US tariffs still in flux, costs start to mount; USD depreciates, credit quality turns down; Canada data positive; China faces pension crunch in 10 years; UST 10yr at 4.42%; gold and oil stable; NZ$1 = 60.1 USc; TWI-5 = 67.6

Here's our summary of key economic events over the weekend that affect New Zealand, with news August 1 is the new deadline for tariff negotiations with the US. Its an endlessly moving 'deadline' bourne out of frustration at being unable to make any meaningful deals.

Locally, this week will feature a first peek at June inflation components with the selected price data due out on Thursday. Maybe before that we will get the June REINZ data. In Australia, all eyes will be on their June labour market data due on Thursday too.

Later today we will get China's June export and import data to be followed later in the week with China's big monthly data dump which will include their Q2-2025 GDP result. It will be a surprise if they have to admit a variance to their official target (5.2%?).

In the US it will be all about tariff-setting, interspersed with June CPI data (also likely to match what their government wants - 2.5%). Canada will also release their June inflation result, with a more credible process, and markets expect (3.0%). Japan chimes in with its version, expected to be 3.3%.

In the background there will be the start of Q2 earnings results from Wall Street majors, including some big banks.

Over the weekend, Canada reported something of a surprise, because their labour market strengthened in June. Not only did they generate +83,000 new jobs in the month when no gains were expected, their jobless rate dipped when it was expected to rise. Even though +70,000 of those new jobs were part-time, the +13,000 new full-time jobs was much better than the -1,000 full-time job losses expected. Even wages rose +3.2% from a year ago, although they did slip slightly from May and have remained flat since January. Given the forces being applied by their bully neighbour, it is hard to know whether this overall June result is just an anomaly or an indication of resilience. Only time will tell.

Canada also released May building consent data overnight and it was also unusually strong, up at a +12% pa rate from April. From a year ago the June consent values were up +5.1% on an inflation-adjusted basis. By any standard this is very good too.

In the US, the level of tariff-taxes being imposed on Americans is becoming clearer. The latest US Government accounts show them hitting US$27 bln in June, US$113 bln for the nine months to June. Tariffs are paid by the importer and become a cost that will be embedded into how those products are sold. Treasury officials anticipate further growth in tariffs collected, expecting them to reach US$300 bln in the 2025 calendar year.

Those added taxes allowed the US Federal Government to report a +US$27 bln surplus in June. In June 2024 they reported a -US$71 bln deficit. In the twelve months to June, they have accumulated a -US$1.9 tln deficit, more than the -US$1.8 tln in the 2024 fiscal year.

The tariff boost for June got the benefit of some seasonal shifts, Treasury officials noted. Adjusting for those, June would have shown a -US$70 bln deficit instead of the +US$27 bln surplus actually reported, they said.

The weekend brought new tariff threats to Mexico and the EU of 35%. They are moving to unilateral positions because they seem hopeless at negotiating, completely misunderstanding the process.

Perhaps we should note that the US dollar has fallen -11% from the Trump II January inauguration to now. In the whole of the Trump I presidency it fell a net -10%. So the decline in the value of the greenback is just getting started this time, it seems. Holding American assets by foreigners is going to involve sinking currency pressures. And it will become much more costly for American investors to buy foreign assets for the same reason. With fiscal mismanagement rife, it is hard to see this 'improving' in the next few years.

And some of that uncertainty is leaking into company balance sheets. Credit rating downgrades now exceed upgrade in the listed US corporate scene, the first time that has happened since 2021. Company cash balances are shrinking - not fast yet, but that is a turn. More companies are losing investment grade status. All this goes to the heart of company valuation levels. The forward 12-month P/E ratio for the S&P 500 is 22.3, far higher than historic benchmarks.

And in Japan, we should keep an eye on parliamentary elections that will be held on Sunday, July 20 for their upper house. Given the the national government of conservative Shigeru Ishiba relies on a tenuous coalition with a small religious party, this has become a referendum on Ishiba's stewardship.

And China announced a +2% increase in their national state pension starting January 2025. Because we are more than six months into this year, presumably back-pay will be involved. This year’s increase, the 21st in a row, comes as studies project the system is on track to run out of money in about a decade. Until 2015, the annual increases were +10% but have shrunk away sharply since as the demographic forces have turned tougher. 

The UST 10yr yield is now at 4.42%, unchanged from Saturday, up +10 bps for the week. The key 2-10 yield curve is still at +52 bps. Their 1-5 curve is still inverted by -1 bp. And their 3 mth-10yr curve now +11 bps positive. The Australian 10 year bond yield starts today at 4.33% and down -3 bps from Saturday. The China 10 year bond rate is unchanged today at 1.66%. The NZ Government 10 year bond rate starts today at just under 4.53%, and also essentially unchanged.

The price of gold will start today at US$3,355/oz, little-changed from Saturday, but up a net +US$18/oz from a week ago.

American oil prices are still just over US$68.50/bbl while the international Brent price is just over US$70.50/bbl. That is up a net +US$2 in a week.

The Kiwi dollar is now at 60.1 USc, unchanged from Saturday, but down -½c from this time last week. Against the Aussie we are up +10 bps at 91.4 AUc. Against the euro we are holding at 51.4 euro cents. That all means our TWI-5 starts today still at just on 67.6, but down -30 bps for the week.

The bitcoin price starts today at US$118,763, a new record high and up +1.1% from this time Saturday. Volatility over the past 24 hours has been modest at just on +/-0.9%.

The easiest place to stay up with event risk is by following our Economic Calendar here ».