Eyes on rate reactions to higher inflation, tight jobs markets. Dairy prices expected to rise. Minimum wages rising.
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.
Today we lead with news we are heading into a key week for economic data.
In the week ahead we will get the US CPI next on Saturday, June 11, and it is expected to hold at 8.3% as the headline rate. Along with last weekend's rise in non-farm payrolls, that probably locks in the next two +50 bps rate hikes from the US Federal Reserve, and a CPI number coming in as expected probably locks in one for September as well. Bond markets seem to be assuming that, and benchmark rates are rising today.
And later today, the Australian central bank will review its policy rate at 4:30 pm, likely to raise it from 0.35% to 0.60% - a +25 bps gain is the consensus. But don't be surprised if it is a bit more than that, perhaps taking it to 0.75%.
Tomorrow morning, we have another dairy auction, and prices there are expected to be quite a bit higher, perhaps with both WMP and SMP gains exceeding +5%. Low supply seems to be driving the trend, and if China is really opening up again, that won't hurt. But other regions seem better prospects.
China's private sector survey of their services PMI 'improved' but is still contracting. It is just contracting less. On it's own the May result would have been seen as a disaster, but because April came in at a fast-shrinking 36.2 (50 is steady state), the May reading of 41.4 just looks "better". Not really. They are going backwards fast. And don't forget their official services PMI was at 47.8, so it appears the official data was boosted by some Beijing gloss. No wonder Premier Li is worried.
With Shanghai looking like it is over the worst of its lockdown, that will help some. But Shanghai is not China. And no-one there is suggesting their tough-medicine approach to the pandemic is about to change.
Lockdowns keep a lid on inflation, so I suppose they will take that as a 'win' when comparing themselves to the rest of the world. Their May CPI is due to be released on Friday, June 10, and a little-changed rate of 2% is expected.
The Indian central bank reviews its policy rate tomorrow and it is expected to rise by +40 bps to 4.8%. India seems stuck with a weak currency at present, and combined with highish interest rates, they are dealing with some economic headwinds.
Late last week, South Korea reported a CPI inflation rate of +5.4%, well above the +4.8% in April and the expected +5.1%. That will likely mean another official rate hike there.
Singapore reported retail sales up more than +12% in April from a year ago, but they might have been disappointed in the tepid monthly rise from March.
In the US, their petrol price hit a new all-time record high to start their summer. At US$4.82/gal, that is now the equivalent to NZ$1.95/L (both U91). In the US they aren't paying NZ$1.08/L in taxes as we are. Today's local Auckland price seems to be about NZ$3/L for U91. Bottom line is that they are paying about the same as we are if we forget our taxes.
In Russia, car sales have plunged more than -80% in May as their economy stumbles under sanctions.
Germany has raised its minimum wage to €12/hour (NZ$19.75 /hr) in a move said to help 6 million low paid workers.
And in Australia, their new government is pushing for a +5.1% minimum pay increase for their low paid. It will take their minimum wage to AU$812/week (NZ$22.50/hr NZ$900/week or NZ$46,800 pa). It will go to about 1.3 mln Australians. Australia's CPI is currently running at 5.1%.(New Zealand's adult minimum wage is currently NZ$21.20/hr. Given Australia's taxes are higher, it may surprise readers how low Australia's and Germany's minimum wages are, compared to ours.)
The UST 10yr yield will start today up an unusual +9 bps at 3.03%. A week ago it was at 2.74%.
The price of gold is down -US$9 today from this time yesterday, now at US$1842/oz.
And oil prices are down -US$2 from this time yesterday, now just over US$117/bbl in the US, while the international Brent price is now just over US$119/bbl.
The Kiwi dollar will open today little-changed at just over 65 USc. Against the Australian dollar we are marginally softer at 90.2 AUc. Against the euro we are also little-changed at 60.8 euro cents. That all means our TWI-5 starts today at just under 72 and little-changed in a week.
The bitcoin price has risen by +4.5% and is now at US$31,301. Volatility over the past 24 hours has been high at +/- 3.2%.
You can find links to the articles mentioned today in our show notes.
And get more news affecting the economy in New Zealand from interest.co.nz.
Kia ora. I'm David Chaston and we’ll do this again tomorrow.