US data releases impress. US regulators move to force banks to hold more capital. Eyes on BoJ policy tweaks. China profits weak. Taiwan sentiment rises. ECB hikes.
Kia ora,
Welcome to Friday’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 a lot of "good news" on the economic front in the major economies.
First, new orders for US durable goods jumped +4.7% in June from May, the most since July 2020, following an upwardly revised +2% rise in May. They are +9*.3% higher than year-ago levels, and handily exceeding inflation. The June result easily beating market expectations of a +1% increase. It was the fourth straight month that durable goods orders rose. Strong orders for civilian aircraft and cars drove the result.
And the first look at the US Q2-2023 GDP result is a very positive one. Their economy expanded an annualised +2.4% in the second quarter of 2023, higher than +2% in the previous period and way above market expectations of +1.8%. It is a resilience few picked, although remember there are still two more revisions ahead. This good result is driven by strong investment; consumer demand came in weaker than the overall result.
The number of Americans filing for unemployment benefits fell sharply from the prior week to 214,000 last week, the lowest in five months, and sharply below market expectations of 235,000. There are now 1.846 mln people on these benefits, the least since January, and suggesting that jobseekers are quickly able to find new jobs. The result further underscored the stubborn tightness in the American labour market, backing views the Federal Reserve may extend its tightening cycle in September.
US pending home sales aren't sharing in the gains. They were down -15.6% in June from year-ago levels, but they did manage a small rise from May.
The American trade deficit fell in June from May to -US$88 bln for the month, and down from -US$106.3 bln in June 2022.
Much of this data is first-tier, and shows an American economy powering ahead and likely to avoid a recession. "Soft-landing" optimism is everywhere today. It basically validates the Fed's policy positioning, and certainly leave the door open to more rate hikes without excessive pain.
Regulators are taking the opportunity to force banks to hold more capital, something they will no doubt use all their lobbying power to try and avert. The proposals are stiff for some. Banks with at least US$100 bln in assets would have to boost the amount of capital set aside by an estimated 16%. The eight largest banks face about a 19% increase, with lenders between US$100 bln and US$250 bln in assets seeing as little as +5% more.
In Canada, average weekly earnings rose +3.6% in May which was a faster rise than expected and up at a faster pace than the +2.9% rise in April.
Next up, Japan's central bank will review its policy positioning later today amid persistent inflation running well above their targets. They are expected to tweak their yield curve control policy to let long-term interest rates rise beyond its cap of 0.5% in a shift to a more flexible policy approach.
China's industrial profits data has been released for June showing them falling -8.3% from June a year ago. This is better than anticipated because the decline for the first half of the year rolls up to -16.8%. That indicates the profit pressures are receding somewhat. That said, "operating income" has been bouncing along at break-even for every month of 2023 and that is indicative of a zombie situation. Given the companies tracked in this data series are large state-owned enterprises mainly, that isn't a good thing.
However in Taiwan consumer confidence improved in July and to a thirteen-month high. It marked the most optimistic level since April 2022, as households' sentiment rose across the board.
The European Central Bank raised interest rates by +25 bps overnight, a ninth consecutive rate hike, saying inflation is still expected to remain "too high for too long" despite the recent slowdown. This brought the rate on main refinancing operations to 4.25%, the highest since October 2008.
Meanwhile, Germany's GfK Consumer Climate Indicator eased to be less negative in July.
The cost of containerised freight rose last week, a second week this has happened and confirming the bottom may have been reached. This was driven by outbound cargo rates from China to the US. Meanwhile bulk cargo rates were little-changed.
The UST 10yr yield will start today at 4.01% and up an unusual +16 bps from this time yesterday.
The price of gold will start today at US$1948/oz and down -US$20 from yesterday.
And oil prices are up +50 USc at just under US$79.50/bbl in the US. The international Brent price is now just under US$83.50/bbl.
The Kiwi dollar starts today slightly lower at just on 62 USc. Against the Aussie we are slightly firmer at 92.1 AUc. Against the euro we are back up nearly +½c at 56.4 euro cents. That all means the TWI-5 has basically held at 69.9.
The bitcoin price has dipped slightly again since this time yesterday. It is down -0.3% and now is at US$29,216. Volatility over the past 24 hours has remained low at just over +/- 0.3%.
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 on Monday.