US PMI expansion turns modest; US junk bond downgrades rise; Japan PMI shows good expansion; Taiwanese data mixed; Aussie PMIs softer
Kia ora,
Welcome to Tuesday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.
I'm David Chaston and this is the international edition from Interest.co.nz.
And today we lead with news the global economic slowdown is coming but it might not be like every other slowdown.
There is more evidence that the giant American economy isn't expanding as fast as previously. First, the National Activity Index released by the Chicago Fed delivered a weakish result for June when it saw "little economic growth".
And the internationally-benchmarked Markit flash PMI for the US reported a more modest expansion in July. Their service sector is still in a modest expansion, and the factory sector's contraction is now only very minor, which is an improvement for manufacturing but a slowdown for the service sector.
However a strong majority of business economists now say the odds of the US entering a recession in the next 12 months are 50% or less, according to a new survey that was taken in the first half of this month.
How does all this square with the steep inversions in bond yields? More professional economists are explaining that the yield curve actually signals the slowdown in inflation that typically accompanies a recession, but not the actual recession itself. Without a weak labour market they may not actually get the 'usual recession'.
It still may come of course. One indicator is that there has been a flurry of junk-bond credit rating downgrades recently. They reached a three year high of 120 in the June quarter (since the pandemic). Risky debt is getting riskier and it is a US$1.4 tln market overall.
In Japan, their Markit PMI recorded a good expansion. Activity at Japanese private sector firms increased for the seventh successive month. Key was a sustained and solid improvement at Japanese service providers, while manufacturers noted a slightly softer downturn at the start of the third quarter and the survey found that new order growth slowed rather sharply.
Singapore's CPI inflation fell from 5.1% in May from a year ago to 4.5% in June. But the May to June rate was uncomfortably high for them.
Taiwanese retail sales continue to hold up strongly, expanding far faster than inflation. But the same is not the case for their industrial production which remains on a sharply shrinking track.
In Europe, their flash PMI signaled a steeper downturn and cooling price pressures at start of the third quarter. They have slipped back to where they were a year ago. France reported an especially steep downturn, and Germany slipped into a contraction in the month.
In Australia, business activity in their private sector fell for the first time in four months during July according to the Markit PMI. This retreat was due to a renewed contraction in their service sector as interest rate rises hit customer confidence and budgets. More positively, manufacturing output ticked higher and actually recorded only a tiny contraction.
The UST 10yr yield will start today at 3.86% and up +2 bps from this time yesterday.
The price of gold will start today at US$1959/oz and down a mere -US$2 from yesterday.
And oil prices are up +US$1.50 at just over US$78.50/bbl in the US. The international Brent price is now at US$82.50/bbl.
The Kiwi dollar starts today up +¼c at just on 62 USc. Against the Aussie we are slightly firmer at 91.9 AUc. Against the euro we are up +½c at 56 euro cents. That all means the TWI-5 has risen to 69.8 and is up +30 bps from this time yesterday.
The bitcoin price has fallen a lot since this time yesterday. It is down -3.5% and now is at US$29,046. Volatility over the past 24 hours has been moderate at just over +/- 2.5%.
You can find links to the articles mentioned today in our show notes.
You can get more news affecting the economy in New Zealand from interest.co.nz.
Kia ora. I'm David Chaston. And we will do this again tomorrow.