Here's our summary of key economic events overnight that affect New Zealand, with news tariff-tax cost threats to inflation are being joined by seasonal climate threats in the US.
First, it is hot in large parts of the US, including the heavily populated North-East. Air-conditioners are working overtime. And that means electricity grids are overloaded. Retail electricity prices have spiked to nearly US$2,400/MWhr (NZ$4000/MWhr) during peak evening demand last night. Wholesale prices on Long Island topped US$7,000/MWh. Just for context, New Zealand prices this morning are about $60/MWhr. It's a crisis here they reach NZ$1000/MWhr.
Meanwhile, US mortgage applications rose last week slightly from the week before, but only because refinance activity rose. Applications to buy a new home were down sharply from the prior week although up from the same week a year ago. Interest rates were little changed.
But May sales of new single-family homes dropped sharply by almost -14% from the prior month to an annualised rate of 623,000 units and far below the expected 700,000 units rate and the sharpest decline since mid 2022. May 2025 was -6.3% below year ago levels. Getting the blame was uncertain economic conditions that is causing potential buyers to wait before committing to a purchase. And things could get worse - there are now 10 months supply of built but unsold homes at the current sales rate. We may start to see some aggressive discounting ahead - or more builders going bust.
The big US Treasury 5yr bond tender earlier today was well supported even if not quite at the level of the last event. This event delivered a median yield of 3.82%, a bit less than the 4.01% at the prior equivalent event a month ago.
And in Senate testimony, Fed boss Powell acknowledged that tariff-taxes could be a one-off threat to inflation, but he said that is not a law of nature, and they are worried they could also drive persistent rises in costs. He said they will stay on guard until they know the actual effect.
In China, their central bank injected ¥300 bln into financial institutions through a one-year medium-term lending facility (MLF) into the country's banking system. This is what was expected.
And in a first, President Xi will not attend the Brazilian-hosted BRICS meeting this year, the first time he has skipped that. The reasons why aren't clear and that is fueling speculation.
In Australia, their monthly inflation indicator fell to 2.1% in May, down from 2.4% in both March and April. That is a seven month low, and lower than the 2.3% rate expected. The main influence for the reduction were fruit & vegetable prices (from +6.1% to +2.8%), and travel & accommodation (from +5.3% to +0.6%).
The UST 10yr yield is now at 4.29%, and down -1 bp from this time yesterday. The key 2-10 yield curve is up slightly at +51 bps. Their 1-5 curve is less inverted, now by -13 bps. And their 3 mth-10yr curve has risen to +21 bps. The Australian 10 year bond yield starts today at 4.16% and unchanged from yesterday. The China 10 year bond rate is little-changed at 1.65%. The NZ Government 10 year bond rate starts today at 4.52%, up +7 bps.
Wall Street is just holding on with the S&P500 unchanged. However European equity markets were down on average -0.7%. Tokyo ended yesterday up +0.4%. However Hong Kong was up more, up +1.2% and Shanghai was up +1.0%. Singapore rose +0.6%. The ASX200 ended its Wednesday trade unchanged and the NZX50 ended down just -0.1%.
The price of gold will start today at US$3,322/oz, and up an insignificant US$2 from yesterday.
American oil prices are up +US$1 from yesterday at just on US$65.50/bbl while the international Brent price is now just over US$68/bbl.
And we should probably note that the Wall Street Journal is reporting that Dutch oil company Shell is in talks to buy British rival BP. Currently, Shell is denying the report.
The Kiwi dollar is now just on 60.3 USc, up +10 bps from yesterday. Against the Aussie we are +10 bps firmer at 92.7 AUc. Against the euro we are unchanged at 51.8 euro cents. That all means our TWI-5 starts today at 68 and +10 bps firmer than yesterday.
The bitcoin price starts today at US$107,062 and up +0.9% from this time yesterday. Volatility over the past 24 hours has been modest at just on +/-1.2%.
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This from Santiago Capital
Implications of an Accelerated Decoupling
Executive Summary
Two countries. Two systems. One entanglement so complete that any attempt to pull the threads apart now threatens to unmake the fabric itself.
It started with a promise: open markets, cheap goods, mutual gain. What followed was something far more complex. Factories crossed borders. Capital changed flags.
Strategic industries rewired themselves across oceans. And for years, the model worked—until it didn’t.
What happens when dependence begins to feel like exposure?
Trade volumes remain immense. Financial flows continue uninterrupted. But the seams are showing.
Policies once aimed at cooperation now serve as bulwarks.
Sectors once considered safe are suddenly labeled critical. Supply chains built for efficiency are now treated as liabilities.
Resilience has become a euphemism.
Decoupling, a mandate. And still, the flows persist.
What do you do when the very systems that powered global prosperity now pose national risk?
The tariffs were a warning. So were the restrictions. And the countermeasures. And the rhetoric.
But none of those measures halted the machine—they only revealed how hard it is to stop.
Manufacturing ties. Strategic commodities. Rare earths. Chips. Pharmaceuticals. Energy. Each thread is tangled with another. Each move has its mirror.
Even finance, long the quiet enabler of integration, is no longer neutral. Treasury portfolios are scrutinized. Capital raises are political events. Cross-border listings carry invisible flags. Liquidity may be global, but allegiance is not.
And underneath it all, the digital frontier continues to harden. Technology that once moved freely is now met with controls, conditions, and classification.
Collaboration is giving way to containment. Semiconductors. AI. Quantum. The pipes are still connected, but the water is being filtered.
Meanwhile, a second front opens—geopolitical, rhetorical, and real.
Alliances strain under economic contradiction. Nations caught between systems recalibrate their strategies. Some hedge. Some posture. Some quietly prepare for a future no one will admit publicly but everyone can now imagine.
We've written about this before—about the dependencies, the warning signs, the quiet fractures. But this report isn’t a summary. This is where all of those signals begin to converge.
What follows isn’t escalation.
At this point, it’s just inertia.
Background
Since China’s accession to the World Trade Organization (WTO) in 2001, the economic relationship between the United States and China has grown exponentially, shaping not just bilateral trade but the global economy.
U.S.-China bilateral trade expanded from approximately $100 billion in 2001 to over $700 billion in 2025, with U.S. imports dominated by electronics, machinery, textiles, and toys, while exports include soybeans, aircraft, and semiconductors.
The trade deficit with China underscores the scale of this integration.
U.S. firms have deeply embedded themselves into Chinese supply chains, particularly in high-value sectors such as technology, automotive, and pharmaceuticals.
Apple, for instance, relies heavily on China’s manufacturing capabilities, while Walmart sources vast quantities of consumer goods from Chinese suppliers.
Even amid the imposition of tariffs and retaliatory measures during the trade war, bilateral trade volumes have remained historically high, demonstrating the deep resilience of economic ties despite rising political antagonism.
The fact that the relationship continues to function at a high level, even as national security rhetoric escalates, underscores the sheer weight of two decades of economic interdependence.
Chinese investments in U.S. real estate, technology startups, and energy have complemented U.S. FDI in China, which has grown from $6 billion in 2001 to around $120 billion by 2023, although geopolitical tensions and regulatory changes have since reversed investment flows.
Foreign direct investment into China is now negative—flowing out rather than in.
Financial interdependence has expanded alongside trade. China’s holdings of U.S. Treasury securities, peaking at over $1.3 trillion in 2013 and standing at $784 billion in 2025, have long supported U.S. fiscal stability while providing China with a safe asset base.
U.S. financial institutions and investors hold substantial stakes in Chinese firms. Over 200 Chinese companies have raised more than $100 billion through U.S. capital markets, creating a financial mesh that has yet to be meaningfully unwound.
U.S. financial institutions are increasingly active in China, reflecting gradual market liberalization.
However, tightening regulations, such as U.S. delisting threats and China’s domestic capital controls, have been compounded by increasing geopolitical tensions between the two.
The trade war has highlighted how deeply integrated supply chains are, with disruptions affecting industries and consumers on both sides.
Tariffs on Chinese goods have led to higher prices for U.S. consumers, inflationary pressures, and greater uncertainty for businesses.
Sectors such as technology and automotive have been particularly affected, with companies like Apple and Tesla facing supply chain disruptions and elevated costs.
Reshoring—or moving manufacturing back to the United States—is both time-consuming and expensive.
The pandemic underscored these risks, revealing that critical industries like pharmaceuticals, rare earth elements, and electronics depend heavily on Chinese production.
For President Trump, dependence on certain sectors has been framed as a strategic vulnerability he is determined to address.
However, U.S. efforts to shift supply chains or increase domestic production capacity remain complex, slow-moving, and costly—reflecting the depth of integration that has developed over the past two decades.
The technological dimension of U.S.-China enmeshment is now seeing deep and rising tensions.
China’s “Made in China 2025” strategy and U.S. policies such as the CHIPS Act highlight an escalating competition for technological dominance.
The case of TikTok exemplifies the complexities of digital interdependence, with concerns over data security juxtaposed against its popularity among U.S. consumers.
Winning the tech war in quantum computing, space exploration, and advanced robotics is the key aim of both nations, with a “winner take all” mentality on both sides.
Economic decoupling is only a part of a much larger agenda, and the U.S. is effectively weaponizing its economy and financial architecture to make life as difficult as possible for China in achieving technological superiority. America is hell-bent on thwarting such Chinese aspirations.
Moreover, U.S. financial markets remain broadly unprepared for the implications of a sharp realignment in trade and capital flows. After a hard selloff in April, markets have largely returned to their all-time highs.
But the inevitable disruption of financial ties—layered over physical supply chain breaks—could have cascading impacts on global liquidity, asset pricing, and risk transmission that remain underappreciated by investors.
Sociocultural ties are also in the cross hairs of the Trump Administration.
Chinese students in the U.S. peaked at 372,000 in 2019–2020, representing a third of international students.
Tourism and cultural exchanges, such as joint art exhibitions and academic collaborations, once deepened mutual understanding, but these are now in retreat.
Recent U.S. visa restrictions and policy shifts have led to notable declines in Chinese student enrollment and a broader chilling of academic collaboration.
Geopolitical and strategic competition has now intensified, and any pretense of civility between America and China has long disappeared into this new world of export controls, tariffs, military posturing, and cyber operations amidst growing mistrust.
U.S. initiatives such as the CHIPS Act, restrictions on advanced technologies, and the Inflation Reduction Act, coupled with China’s dual-circulation strategy, emphasize efforts to reduce dependency on each other in key sectors.
The U.S.-China trade war arising out of Covid demonstrated the fragility of supply chains dependent on an adversary and unfolding geopolitical tensions. The Belt and Road Initiative and the U.S. Indo-Pacific Strategy exemplify contrasting visions for global leadership.
Furthermore, military developments in the South China Sea and Taiwan Strait, as well as cybersecurity concerns, underscore strategic friction that the financial markets continue to ignore.
Technological collaborations that initially flourished have become overshadowed by disputes over intellectual property and national security concerns.
People-to-people exchanges, including the growth of Chinese students in U.S. universities and cultural exchanges, are reversing at the behest of the Trump administration.
The deglobalization trend of recent years is now being amplified by the unmasked hostility between the two nations.
The overall depth of enmeshment makes rapid and complete disengagement very challenging, although this objective is front and center for the Trump administration.
Great piece!
Others call it the 'great unravelling' or the 'great simplification'. Well underway, when you get what to look for.
Minister Bishop twice mentioned entropy this morning (RNZ - MR). Funny how a concept can be poo-pooed for years, then 'oh yes...'. So we've not been maintaining our infrastructure, choosing instead to build new, which we also don't maintain. He even mentioned not painting the house for several years (an analogy I've used hereabouts for years) then it falls down.
What he didn't address, was the question of the lifetime usefulness of the multi-storey inner-city apartment-blocks (trending to nil) which he lauded in the next breath. Cognitive dissonance...
And further to that in a media interview yesterday when the reporter put it to him that the governments were the real problem, he obfuscated, but acknowledged it has to change.
Bottom line the report indicates that the government spends lots of money on stuff getting very little value for it, then neglects it all for years.
There is more mileage in laying foundation stones/cutting ribbons, than in allocating maintenance budgets. More kudos, more votes.
http://www.australiantelevision.net/utopia/series1.html
Even with all the middle layers - bureaucrats, landlords - removed, the System still has an eventually-fatal problem.
The problem is that entropy accelerates - the faster you attend to it the further away the goal gets. Eventually you are expending all your effort just to maintain. Then you can't. Then you collapse - which some of us warn about.
:)
The west is being forced to acknowledge (though the media are fighting to convince the plebs otherwise) that their standard of living is based on a parasitic relationship to other countries, and the psychological barrier to accept this and make appropriate arrangements is, as you say in terms of energy understanding, immense to keep the status quo (as the few elite reap from the masses while the masses don't revolt).
Convincing the western world that no matter the leaps in technology, their way of life depends on taking advantage of others in energy and resources is one thing, but convincing at a high level, to prepare for the future where these others revolt and cannot be taken advantage of any longer, is a challenge unmatched in human history.
The parasites are pretty much all the, mostly American, conglomerates. They're not going to change their greed model easily. Trump's tariffs will play a part, but they'll also drive down consumption, by raising costs.
There's likely going to be an ugly turn coming up. An example of how ugly is Trump's response to Mamdani winning the NYC Mayoralty, calling him a 'Communist'. But when you look at what he has said, he's just working the people in a democracy promising to fight to make their lives affordable. Trump is becoming more extreme by the day. And Mitch McConnell saying people will "get over it" when they're getting upset because the Republicans are killing Medicaid. "Ugly" might be to soft a word.
Great thread - where is everyone else?
Nobody - Left or Right - can deliver on a promise of 'growth'.
And a growing cohort of the promisers, must be finding that out. The pity is that that truth is not being transmitted to the voters. We still have too many fixated on GDP and refusing to assess the truth of what underpins it. Thus were (economics-skewed) commentators blindsided by the 2nd coming of Trump (something I laid a bet on with a friend, well before the event).
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