Here's our summary of key economic events overnight that affect New Zealand with news China seems to have varying types of 'flooding' problems.
First today, the annual PCE inflation rate in the US decreased to 2.5% in June from 2.6% in May, in line with market forecasts. The month-on-month change was minor. The core PCE rates are marginally high, than the overall rates, but also trending lower. Markets are assuming the US Fed will like this data, and reacted accordingly.
In its weekly update, the US Fed said its balance sheet is still shrinking, (down to US$7.2 tln) but not as fast as earlier, and it is still not down to its pre-pandemic levels (of US$4.2 tln). The RBNZ balance sheet is also on a slow shrink, and also far, far larger still ($84.5 bln) than pre-pandemic ($31 bln).
Although we should note that steel rebar prices have sunk to their lowest level in over seven years, amid poor demand and ample supply in China, we also need to know that the Chinese government mandated fresh quality standards for steel rebar to start in late September, driving mills and traders to flood their market with old stockpiles before the new standards for the metal are enacted. Export rebar will also be unusually cheap at present. All this is coming while the general economy is also weak.
Staying in China, they have some other rather serious flooding problems. We haven't made a big deal about this because it happens every year. But this year is extreme even for them, and it has come earlier. Beijing is worried and had a special meeting about these risks. Also unusual is that they issued a statement after the meeting. “China's climate conditions are abnormal, with frequent and prolonged heavy rainfall, early and rapid development of river floods, and some areas repeatedly hit by heavy rains, making the flood control situation severe and complex”.
And this is a guess on our part, but the Chinese data on foreign direct investment is unusually late for June. Perhaps it doesn't look good?
The Russian central bank hiked its policy rate +200 bps to 18%. This was not unexpected however. They are seeing domestic demand outstripping the limited supply capacity that the Russian economy is able to offer, triggering aggressive inflationary pressures and warranting higher borrowing costs. Besides the pressure on supply capacity from Western sanctions, they also noted that labour shortages are building fast in the fallout from the military mobilisation and the resulting sharp diaspora of working-age men.
Inflation expectations In the Euro Area remained unchanged at 2.8% in June. (A year ago, these inflation expectations were running at 3.5%.) Inflation Expectations in Euro area have averaged 3.4% from 2020 until 2024, reaching an all time high of 5.8% in October 2022 - and a record low of 1.9% in October 2020.
Most covered bond programmes are sufficiently strong to withstand the economic consequences from a sovereign default, Fitch Ratings said in its latest Covered Bonds Snapshot report. A majority of rated covered bonds programmes have higher ratings than their relevant sovereigns. Overall, covered bonds programmes are on average rated almost two notches above the sovereign Local Currency Issuer Default Rating.
The UST 10yr yield is now at just on 4.20% and down -7 bps from this time yesterday, down -4 bps from a week ago. The key 2-10 yield curve inversion is now at -19 bps and little-changed from yesterday but down from -27 bps a week ago. Their 1-5 curve is slightly more at -73 bps. And their 3 mth-10yr curve inversion is out at -117 bps. The Australian 10 year bond yield starts today at 4.31% and down -2 bps from yesterday. The China 10 year bond rate is down -2 bps at 2.20%. The NZ Government 10 year bond rate is now at 4.41%, and down -5 bps from yesterday, unchanged from a week ago.
On Wall Street, the S&P500 has rebounded again in Friday trade, up +1.1% but it is down -1.6% for the week. Overnight, European markets were higher, Paris and London up +1.2%, Frankfurt up +0.6%. Yesterday, Tokyo closed down -0.5% to be -5.7% lower for the week. Hong Kong was unchanged but down -2.5% for the week. Shanghai was up marginally in its Friday trade to be down -2.9% for its week. Singapore was little-changed yesterday. The ASX200 rose +0.8% in Friday trade to recover prior losses and ended its week little-changed. The NZX50 was down -0.4% in daily Friday trade to end the week up +0.2%.
In India, their stock market hit a record high at the close of trade on Friday.
The Fear & Greed Index ends the week just in a 'neutral' range, a small improvement from the weak 'fear' reading last week.
The price of gold will start today with a +US$31 recovery from yesterday at US$2383/oz. But that is a -US$15 easing for the week.
Oil prices are -US$1.50 lower at just on US$76.50/bbl in the US while the international Brent price is just under US$80/bbl. These are the lowest levels since early June. From a week ago they are -US$2/bbl lower.
The Kiwi dollar starts today weaker, down another -10 bps at just under 58.9 USc. A week ago it was at 60.1 USc so -1¼c lower since. That is a -3.4% devaluation since the start of the month. Against the Aussie we are down -10 bps at 89.9 AUc. Against the euro we are unchanged at 54.3 euro cents. That all means our TWI-5 starts today at 67.9 and down -10 bps from yesterday and near a two year low. This is down -110 bps from the start of the week.
The bitcoin price starts today at US$67,495 and up a sharp +4.1% from this time yesterday. A week ago this price was US$66,552 so up +1.4% since then. Volatility over the past 24 hours has been moderate, at +/- 2.8%.
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