US producer prices fall but jobless claims stay low; China exports dive and investment flows out; Australian inflation expectations high & sticky; UST 10yr 3.76%; gold and oil up; NZ$1 = 63.9 USc; TWI-5 = 71

Here's our summary of key economic events overnight that affect New Zealand, with news inflation pressure is easing further in both the US and Chinese economies.

But first, please note that today, Friday, July 14, 2023 is a public holiday in New Zealand, Matariki. It is a normal public holiday with most retail services open but most business and government operations closed. We will have holiday coverage today and return for normal weekend coverage tomorrow.

The number of jobless claims in the US rose last week to +259,000, but that was less than anticipated and reinforced the stubbornly strong labour market there. There are now 1.73 mln people on these benefits.

American producer prices rose in June but by far less than expected, and only for services, not goods. In fact they are virtually unchanged in a year which is a [pretty major turnaround in cost pressure. Recall that in early 2022 these increases were running at almost a +12% annual rate.

This tame PPI helped propel the US dollar lower, taking it back to April 2022 levels. It has been unusually strong since then and it still sits well above its ten year average even at these new lower levels. But it is back to about its 50 year average now.

The US federal budget deficit rose in June by -US$228 bln taking the overall deficit to -US1.8 tln for the past twelve months and that is 6.9% of GDP. But remember most states run surpluses so the overall public sector load will be less than this. (For perspective it was -US$3.3 tln in the final Trump Administration year or 15.4% of GDP, so it is less than half that now.)

China's exports fell -12.4% from the same month a year ago as the cumulative weight of 'de-risking' takes hold and global supply chains are reoriented. Even a fast rise in car exports that has made China the number one car exporter (overtaking Japan) hasn't managed to stem the flow. This is a pretty sharp and quick reversal from the +14.8% year-on-year rise in March. China's imports fell too. The trade surplus they run with the US is shrinking quite quickly now. These trade numbers are much worse than expected and will deal a new blow to their economic recovery efforts. The US imports more from each of Mexico and Canada than China now as the trade worm turns.

Worse, foreign direct investment in China fell to +US$20 bln in Q1-2023 from +US$100 bln a year earlier, hurting an already struggling economy. It is unlikely Q2 data will be better.

And foreign investors removed -US$1.6 bln from China’s debt last month, while emerging Asia attracted +US$13.5 bln of funds from overseas investors. That makes it six straight months of a sell-down from China.

In a report released this week, an influential China think tank said the country should step up economic stimulus measures by expanding the budget deficit by at least NZ$300 bln this year. They say market uncertainty and a lack of effective demand are sapping the economy's ability to recover.

We should note that appointed Thai conservative politicians have thwarted the recent general election winner from taking power there. It is a potentially destabilising situation.

At the ECB, they released their June meeting minutes earlier today and those showed them concerned the current policy tightening may not be enough to quell their inflation. The risks of more rate hikes there seem to be to the upside.

Australian inflation expectations are not retreating. They were 5.2% in June are are also 5.2% in July the the Melbourne Institute survey.

And staying in Australia, the new government's efforts to replace Phillip Lowe as RBA governor have turned into a very political fight. The usual consultation with the opposition parties them turning it into a nasty public spat. Similar sorts of culture war grandstanding may derail their Voice vote too.

Global container freight rates stopped falling last week, even eased up marginally, which is a first for a very long time. These falls seem to have bottomed out. The main rises were in outbound rates from Shanghai. Bulk cargo rates are holding too.

The UST 10yr yield will start today at 3.76% and down another -10 bps from this time yesterday. Their key 2-10 yield curve inversion is slightly less at -85 bps. Their 1-5 curve is however more inverted at -134 bps. And their 3 mth-10yr curve is much more inverted at -150 bps. The Australian 10 year bond yield is now at 3.97% and down another -7 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 -10 bps from yesterday to 4.62%.

On Wall Street, the S&P500 was up +0.9% in Thursday trade, finishing abover an index level of 4500 for the first time in 15 months. Overnight, European markets all rose about +0.5% on average. Yesterday, Tokyo ended it Thursday session up +1.5% while Hong Kong was up another +1.6%. Shanghai however up +1.3%. The ASX200 finished with a +1.6% gain while the NZX50 ended up +0.9% which enabled it to finish the week up +0.5%.

The price of gold will start today at US$1960/oz and up +US$3 from yesterday.

And oil prices are +US$1.50 higher at now just on US$77/bbl in the US. The international Brent price is now at just under US$81.50/bbl.

The Kiwi dollar starts today almost another +1c higher at just on 63.9 USc and our highest since early February. Against the Aussie we are holding up at just on 92.8 AUc. Against the euro we are higher at just under 57 euro cents. That means the TWI-5 is now up to 71 and another +50 bps gain from yesterday and a +160 bps rise from the start of the month or a +2.3% revaluation. If it holds it will help in the fight against inflation.

The bitcoin price has risen from this time yesterday and now is at US$31,276 which is a +2.7% move higher. Volatility over the past 24 hours has also been moderate at just on +/- 2.0%.

[There will be no podcast or video versions today.]

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