it will regulate Buy Now Pay Later schemes. They will be regulated under credit laws and companies in the sector will have to determine that products are suitable for their users under their responsible lending obligations. Those firms will be required to hold an Australian credit licence. These moves follow New Zealand's moves to regulate BNPL here.

The UST 10yr yield starts today at 3.69%, the same as where we were Saturday but up +25 bps for the week. Their key 2-10 yield curve is still inverted at -59 bps. Their 1-5 curve is still at -129 bps. And their 3 mth-10yr curve is also little-changed at -182 bps. The Australian 10 year bond yield is now at 3.62% and down -1 bp. But that is a +23 bps rise in a week. The China 10 year bond rate is unchanged at 2.73%. And the NZ Government 10 year bond rate is at 4.47% up another +1 bp from Saturday and up a massive +41 bps in a week.

The price of gold will start today at US$1978/oz and up +US$2 from Saturday, but down -US$33 for the week.

And oil prices are marginally firmer from where we left them Saturday to be just under US$72/bbl in the US. The international Brent price is still just over US$75.50/bbl. These levels are +$1.50/bbl higher than this time last week.

The Kiwi dollar is little-changed against the USD from Saturday and now just on 62.7 USc. But that is up +¾c in a week. Against the Aussie we are little-changed at just over 94.4 AUc. Against the euro we are unchanged at 58.1 euro cents. That means the TWI-5 is up to 71.3 and no change from Saturday.

The bitcoin price is unchanged today, now at US$26,885 and little changed from both Saturday and one week ago. Volatility over the past 24 hours has been low at just on +/- 0.8%.

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