Here's our summary of key economic events overnight that affect New Zealand, with news the pull-back from China by international investors seems to be gathering pace.
But first we should note that the US will be on holiday this weekend, their Memorial Day (like our ANZAC Day but with more retail). This marks the start of their summer season when investors traditionally pull back from markets a little. But to be fair, it is less of a 'thing' now than it used to be. They return Wednesday, NZT.
US durable goods orders rose by +0.7% in April from March, following a +0.8% increase in March and defying market expectations of a -0.8% drop. That makes them a very impressive +7.9% higher than in April a year ago and augers very well for their factory sector in coming months. It was mainly driven by strong demand for transport equipment.
An updated University of Michigan consumer sentiment survey result for May was released coming in very much better than the preliminary version which recorded a drop. Yes there is still an easing but only a minor one. And this current level is +17% higher than a year ago.
After three dour and disappointing consecutive months, Canada's retail sales sparked into life in April with its best rise in a year. But it will still be only +2% higher than a year ago and less than inflation's bite.
In Japan, their inflation rate fell to 2.5% in April from 2.7% in March. Their core inflation rate dropped to 2.2% from 2.6%. While these falls were not unexpected, they are the lowest levels since January.
Singapore's industrial production recovered sharply in April after the big miss in March. But it still isn't back to year-ago levels.
China's isolation by foreign investors is becoming quite stark. New net foreign investment grew a paltry +US$8.3 bln in April from March which looks like it is a decade low. For a country the size of China, this is a 'rounding error'. In April 2023 it was only +US$14.1 bln and also considered low. In fact the total new foreign investment in the first four months of 2024 was -31% lower than in the same period a year earlier which itself was weak. The international de-risking trend is biting hard now as the nation turns inward.
Bloomberg has an interesting story about the record withdrawals from Chinese bank deposits in April. One-year term deposits at China’s largest banks pay a record-low of just 1.45% pa. There was a large -NZ$880 bln outflow in deposits from banks in April, -1.3% of all deposits, and much of it flooded into bonds and "wealth management products". The policy goal is to spur national economic impetus by making these funds work harder. But China has had significant issues with "wealth management products" in the recent past so this is a very risky strategy. There is a history of a lot of people getting hurt - and very angry.
Speaking of the apparent dangers of modern life, we should also note that Morgan Spurlock has died, aged 53. He was the director and subject in the movie "Supersize Me" about the risks of a fast food diet.
We don't often note it, so this is an opportunity to observe that the price of naphtha, a byproduct of crude oil refining (the gas you see flared off at refineries), and a crucial component in the production of plastics, remains remarkably stable. It is still at the same nominal level it was in 2006, so in inflation-adjusted terms the core raw material in plastic resin production has fallen more than -55%. It will be very hard to substitute something that has become so extremely cost-effective. And that is just the start. Clever manufacturing techniques allowing thin-walling (getting the same or improved functionality with less material use) enhances its advantages. In fact the growth in overall global plastics production seems to be ending. But not the reduced product size innovations. However the key advantage is that consumers will always choose the best-made, best-presented, best-priced option and that will almost always be an item involving plastic components. The cost and technology advantages can't be beat. Small effective specialised products make recycling much tougher however.
The UST 10yr yield is now at 4.46% and down -2 bps from this time yesterday. But that is up a net +4 bps in a week. The key 2-10 yield curve inversion is more at -49 bps. Their 1-5 curve is unchanged at -68 bps. And their 3 mth-10yr curve inversion is also more at -92 bps. The Australian 10 year bond yield is now at 4.35% and down -1 bp. The China 10 year bond rate is unchanged at 2.32%. The NZ Government 10 year bond rate is now at 4.84% and up +4 bps from yesterday. A week ago it was at 4.66% so up a sharpish +18 bps from then.
Wall Street is ended its Friday trade with the S&P500 up +0.7% but unchanged in a week as they go into their long holiday weekend. European markets were little-changed overnight, except London which fell -0.3%. In fact London was down -1.2% for the week. Yesterday Tokyo ended its Friday session down -1.2% and giving up the prior day's rise to be -0.3% lower for the week. Hong Kong fell another -1.4% and ended the week down a sharp -5.2%. Shanghai was down -0.9%, another large retreat for them to be -2.1% lower for the week. Both are a vote of no-confidence in Beijing's property crisi response. Singapore was down -0.2% on the day. The ASX200 fell -1.1% yesterday in sympathy with China and down the same for the week. But the NZX50 was down only -0.2% yesterday and up an unusual +0.7% for the week, by far the best of the bourses we follow.
The Fear & Greed index has moved back into the "neutral" range as risk appetites ease. The Fed's stance on inflation took the shine off this week - and maybe the "sell in May" seasonal meme,
The price of gold will start today down a minor -US$2 from yesterday at US$2334/oz, but down -US$85 from a week ago.
Oil prices are up +US$1.50 at just under US$78/bbl in the US while the international Brent price is up a bit less to just on US$82/bbl. These levels were US$79.50 and US$83.50/bbl a week ago, so -US$1.50 less since then.
The Kiwi dollar starts today up +¼c from yesterday at just over 61.2 USc but -¼c lower than this time last week. Against the Aussie we are unchanged at 92.3 AUc. Against the euro we are still at 56.4 euro cents. That all means our TWI-5 starts today just under 70.6, and up +20 bps from both yesterday and a week ago.
The bitcoin price starts today at US$68,999 and up +1.8% from this time yesterday. And that is up +3.2% from this time last week. Volatility over the past 24 hours has been moderate however at just on +/- 2.0%.
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