Here's our summary of key economic events over the weekend that affect New Zealand, with news that after more bellicose threats, Trump has backed off hitting Iran as he had signaled, another TACO twist. The region isn't quiet, but the threatened escalation by the US hasn't happened, not yet anyway. The oil price hasn't really eased back yet on this lull and is holding most of last week run-up towards US$100/bbl again. Trumps policy twerking has everyone unnerved.
Away from that and looking ahead locally, this week will feature the big data dump of the June quarter RBNZ series. We will especially be watching household deposit growth, which stalled in May.
In Australia, it will be all about Wednesday's CPI release (expect a small rise to 4.1%) and Friday's PPI (expect a rise to 3.5%).
In the US, the spotlight will be on the Thursday Fed meeting. Analysts expect no-change at 3.75% even though CPI inflation was at 3.5% for June and rising, remaining well above the Fed's 2% target. Even their PCE inflation was running at 4.1% for May. We will get their June update on Friday. In the meantime, financial markets are pricing in more of a chance of a hike - if not at this meeting then two by the end of the year.
There will be a lot of other US data out this week, including a Q2 GDP update, and the Conference Board's sentiment survey. The week will also feature some Big Tech profit results.
In Japan, all eyes will be on Friday's central bank decision, especially on how they intend to respond to their currency problems. But no change from their 1% rate is anticipated.
In China, it will be all about a big set-piece Communist Party meeting. There will be a lot of interest to see if big new stimulus is announced there. Their PMI's may signal how urgent that is.
Over the weekend in Japan, CPI inflation stayed low in June even if it did rose to a six month high. It came in at 1.7% in June from 1.5% in May, its highest since December. The pickup was largely driven by a slower decline in electricity and fuel prices as government energy subsidies were scaled back.
Japan's private sector expanded to a five-month high in July via a sharp rise in manufacturing production and an improvement in their factory PMI which was driven mainly by the sharpest increase in manufacturing orders for five years.
The July PMIs for India came in notably lower than for June as private sector growth receded and inflation pressure, especially for fuel, intensified. This is putting them in a tough spot with spreading social unrest. Their factory PMI dipped only marginally but their services PMI registered a notable easing.
In the US the first of the July PMIs shows that business activity growth rose modestly but to an eight-month high in July although that isn't an especially high benchmark. However selling prices rose sharply and at their fastest rate for nearly four years. Input cost inflation was at a 14 month high. Their factory sector expansion was little-changed however from June with new orders little-changed. It was their services sector that expanded more, albeit modestly
US new home sales were little-changed in June but maintained the modest level they have had all year. That makes then -5.6% lower than year-ago levels.
Canadian producer price growth fell back slightly in June from May but are still +12.4% higher than year-ago levels. Raw material input costs by manufacturers were up more than +20% from a year ago.
Meanwhile, the Russian central bank trimmed -25 bps from its key policy rate, taking it to 14.0%. A year ago, this rate was 21%. They have CPI inflation officially at 6.0%, although this seems an unlikely level.
In the EU, eurozone business activity has risen for first time in four months in July amid renewed expansion of new orders. Their factory PMI inched up, and their services PMI inched up too. But to be fair, these higher levels are not significant and the expansion is minor compared to other global regions. But at least it isn't a contraction. The German versions of these PMIs was generally better than the overall set. German consumer sentiment didn't budge however.
In Europe, their ugly heat and worrying fire season isn't easing. In fact a new wave of extreme heat is forecast over the next few weeks. It is part of an accelerating trend that will likely extinguish European glaciers far faster than anticipated just ten years ago.
Australia also got better new factory order levels in July, the first increase in new business in five months. Improved demand conditions underpinned a stronger expansion in output, led to upgraded recruitment activity and enabled greater protection of profit margins. This data confirms the good labour market data released yesterday. But overall Australian growth is likely to remain sluggish.
Sydney, Melbourne and Canberra house prices actually fell in the June quarter, an unusual but necessary shift to make their housing more affordable. It takes serious political bravery to turn a frothy market where gains just fell from the sky.
Bitumen prices are surging again on the closed Hormuz and Red Sea shipping lanes. They are back to levels that we had in mid-March and which lasted to mid-June. Interestingly, urea prices are staying low as are potash prices (minor rises) but sulphur prices never fell after the March spike. Naphtha (used for plastics manufacturing) is rising sharply again.
The UST 10yr yield is now just on 4.68%, unchanged from this time Saturday but up +13 bps for the week. The key 2-10 yield curve is now at +35 bps (unchanged). Their 1-5 curve is now at +29 bps (-2 bps) and the 3 mth-10yr curve is at +91 bps (+1 bp). The China 10 year bond rate is still at 1.72%. The Japanese 10 year bond yield is now at 2.81%, up another +1 bp and a new 30 year high. That is up +11 bps for the week. The Australian 10 year bond yield starts today at 5.09%, up +6 bps from Saturday and up +17 bps for the week. The NZ Government 10 year bond rate is at 4.82%, unchanged from Saturday, up +14 bps for the week and it highest since May 2024.
The price of gold has held at US$4052/oz, virtually unchanged from Saturday up +US$49 for the week. Silver is now just on US$58/oz, down -50 USc from Saturday, up +US$2 for the week.
Oil prices have risen back +US$1.50 from Saturday at now just over US$90.50/bbl in the US, while the international Brent price is now just on US$98.50/bbl and up +US$2. A week ago these prices were US$82 and US$88/bbl respectively. Hormuz transits have almost halted entirely There have been no crude tankers and only 1 cargo ship exiting over the past 24 hours (0 dark with transponders off) and none entering for new loads (0 dark). The Red Sea is also now effectively blocked at Yemen although a small handful of ships are still getting through (less than 20 each way). Still almost 800 vessels are waiting for things to calm down.
The Kiwi dollar is unchanged from Saturday at just on 57.9 USc but down -50 bps for the week. Against the Aussie we are still at 82.9 AUc. Against the euro we are holding at just over 50.9 euro cents. That all means our TWI-5 starts today at 61.8 which is unchanged from this time Saturday but down -50 bps from a week ago.
The bitcoin price starts today at US$64,673 and up +0.7% from this time Saturday and up +1.0% from a week ago. Volatility over the past 24 hours has been low at just on +/-0.5%.
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3 Comments
"remaining well above the Fed's 2% target."
They don't need to panic and slam the brakes on as they have a much more sensible (IMO) central bank mandate:
- Price stability:
Aiming for a 2% average annual inflation rate over time.
- Maximum employment:
Helping the job market reach its highest healthy level.
- Moderate long-term interest rates:
Keeping borrowing costs balanced over time
I particularly like the third point. What is the point of price stability if there is no interest rate stability? It makes it very hard for households and businesses to function when the cost of debt keeps changing radically. OCR went up 900% in 2 years.
This should be interesting;
"
- Moderate long-term interest rates:
Keeping borrowing costs balanced over time"
What exactly does that mean?
I put my question in before you'd finished Jim, but the point remains. On some levels prices and interest are connected, on others they are not. Prices are about resources, interest - money.
There are whole swathes of the business arena that are only about moving and making money. They don't make anything - no physical products, just move money around while charging exorbitant fees.
Stable interest rates make sense for mortgage borrowers, but in a time of constrained resources and compounded problems because of political shenanigans, is it realistic to expect them?
Their mandate acknowledges that there is a balancing act while ours says inflation is the only thing that matters.
This is the exact scenario where the other 2 points matter - our RBNZ are about to create 6%+ unemployment in a pointless attempt to keep CPI from temporarily getting to 4%. Is 4% really that bad? Would they still do the same if unemployment was at 20%?
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