US and Japanese PMI expansions underpinned by consumer spending; China looks for a new direction; Singapore inflation eases; Australia on tenterhooks; UST 10yr 3.74%; gold and oil little-changed; NZ$1 = 61.4 USc; TWI-5 = 69.8

Here's our summary of key economic events overnight that affect New Zealand, with news it is consumers and not factories that are holding the economy from tipping into recession. That is what strong labour markets can do.

In the US the first of their PMIs for June has become available and it tells the tale of slowing growth, but a continuing expansion nonetheless. The factory sector is still contracting however and at a faster clip than in May. But their service sector is still expanding although that too is at a slower pace than for May even if it is still a good moderate expansion. New order growth eased, but was still the second-fastest in just over a year, while the pace of job creation retreated to the slowest since January.

The US Fed is back shrinking its balance sheet. You will recall it paused that effort to contain the regional banking crisis, and then the financial market stress surrounding the debt-limit negotiations. But the promised temporary build has been that and the renewed sell-off of bonds bought to support their economy during the pandemic has resumed and they are back to where they were before they were rudely interrupted in March. It has ended up being just a 100 day interruption.

Internationally, there does seem to be a thaw in US-Chinese relations. Blinken broke the ice, and now Janet Yellen is meeting senior Chinese leaders. Both are announcing broader cooperation deals. It is a good time for the NZ Prime Minister to visit. China's economic stumbles are making them more open to trying to build back trade with Western nations. It is very early days and it may only be tactical rather than strategic, but it seems both parties are willing to see what they can make of a thaw.

China needs a thaw. Overnight yet another large real estate developer, Central China Real Estate Limited, told the stock exchange that it could not pay interest on a bond even after the grace period. They are not the only one this week, also CIFI Holdings. It has been estimated that total Chinese developer debt is 12% of Chinese GDP which is a huge burden. The yuan sank. And this type of news is driving down their whole equity markets. Only a big redirection can weight against such drags.

And around the world, China is having to face up to its aggressive funding of third-world infrastructure projects gone-wrong with a growing list of debt writeoffs.

China might be on the long Dragon Boat Festival break, but in northern China is is no fun at present. A temperature of over 41oC was recorded in Beijing yesterday, its second highest on record (the highest was in July 1999). And it is not just Beijing being hit. The same heatwave is sweeping across vast areas of northern China.

In Japan, the June PMI story is similar to the US except perhaps things are still running higher/better there.

Japanese inflation ran at 3.2% in May, now the 14th straight month it has been over the Bank of Japan's 2% target. But there was no change in May from April, leading to suggestions it might be topping out. But the yen slid anyway.

Singapore's CPI inflation rate dipped to 5.1% in May from 5.7% in April. The April-to-May pace was running lower than the annual levels. Food and energy prices are keeping it up, services are lower than the average.

In Europe, their flash PMIs also record a contracting factory sector and an expanding services sector, but they are underperforming both the US and Japan.

The Australian factory sector is still contracting. But the retreat was less so in June than in the prior two months amid improvements in supply conditions. However, new orders are still retreating which isn't a good sign. And their services sector is no longer expanding, even if it is yet to contract.

Local observers are starting to see more cracks opening up in the Australian economy. Apparently AirBNB reservations are sliding, the number of home builders going bust is rising, and about half of small businesses are concerned about their financial future, according to a survey there by Xero. It isn't helping that the RBA's official cash rate at 4.1% is lagging most other central banks by at least 100 bps and that is keeping the Aussie dollar weak and importing inflation. (And for many people, this won't be helping either.)

There is much talk that RBA Governor Lowe is about to be replaced in July. It is hard to know if that will turn confidence around or push more instability. Certainly, Lowe's defenders are now out saying now would be a bad time to make a change.

The UST 10yr yield will start today rising at 3.74% and down -5 bps from yesterday but unchanged for the week. Their key 2-10 yield curve inversion is slightly wider at -102 bps. Their 1-5 curve is also slightly more inverted at -128 bps. And their 3 mth-10yr curve is more inverted at -137 bps. The Australian 10 year bond yield is now at 3.94% and back down -7 bps. The China 10 year bond rate unchanged at 2.72%. But the NZ Government 10 year bond rate is up another +3 bps at 4.60%.

Wall Street is lower today with the S&P500 Friday session down -0.8% to push out the weekly retreat to -2.1%. Overnight, European markets closed lower across the board again by about -0.5%, except Frankfurt which was down double that. Yesterday, Tokyo ended its Friday session down -1.5% for a weekly dump of -2.9%. Hong Kong fell -1.7% yesterday for a weekly rout of -5.2%. Shanghai was closed for a public holiday and no doubt pleased it has missed the global selloff. The ASX200 ended its Friday session down another -1.3% to be -2.1% lower for the week. And the NZX50 ended its session unchanged on the day for a weekly retreat of -0.5% which was 'very good' in the context of global results.

The price of gold will start today up +US$4 at US$1920/oz but down -US$37/oz or -1.9% for the week.

And oil prices are staying low and little-changed from yesterday to now be just over US$69/bbl in the US. The international Brent price is now just on US$74/bbl. That is a -US$3 drop for the week.

The Kiwi dollar starts today at 61.4 USc and down a bit more than -¼c from yesterday. That is a full -1c lower than this time last week. Against the Aussie we are +½cfirmer at 92 AUc and up more than +1c in a week. Against the euro we are little-changed at 56.4 euro cents. That means the TWI-5 is now just on 69.8, also little-changed, but down a minor -20 bps for the week

The bitcoin price has firmed again from this time yesterday and now is at US$30,973 with rise rise of +2.7%. That takes it over NZ$50,000 for the first time since May 2022. Volatility over the past 24 hours has been moderate at just over +/- 2.7%.

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