Breakfast briefing: US economy stumbles on weak retail and factory data

Economy / news

US data weak; US demographics in sudden shift; US budget bill deters investors; Japan holds rates; China oil demand set to reverse; German sentiment jumps; UST 10yr at 4.39%; gold holds and oil rises; NZ$1 = 60.2 USc; TWI-5 = 68.2

18th Jun 25, 7:25am by David Chaston

Here's our summary of key economic events overnight that affect New Zealand, with news we are seeing signs of the US economy losing steam just as the US Fed meets.

First up today, the overnight full dairy auction brought slightly lower prices, down nearly -1% overall. This was a smaller decline than the futures market expected. In NZD terms the dip was marginally more, down -1.2%. In the end the dip in the WMP price was only -2.1% and far less than expected. The SMP price dipped -1.3%. The volumes sold were at seasonal lows. All-in-all an auction event that will change little.

Also uninspiring were US retail sales in May. It slowed to a +3.3% expansion year-on-year from a downwardly revised +5.0% in the previous month. Given that US CPI inflation is being recorded at 2.4%, the volume steam has gone right out of the American retail impulse. It is surprising many analysts. Month on month, retail sales actually fell. Overall, this was the weakest result since November 2024.

US industrial production in May fell too, down -0.2% from the prior month, to be +0.6% higher than a year ago. These are 'real' volume numbers and signal what the Beige Book has been suggesting - a factory sector that is losing ground.

It is no better in their housebuilding sector. The NAHB/Wells Fargo Housing Market Index fell in June to its lowest since December 2022. Expectations were that it would improve, so another economic drag is building. Builders aren't happy facing higher tariff-tax costs when demand is leaking away.

But these may be just the start. The tough new policies toward immigrants are being felt in ways some foresaw and will have a long term impact on American demographics. Suddenly the outflow of people from the US exceeds the inflow. And it is younger workers leaving which is making costs for servicing an expanding older population rise and much more suddenly that was expected. The speed of these changes is quite corrosive, the first time in 50 years they have had to face the fact that the US is no longer a magnet for the aspirational.

And the big all-in-one US budget bill from the Trump Administration, which is struggling to get Congressional approval, is already having a depressive impact. International investors, including the giant sovereign wealth funds, face sharp new American taxes on their US investments. Most have now halted assigning funds to US opportunities. If the bill passes, there could be a rather sharp outflow of existing investments, one that would impact the USD and their current account.

The US Fed FOMC is currently meeting and will report is decisions tomorrow. No change to their 4.5% policy interest rate is expected, but they will be watching the stagflation pressures of higher inflation and lower growth with some alarm, you would imagine.

Across the Pacific, the Bank of Japan also held its key interest rate steady following a two-day policy meeting, keeping its rate at 0.5% amid economic uncertainty stemming from US trade policies. This marks the third consecutive meeting after which the central bank has maintained the rate; the last increase came in January.

In China, new data forecasts out from the IEA shows that China's oil demand is set to peak in 2027, a trend that it calls a "fundamental transformation" in the global energy market. China has accounted for 60% of the growth in global oil demand in the past decade and slowing demand in the world's second largest economy is set to contribute to a significant surplus in oil by the end of this one.

It is not all gloom. In Germany, the ZEW Indicator of Economic Sentiment surged in June to its highest level since March’s three-year peak and far exceeding market expectations. That sudden sentiment boost helped propel the wider EU survey results too.

The UST 10yr yield is now at 4.39%, and down -7 bps from yesterday. The key 2-10 yield curve is now flatter at +44 bps. Their 1-5 curve is now more inverted by -12 bps. And their 3 mth-10yr curve still positive at +21 bps. The Australian 10 year bond yield starts today at 4.24% and unchanged from yesterday. The China 10 year bond rate is up +1 bp at 1.64%. The NZ Government 10 year bond rate starts today at 4.61% and down -2 bps from yesterday.

Wall Street is lower today with the S&P500 down -0.8%. Overnight, European markets were mostly lower by about -0.8%. Yesterday, Tokyo closed up +0.8%, Hong Kong was down -0.3% and Shanghai was unchanged. Singapore ended up +0.6% however. The ASX200 ended its Tuesday trade down -0.1% while the NZX50 booked a -0.4% retreat.

The price of gold will start today at US$3,387/oz, and down -US$4 from yesterday.

American oil prices are still in the higher zone, up +US$2.50 from yesterday at just on US$74.50/bbl while the international Brent price is now just under US$76/bbl.

The Kiwi dollar is now just under 60.2 USc, back down -½c from yesterday. Against the Aussie we are up +20 bps at 93 AUc. Against the euro we are down -10 bps at 52.4 euro cents. That all means our TWI-5 starts today at on 68.2 and down -20 bps from yesterday.

The bitcoin price starts today at US$103,962 and down -3.7% from yesterday. Volatility over the past 24 hours has been moderate at just on +/-2.4%.

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32 Comments

by murray86 | 18th Jun 25, 7:57am 1750190244

DC's summary of the effects of the bill going to congress on the wider economy, as well as those other factors presents a salient lesson to the MAGA mob that if you want to make anything 'Great' you really do need to understand all the contexts of that word for what you want to change.

What was the threat that undermined America's 'greatness'? The corruption of the political elites! So they elected the most corrupt,most venal of Presidents and hoped it'd be fixed???! That swamp needed to be drained, but not by putting a bigger 'gator in it!

The real lesson though is just how out of touch the world, led by America, is to the realities driven by physics and the effects that has on people. The melt down has started and the chips are starting to fall......

by Foxglove. | 18th Jun 25, 8:34am 1750192459

Interesting dynamics emerging from the outflow of “illegals” in the US workforce. These folk though are aspirants only in the fact that they think to have greater prospects in the USA than their home country. Nothing new, New York’s Hells Kitchen was brimming over with the same in the 19th century. What though is too often overlooked is the exploitation of such workers. They have no rights, no protection, no nothing. Amongst that of course the crime and drug trafficking burgeons as a speedier way of getting cash in the pocket. The whole scenario is corrupt and counterproductive as any exploitation of people always will be.

by murray86 | 18th Jun 25, 8:50am 1750193409

I did note the outflow reports. i also note there seemed to be an implicit assumption they are illegals, but is that all? There are also plenty of reports that indicate Americans are looking for somewhere else to live that is safer too.

by powerdownkiwi | 18th Jun 25, 9:00am 1750194039

https://www.odt.co.nz/news/world/trump-calls-irans-unconditional-surren…

It is going to be increasingly unacceptable to be associated with such clown-politics. Whether inside wanting out, or outside (like us) needing to dissociate ourselves.

IRAN DID NOT START THIS - A NUCLEAR-ARMED NATION DID - IN TANDEM WITH PURSUING A RELENTLESS GENOCIDE.

We need to be moving in the direction of away...

by Foxglove. | 18th Jun 25, 9:21am 1750195275

Well they have a problem in the short term. As Albert Speer concluded in the 1940s best take the really essential production out of harms way, deep underground. While that capability exists so too obviously, the perceived threat remains. Hence the warming of the floor to drop the MOAB “earthquake bombs” Tried one years ago in Afghanistan just to see how it works.

by powerdownkiwi | 18th Jun 25, 9:18am 1750195102

Barnes Wallis was a tad ahead - 617 Squadron dropped a few during WW2. The Dambusters book (Brickhill) is a goodie.

https://www.iwm.org.uk/collections/item/object/205213027

by Foxglove. | 18th Jun 25, 9:26am 1750195590

Ditto. Trust you got a bit of a bounce out of that. Great squadron that though. After Gibson, Cheshire carried on brilliantly. Amongst it all NZ’s Munro, a quiet, steady, unadorned high achiever.

by murray86 | 18th Jun 25, 11:17am 1750202256

They won't be dropping a MOAB. It's essentially a surface effect weapon. They'll be lining up to use one of their large penetrators GBU57 MOP. 30,000 lb big mother. The war in Iraq highlighted the issue that they didn't have anything to take out Saddam's best bunkers, so they cobbled together a few used howitzer barrels, put guidance packages on them and dropped them down ventilation shafts. sort of worked but from that learning the developed the GBU 57. Next level up is a nuke ground burst or penetrator.

by Foxglove. | 18th Jun 25, 11:39am 1750203595

Thanks clarification. From the rhetoric out of the White House it looks like a certainty doesn’t it. Just a matter of time. Presently in the process of getting the rest of the world familiar with the prospect. Strangely enough, while quite a different attack format, Echoes of Tom Cruise and Maverick, Who would have thought.

by murray86 | 18th Jun 25, 11:57am 1750204677

B2 over Iran on a moonless night with lots of other distractions happening and plausible deniability (wonderful American term!). Tell tale will be when Israel stops firing rockets their way, unless the B2s can get in by flying around all the shooting.

by murray86 | 18th Jun 25, 11:19am 1750202347

Iran is not innocent in this and we all know that. Try not to be an extremist PDK..

by powerdownkiwi | 18th Jun 25, 6:27pm 1750228038

Don't even start.

Because we have to ask why?

And I have read quite a lot about the why...

by KH | 18th Jun 25, 12:16pm 1750205788

When it thinks it is losing Israel will be capable of anything.

Think, Nukes on Rome, Paris, London.

by kiwikidsnz | 18th Jun 25, 2:14pm 1750212893

Israel certainly seems to be intent on their own final solution for their part of the world

by powerdownkiwi | 18th Jun 25, 8:39am 1750192784

Your post is a little contradictory. 'Driven by physics' is valid - but I have long suggested that the corruption is a result of rising competition (since about 1970, in hindsight).

'including the giant sovereign wealth funds' - they are only collections of electronically-held digits looking to become more electronically-held digits - they are nothing in physics terms. They will compete in rising panic, looking for safe lodgings including, if need be, slower rates of loss. We should be asking what this means for Kiwisaver, ACC and pension/investment options generally.

by murray86 | 18th Jun 25, 8:48am 1750193319

Not contradictory at all - everything, all of it is connected. Yes competition will stimulate corruption, and politics will seek to obfuscate that corruption. But I agree, longer term investment opportunities are changing....

by profile | 18th Jun 25, 8:17am 1750191442

Calm out. Wind at 1.3% of name plate capacity.

https://www.transpower.co.nz/system-operator/live-system-and-market-dat…

by mfd | 18th Jun 25, 8:30am 1750192216

Maybe we need a governmental investigation into how best to store energy from these intermittent sources to ensure security of supply, or otherwise deal with the peaks and troughs in generation.

We could call it the 'Battery NZ project', or something like that.

by powerdownkiwi | 18th Jun 25, 8:42am 1750192925

Hey - we could Fastrack it

Then sell off the rights for at least 10 years to the 'private sector'.

Brilliant.

by profile | 18th Jun 25, 10:03am 1750197800

Shouldn't that be a job for the solar panel/windmill industry, that creates peaks and the troughs, rather than government?

by mfd | 18th Jun 25, 10:48am 1750200482

I wouldn't have thought so - it's not like solar panels are sold with a promise that they will always generate electricity. You could definitely argue it's for the Gentailers and Transpower to deal with it, which is where we are right now after the government's attempt was scrapped.

The trouble is the Gentailers actually do alright when supply is just scraping by - look at all the competitors that have gone bust recently. High wholesale prices don't affect a Gentailer with a balanced book, but a company like Flick gets absolutely destroyed.

The collateral damage can be seen in industrial closures over the last few years. The government could come in with a desire to actually bring prices down.

I'm arguing against my own book here - I have shares in all of the Gentailers now, but I think it's pretty obvious they are not the best organisations to be dealing with the dry year problem.

by profile | 18th Jun 25, 11:17am 1750202267

So windmills and solar industry provide the problems when it comes to intermittency, as well as grid inertia, voltage support, transmission, idling sub optimal gas/coal plants etc but not expected to provide any of the solutions. The capitalise the gains, socialise the losses model.

by mfd | 18th Jun 25, 11:28am 1750202928

When I buy tomato seeds I don't expect them to come with a heated glasshouse so I can produce year-round. I think there's some caveat emptor here. The Gentailers plan and model these things and make an economic decision accordingly - they'd build thermal if it was cheaper in the long run.

What you're suggesting here puts a very high threshold on any kind of innovation - you can't develop a product until every conceivable issue it might pose in different environments has been resolved. We don't expect coal power plant companies to go around developing and rehabilitating coal mines - each company performs what is in its remit. So long as they don't lie about that, I don't see a problem.

by profile | 18th Jun 25, 12:05pm 1750205102

Going by your original comment you expect the captive taxpayer to provide the $16 billion heat glasshouse.

by mfd | 18th Jun 25, 12:49pm 1750207762

My original comment came from frustration that we never got the report that would investigate the best and more cost-effective way(s) to deal with the dry year problem. Onslow is a pretty elegant solution as it can also buffer that daily-weekly solar and wind power variation allowing us to build lots of new low emissions generation, but it's not the only possibility. The coalition threw away millions of dollars of research to avoid hearing the answers.

Now we will pay billions of dollars more to the Gentailers, instead. Fine for me as a shareholder, but I'd be happy to see smaller dividends for the sake of such a nation-building project.

by murray86 | 18th Jun 25, 1:09pm 1750208967

Your last sentence sounds like the voice in my head - idealist having to be tempered by pragmatism - or in this case low level corruption as they avoid the better, long term projects so the big corporations can fleece the masses more!

Frustrating!

by KH | 18th Jun 25, 12:19pm 1750205945

You have been able to put in whatever inconvenient electricity consumption pattern you like. Now when you can put in electricity production, it's a problem.

Is that a bit luddite.

by powerdownkiwi | 18th Jun 25, 9:13am 1750194818

Insurance:

https://www.youtube.com/watch?v=oab_Odv-Y9w

and that's only climate

by profile | 18th Jun 25, 9:50am 1750197042

Dow to replace old boilers with SMR's for process heat and power.

"The project – potentially to consist of four X-energy Xe-100 SMR units – is focused on providing Dow’s UCC Seadrift Operations manufacturing site with reliable and clean power and industrial steam, replacing existing energy and steam assets that are near the end of their operational lifetimes."

https://www.nucnet.org/news/dow-and-x-energy-submit-construction-applic…

by KH | 18th Jun 25, 6:10pm 1750227020

What's a SMR? Quit the acronyms please.

by profile | 18th Jun 25, 7:49pm 1750232996

Dow’s proposed advanced small modular reactor (SMR) project is being developed by its wholly-owned subsidiary, Long Mott Energy.

The Xe-100 is a Generation IV high temperature gas cooled reactor (HTGR). According to the International Atomic Energy Agency, interest in HTGRs is increasing because they can provide efficient and cost-effective electricity and produce high-temperature process heat usable for various industrial applications.

https://www.nucnet.org/news/dow-and-x-energy-submit-construction-applic…

by profile | 18th Jun 25, 10:21am 1750198910

What you find when you measure stuff. NZ carbon sink 45% bigger. Forests and pasture sinking more than previously thought.

"We present results from a decade-long (2011-2020) national inverse modelling study for New Zealand, which suggests a persistent carbon sink in New Zealand’s terrestrial biosphere (-171 ± 29 million tonne CO₂ yr⁻¹). This sink is larger than expected from either New Zealand’s Greenhouse Gas Inventory (-24 million tonne CO₂ yr⁻¹) or prior terrestrial biosphere model estimates (-118 ± 22 million tonne CO2 yr⁻¹, Biome-BGCMuSo and CenW).

...Regions 14 (Lauder) and 15 (Otago and Southland region) are also dominated by grassland

(mostly sheep and beef pasture) but showed a relatively large sink.

...Top-down sink estimates of regions with predominantly grazed grassland were as high as -1.3 kg CO2 m-2 y-1 using Southland as an example."