Here's our summary of key economic events overnight that affect New Zealand, with news the inflationary pressure in the US is easing and that is probably a turning point for their central bank.
The June CPI inflation number came in pretty much as expected. It was 3.0% in June from a year ago, the lowest since March of 2021 and that compares to 4.0% in May and a market expectation of 3.1%. The slowdown is partly due to a high base effect from last year when a surge in energy and food prices pushed the headline inflation rate to 1981-highs of 9.1%. This time, energy cost slumped more than -16%, and the food component went up +5.7% which was less than the May +6.7% rate of rise.
Overall, the annualised rate of increase in June from May was about +2½%, so that indicates a recent slowing in cost pressures.
The impact on financial markets when these expectations were confirmed was muted - they were priced in - but US equities rose (to 15 month highs), bond yields fell, and the US dollar fell. In fact the US dollar fell to its lowest since April 2022. Risk appetites are rising and commodity currencies are back in favour. All this raises the probability of a soft landing for the giant US economy as the Fed is less likely to raise rates much further. But the expectation remains that they will still raise them again.
Meanwhile, American mortgage applications rose last week after the prior week's large fall. This may just we a rebalancing because American mortgage interest rates rose sharply to over 7% (and their highest since November) as the bond market sold off back then. There will probably be an easing in these rises in the next two weeks.
We will got the latest Fed's Beige Book survey and it painted a modest picture of the giant American economy ticking along ok. They said overall economic activity increased slightly since late May. Five Districts reported slight or modest growth, five noted no change, and two reported slight and modest declines. Reports on consumer spending were mixed; growth was generally observed in consumer services, but some retailers noted shifts away from discretionary spending. Tourism and travel activity was robust, and hospitality contacts expected a busy summer season. Car sales remained unchanged or exhibited moderate growth across most Districts. Manufacturing activity edged up in half of the Districts and declined in the other half.
And the closely-watched USDA WASDE crop yield update for July made a rare cut in corn and soybean production forecasts as extreme weather takes some toll. But to be fair the corn cut in the forecast was from a record high and the new lower levels will still probably be records. Wheat production is still expected to be a record too. But their Mid-West farming sector is going through a drought.
In Canada, their central bank raised its policy rate by the +25 bps expected to 5% overnight, doubling the surprise +25 bps rate hike from the previous meeting and extending its tightening cycle after the brief pause in March and April. They said that stronger-than-expected consumption and stubbornly tight labour markets are keeping inflation persistent for services, warranting another increase in borrowing costs.
Japanese machinery orders (excluding those for ships and electric power companies), declined by -7.6% in May from April, reversing from a +5.5% rise in April and defying expectations for a +1% gain. The manufacturing sector saw an increase in private capital investment of +3.2% in May, while the non-manufacturing sector posted a sharp drop. The highly volatile data series is considered as a leading indicator of capital spending in the coming six to nine months. On an annual basis, machinery orders fell by -8.7% in May, accelerating from a -5.9% fall in April. Analysts expected little change.
India said consumer inflation accelerated for the first time in five months to 4.8% in June from an upwardly revised 4.3% in May, and above market forecasts of 4.6%. Food inflation increased to 5%, from 2.9% in May.
And industrial production in India rose +5.2% in May from a year ago, accelerating from a +4.2% gain in the previous month and above market expectations of +4.8%.
In China, two major Chinese commercial banks have allowed their customers to start making payments in their CBDB e-CNY without being connected to the internet, in another push to get more people to use the central bank-created digital currency. Bank of China has partnered with two telecom giants to launch the new feature on the central bank-backed e-CNY app, according to a BoC statement.
The UST 10yr yield will start today at 3.86% and down -11 bps from this time yesterday. Their key 2-10 yield curve inversion is slightly less at -89 bps. Their 1-5 curve is however more inverted at -128 bps. And their 3 mth-10yr curve is much more inverted at -140 bps. The Australian 10 year bond yield is now at 4.04% and down another -13 bps from yesterday. The China 10 year bond rate is holding lower at 2.69%. The NZ Government 10 year bond rate has fallen sharply again too, down another -11 bps from yesterday to 4.72%.
On Wall Street, the S&P500 is up +0.9% in Wednesday trade, a gain that predates the CPI news. Overnight, European markets all rose about +1.6% on average. Yesterday, Tokyo ended it Wednesday session down -0.8% (which is more about the yen's value change) while Hong Kong was up another +1.1%. Shanghai however ended down -0.8% with an afternoon selloff. The ASX200 finished with a +0.4% gain while the NZX50 ended essentially unchanged for a second day.
The price of gold will start today at US$1957/oz and up +US$25 from yesterday.
And oil prices are +US$1 higher at just under US$75.50/bbl in the US. The international Brent price is now at just under US$79.50/bbl.
The Kiwi dollar starts today more than +1c higher at just on 63 USc and that is a two month high. Against the Aussie we are holding up at just on 92.8 AUc. Against the euro we are firm at 56.6 euro cents. That means the TWI-5 is now up to 70.5 and a +50 bps gain from yesterday.
The bitcoin price has slipped slightly from this time yesterday and now is at US$30448 which is a tiny -0.5% move down. Volatility over the past 24 hours has also been low at just under +/- 0.9%.
[There will be no podcast or video versions today.]
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