Middle East mess remains very uncertain; Canada eases bank capital buffers; Malaysia exports zoom; China tariffs hit Aussie beef hard; Russia cuts its policy rate; UST 10yr at 4.49%; gold down but oil up; NZ$1 = 57.4 USc; TWI-5 = 61.2

Here's our summary of key economic events overnight that affect New Zealand, with news that although the US is on holiday, their currency is rising which pushes many others into a 'brutal' retreat. Because most trade is priced in USD (even if it is settled in other currencies) this matters a lot. Hawkish signals from the Warsh Fed that the US policy rate is more likely to rise soon, along with "flight to [perceived] safety" capital movements, especially out of the Middle East and based on the mess being left behind there, are two key drivers.

Countries with positive trade balances are likely to survive better in this environment; those with negative balances, including the US, are likely to come out worse off.

First up, we should note that it is a Federal holiday in the US, "Juneteenth", so there are no data releases from them. And it was a public holiday in China as well yesterday, part of their three-day Dragon Boat Festival. So we have little or no data coming out of the world's two largest economies today.

The situation in the Middle East is very fluid today. Iran won't talk more to the US until the Israelis stop their Lebanon offensive. Apparently US pressure has got Israel to agree an immediate ceasefire there but they won't withdraw from territory taken. Hezbollah hasn't responded to any of this, and neither has Iran. So it is entirely unclear how this will all play out. What is clear is that Iran is comfortable stringing things out and the US wants the situation settled as soon as possible. Trump holds few cards and even the ones he does hold (more military strikes) haven't been effective so far.

With the Strait of Hormuz supposedly re-opening, then the residual inflation effects take center-stage. For example, Brent crude was at US$70.50/bbl at February 28, after being at about that same level a year earlier. It is now at US$80.50/bbl - so that is a net +14% rise flowing from this Trump adventure.

We can do the same assessment for many other commodities, and we will. For example, sulphur is now +275% higher than a year ago. Urea is now -18% lower on that same comparison. Bitumen is a net +9% higher. Copper is 30% higher. Aluminium is +30% higher. Zinc is +37% higher. Polyethylene is unchanged on that same basis. Perhaps some of these prices will retreat from here, some won't. The key will be how they are passed on into consumer prices. Early signs are not great. Not all the impacts will be from disrupted trade flows. Disrupted geopolitics and trade disputes will play a part. A key touch point will be petrol prices. Locally they are now 25% higher than a year ago with diesel up +63%. In the US they are still +26% higher with diesel +42% higher.

The retreat of these costs from here will be what drives inflation's lingering. And of course, if growth sags, that will be a big influence.

Canadian retail sales rose in April to be +3.7% higher than year-ago levels but unchanged in volume terms. Their May retail sales indicator rose a bit more, but this too may be all about fuel prices more than volume gains.

Staying in Canada, their banking prudential regulator lowered its capital buffers overnight with the express intent of allowing their banks to lend more to businesses "in support of Canada's economic adaptation to new opportunities":

Across the Pacific, Malaysia said it's exports rose a startling +45% in May and far better than the outsized +35% expected - and easily an all-time record high. This is all driven by electronic goods (+71%) although LNG exports were very strong too (+112%). Their traditional rural exports (palm oil, natural rubber) took a hammering however.

Meanwhile Malaysia reported May CPI as up just +2.0% in May from a year ago with food prices up just +1.2%.

Germany said its May producer prices rose +2.2% from a year ago, the most since June 2023 when most of that intervening prior saw declines.

And overnight the Russian central bank met and was expected to cut its 14.5% policy rate by +50 bps. But it only cut it by -25 bps at that meeting. They claim to have CPI inflation of only 5.3% but they wouldn't be holding such a high inflation-fighting policy rate if it was really this low.

We should probably note that Australia has just reached its beef export quota to China (205,000 tonnes) and exports above that level will attract a 55% tariff. New Zealand on the other has a quota of 255,000 tonnes before that 55% tariff kicks in, and at current rates we are unlikely to exceed 190,000 tonnes into China. If Australia gets dry and needs to cull its cattle herd, China won't be an option for them. So that could mess with our other (better paying) markets

The UST 10yr yield is now just on 4.49%, up +5 bps from this time yesterday, up a net +1 bps for the week. The key 2-10 yield curve is now at +31 bps (up +4 bps). Their 1-5 curve is now at +24 bps (+1 bp) and the 3 mth-10yr curve is at +84 bps (+6 bps). The China 10 year bond rate is up +2 bps at 1.75%. The Japanese 10 year bond yield is up +4 bps at 2.65%. The Australian 10 year bond yield starts today at 4.83%, up +4 bps from yesterday, up a net +2 bps for the week. And the NZ Government 10 year bond rate is down -1 bp at 4.46% to be down -4 bps for the week.

Wall Street is on holiday today with the S&P500 ending its week up +1.2% and the Nasdaq is up +2.9% for the week. Overnight, European markets closed lower between Frankfurt's -0.2% and Paris's -0.6%. Tokyo ended its Friday session up +0.3% to another record high and gaining +6.7% for the week. Hong Kong and Shanghai were closed for the holiday so ended their week down -2.4% in Hong Kong but up +1.8% in Shanghai. Singapore fell back -0.9% in Friday trade. The ASX200 ended its Friday session down -0.9% for a weekly loss of -0.9% as well. And the NZX50 ended with a +1.0% Friday gain for a weekly +0.8% net gain.

The Fear & Greed index has stayed in the 'fear' zone where it has been for the past two weeks.

The price of gold has retreated another -US$74 from yesterday to US$4155/oz, down a net -US$63/oz for the week. Silver is down another -US$1.50 at US$64.50/oz, down -US$3.50 for the week.

Oil prices are up +US$2 from yesterday at just under US$77.50/bbl in the US, while the international Brent price is now just over US$80.50/bbl. A week ago these prices were US$84.50 and US$87/bbl respectively. Hormuz transits are picking up with 19 crude or product tankers exiting over the past 24 hours and 7 entering for new loads. (Normal is 60 in each direction.)

The Kiwi dollar is down -20 bps from this time yesterday at just on 57.4 USc to make it a full -100 bps lower than a week ago. Against the Aussie we are down -10 bps at 81.9 AUc. Against the euro we are down -20 bps at just on 50 euro cents. That all means our TWI-5 starts today at just under 61.2 which is down -10 bps from yesterday, down -80 bps for the week.

The bitcoin price starts today at US$63,007 and up +0.6% from this time yesterday. From a week ago it is down -1.3%. Volatility over the past 24 hours has been low at just over +/- 0.8%.

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