Here's our summary of key economic events overnight that affect New Zealand with news markets turned very optimistic this week and 'greed'; replaced 'fear' among investors.
First, American producer prices rose +2.6% in June from a year ago (+0.3% for the month), the most since March 2023, and rising from an upwardly revised 2.4% rate in May. Markets had expected a rise of 2.3%. Under the hood, inflation pressures still lurk but remain at a much more manageable level.
But despite all the vastly improved economic signals, American consumer sentiment still lags. According to the widely-watched University of Michigan survey, it fell for a fourth straight month in July to its lowest since November. Nearly half of consumers are still concerned about high prices and economic uncertainty persisting as their upcoming election looms.
Estimates of the Bank of Japan currency intervention are now emerging, describing the scale of their efforts to stop the yen from rising. They probably spent ¥3.5 tln (NZ$35 bln) in Thursday's effort. That did have an impact, but is was small and the fear is that it will fade. Even the enormous warchests of central banks find it tough to move currency markets, even if the judgement is right that the JPYUSD rate is out of kilter.
Japanese industrial production rose +3.6% in May from the prior month to be up +1.1% from a year ago, solidifying the evidence of an improving Japanese economy. No doubt the recent lower yen has helped, especially at the pressure from energy prices has waned substantially.
India's inflation rate rose to 5.1% in June. up a rather startling +1.3 in June alone. From a year ago, food prices were up +9.4% however within that. This rise was not expected, although their central bank is not expected to react to it because they have given themselves a very generous 2% to 6% target range for inflation. But they are now well above the 4% midpoint and the froth developing in their breakneck economic expansion will need to be dealt with soon.
Industrial output in India rose +5.9% in May from a year ago, well above market expectations of a +4.9% gain and marking the highest growth rate since October 2023. Manufacturing which accounts for nearly 80% of total industrial production, expanded by +4.6% with surged growth noted in the pharmaceutical sector (+7.5%), basic metals (+7.8%), mining (+6.6%) and electricity (+13.7%).
Despite strong efforts by their central bank to encourage lending, Chinese banks extended +¥2.1 bln in new yuan loans in June , a sharp contraction from the +¥3.1 bln in June the previous year, and slightly below market expectations of ¥2.2 bln. The slip aligned with the sharp slowdown in outstanding loan growth, dropping to +8.1% in June from +9.3% in the previous month, to mark the smallest amount of loan growth since data started being recorded in 1998. A year ago it grew at +11.3%. Total 'social financing' in June was -22% less that the same month a year ago.
China's exports were expected to rise +8% in June ahead of new American tariffs. But they actually rose +8.6% to a 15 month high. Their imports fell -2.3% however when a +2.8% rise was expected. That divergence meant they reported another big surplus - which will undoubtedly spread the fear of Chinese dumping from its over-capacity situation.
They reported they imported almost -16% less from New Zealand in June than in the same month a year ago. They exported +2.4% more to us. For Australia, imports were down -5.2% and exports down -4.9%. For the US, their imports from them were down -4.9% and exports to them up +1.5%. Overall trading with China is pretty muted now. The only destinations that China has good exports to were Brazil, Vietnam, Indonesia, and surprisingly Taiwan. Everyone else - Russia included - is very ho-hum. And total trade (imports and exports) is only healthy with Vietnam, Malaysia, and Brazil.
In the Chinese style that "everything is security", Beijing is pushing its shipping companies to build and own more of their vessels. COSCO is in a massive building phase, adding 100 new ships. CMG is doing the same. And bulk cargo lines are also ordering big - all from Chinese shipbuilders of course. It is turning into a monumental industrial program, not doubt bolstering the PLA's navy capacity at the same time.
In Australia, the number of permanent arrivals in the country is now almost at a new record high in a very sharp rebound. +12,680 people arrived in the country in May, taking the annual level to +161,000. The record high permanent arrival level was +163,400 in February 2009.
The latest OECD review of corporate tax rates shows that New Zealand as one of the highest effective rates globally among both OECD and non-OECD nations, and a very high effective marginal corporate rate in these comparisons. (See pages 37, 42 and 47.) We also have a higher than average level of corporate tax (to GDP) collected than most other countries.
The UST 10yr yield is now at 4.19% and unchanged from yesterday. A week ago it was at 4.28% so a -9 bps net fall since then. The key 2-10 yield curve inversion is less at -28 bps. Their 1-5 curve is still at -77 bps. And their 3 mth-10yr curve inversion is deeper at -118 bps. The Australian 10 year bond yield starts today at 4.34% and down a mere -1 bp. The China 10 year bond rate is down -2.26%. The NZ Government 10 year bond rate is now at 4.55% and down -7 bps from yesterday. A week ago it was 4.77% so down a net -22 bps through the MPR.
Wall Street has ended its Friday session with the S&P500 up +0.6% to end its week up +0.8%. European markets were similarly up +1.2% but London trailed with a +0.4% rise. Tokyo ended its Friday trade down -2.5% and that left a weekly gain of only +0.8%. Hong Kong ended yesterday with another streak up, this time by +2.6% so they ended their week up +3.5%. (Oddly, this rally is driven by the impact on Chinese property developers of a US rate cut.). Shanghai was virtually unchanged on the day but booked a +1.1% weekly gain. Singapore was up +0.7% yesterday. The ASX200 rose +0.9% again to be +1.8% higher for the week. And the NZX50 rose its own +0.6% in Friday trade to be +2.9% higher for the week.
The Fear & Greed index has shifted over into the 'greed' range on the improved outlook in most economies.
The price of gold will start today up +US$1 from yesterday at US$2414/oz, up +US$24 from a week ago. The last, and only, time it was over US$2400 was in mid-May. It's record high is US$2,450/oz.
Oil prices are still at just under US$81.50/bbl in the US while the international Brent price is back down -50 USc at just on US$84.50/bbl. A week ago these prices were US$83/bbl and US$86.50/bbl respectively.
The Kiwi dollar starts today up more than +¼c from yesterday and now at 61.2 USc and back nearer the week-ago level of 61.4 USc. Against the Aussie we are still at 90.2 AUc. Against the euro we are still at 56.1 euro cents. That all means our TWI-5 starts today up +10 bps at 69.9 but down from the 70.6 of a week ago.
The bitcoin price starts today at US$58,526 and up +1.1% from this time yesterday, up +3.5% from this time last week. Volatility over the past 24 hours has stayed modest at just under +/- 1.7%.
Go the All Blacks!
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