Dairy prices weaker again; US data weaker; China reacts to pessimistic households; RBA surprises with rate hike; World Bank sees little expansion; UST 10yr 3.70%; gold up and oil down; NZ$1 = 60.7 USc; TWI-5 = 69.1

Here's our summary of key economic events overnight that affect New Zealand, with news the 'surprise' rise in the official Australian interest rate benchmark comes as the Chinese yuan weakens sharply past 4.1 to the USD. A weaker Chinese economy and higher regional interest rates will cause inevitable ripples in New Zealand.

But first today, there was another dairy auction this morning and another weakish one. For a second consecutive time, prices fell -0.9% in USD terms, but this time that was more than made up by a weakening NZD. In local currency, prices rose +1.7%. The main weakness was the WMP price, down -3.0% from the last event three weeks ago, and a reflection of weak Chinese demand. At the other end of the scale, cheddar cheese rose +7.4%. Today's overall fall just adds to the downward direction we have had almost continuously for the last 15 months now. And it justifies the conservative, falling farm gate payout price indications from both Fonterra and the wider analyst community.

The American retail impulse continues to weaken, up a meager +0.6% last week from the same week a year ago on a same store basis, far less than is needed just to keep up with inflation. (This isn't measuring all retail sales of course, only those in traditional store premises.)

The US Logistics Manager's Index has reached a new all-time low and for the first time in its 6.5-year history it has moved into contraction territory. This is the third consecutive month of record lows.

Canada reported grim residential building consent data overnight, sharply lower in April than March. And their widely-watched local PMI wasn't too flash either, falling to a modest expansion when a rise to a good expansion was anticipated.

In China, most large state-owned banks are now sharply cutting deposit rates for customers. Not only is loan demand anemic, but Beijing is concerned about very high savings rates as households worry about their future prospects. Lower savings rates may induce some to spend rather than save. The Chinese financial institutions’ deposit-loan gap grew to a staggering US$6.8 tln at the end of April.

In Europe, the destruction of the giant Ukrainian dam on the Dnipro River is causing widespread havoc downstream. It is likely to cause wheat prices to rise globally too as a key part of that trade is now shut down.

In a surprise to analysts, the RBA raised its cash rate target by +25 bps yesterday to 4.10%. It was their 12th rate rise in a row. It was a surprise because it was different to what those analysts had interpreted the RBA guidance, not from what many thought they should do. With strong labour markets, the RBA's focus is now clearly on the inflationary threats from rising labour costs and inflation expectations.

Globally, the World Bank says the world economy is expected to grow by +2.1% in 2023, up from a +1.7% expansion they projected in January. This is due to greater-than-expected resilience in major economies, including the US they said. However, the 2023 expansion will be much less than the 2022 +3.1% global expansion, and at the new +2.1% it is still weak.

The UST 10yr yield will start today at 3.70% and little-changed from yesterday. Their key 2-10 yield curve is more inverted however at -85 bps. Their 1-5 curve is little-changed at a -137 bps inversion. And their 3 mth-10yr curve is at -143 bps and less inverted. The Australian 10 year bond yield is now at 3.80% and only up +1 bp. The China 10 year bond rate is little-changed at 2.72%. And the NZ Government 10 year bond rate is at 4.50% and up +11 bps from this time yesterday.

Wall Street is in its Tuesday session unchanged on the S&P500. Overnight, European markets were all up on average by +0.3%. Yesterday, Tokyo hit yet another new record high, powering up another +0.9% on the day. Hong Kong slipped a minor -0.1%. Shanghai however took a heavy hit, down -1.2% in a sharp late fall. The ASX200 ended its Tuesday session down a similar sharp -1.2%, but the NZX50 ended unchanged - however of course trading here closed before the RBA decision.

The price of gold will start today at US$1965/oz and up +US$4 from yesterday.

And oil prices have slipped -50 USc today from yesterday at just under US$72/bbl in the US. The international Brent price is now just over US$76/bbl. The Saudi-announced production cuts have had little impact to date.

The Kiwi dollar starts today little-changed at 60.7 USc. Against the Aussie we are sharply lower, down -¾c at 91 AUc. Against the euro we are little-changed at 56.8 euro cents. That means the TWI-5 is down another -20 bps at 69.1 from where we left it yesterday.

The bitcoin price has bounced back a bit today, recovering some of yesterday's large SEC-Binance induced fall. It is now at US$26,699 which is a partial recovery of +3.6% from this time yesterday. Volatility over the past 24 hours has been moderate at just on +/- 2.7%.

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