Canada hikes following Australia, rattling the US markets. US exports fall. China exports fall. Turkish lira in freefall. Aussie GDP growth anaemic.
Kia ora,
Welcome to Thursday’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 central banks seem to have called time on their brief interest rate pause signals.
Just like the RBA on Tuesday, the Bank of Canada did the unexpected and hiked their policy interest rate by +25 bps to 4.75%, saying their monetary policy was not sufficiently tight enough yet "to bring supply and demand back into balance" and return inflation sustainably to their 2% target. Essentially they admitted their earlier guidance that they had done enough was wrong.
Growing global concerns that inflation is stickier than expected strengthened expectations that the US Fed will also deliver another rate hike when they next meet a week from today. Currently financial markets price a 2:1 chance that the US central bank will deliver at least one +25 bps rate hike at that meeting or the next. Investors now await the key US inflation data due Wednesday next week, with a hot reading set to solidify another Fed hike after the latest payrolls report showed that the US added a remarkable +339,000 jobs in May.
It is not only Canadian interest rates that are affecting Americans. Bad air quality drifting down from Canadian wildfires is blanketing the eastern states and airports are having to close. China isn't the only place with bad air at present.
US consumer credit levels rose a bit more than expected in April, but at about the same pace as in March, with the gains equally split between revolving (like credit cards) and nonrevolving (car loans etc.). There are no stress signals in this data.
Separately, there is still no light at the end of the tunnel that is the American residential housing market. Mortgage applications fell yet again even as interest rates slipped back last week, with their 30 year fixed for at 6.81% plus points.
US exports fell -3.6% in April and imports rose +1.5%. Their trade deficit in goods and services came in at -US$74 bln for the month, less than expected and that was far below the -US$105 bln in the same month a year ago. Their imports from China have fallen a long way and China's share of American imports has fallen to its lowest in seventeen years.
Across the Pacific, China's exports grew +8.5% in April from a year ago. But they slipped back -7.5% in May on the same basis. Imports fell -4.5%. As a result China's trade surplus shrank sharply.
Taiwanese exports fell sharply on a year-on-year basis, down more than -14%. But they did rise in May from April, suggesting the steep pressure is easing.
German industrial production rose in April in real terms but that was mainly because construction was up. Otherwise industrial production volumes are meandering along as they have for years with little change. They seem unable to get back to the strong expansion they had in the four years prior to the pandemic. But they aren't going backwards either.
And we should note that the Turkish currency, already depreciating fast, has sunk dramatically further in the past few days.
The Aussies released their Q1-2023 GDP data today and it wasn't too special. They expanded +0.2% in Q1-2023 from Q4-2022, below market forecasts of a +0.3% increase, and after an upwardly revised +0.6% rise in Q4-2022. This was the sixth consecutive period of economic growth but the softest pace in the sequence, as household consumption rose the least in six quarters due to persistent cost pressures and elevated interest rates. As the RBA feared, productivity slumped. The household savings ratio fell to 3.7%, the lowest since Q2-2008, from the prior 4.5%. Year-on-year, Q4-2023 was +2.3% higher. New Zealand's GDP result which will be released next week on June 15, 2023.
We should probably note that Australia's new 4.10% official policy interest rate is being talked about as a level that will trigger a wave of house selling as distressed borrowers find their mortgage payments too much to cope with. Remember, most Aussies are on floating rate mortgages so these increases hit almost immediately. The RBA has pushed through an extra +4% from May 2022 with relentless rises up from +0.1%. And they are probably not done yet.
The UST 10yr yield will start today at 3.79% and up a sharpish +9 bps from yesterday.
The price of gold will start today at US$1944/oz and down -US$21 from yesterday.
And oil prices have risen +US$1 today from yesterday at just under US$73/bbl in the US. The international Brent price is now just over US$77/bbl.
The Kiwi dollar starts today -¼c lower at 60.4 USc. We seem to be matching the weakness of the Chinese yuan. Against the Aussie we are lower too, down at 90.8 AUc and near a four month low. Against the euro we are lower at 56.4 euro cents. That means the TWI-5 is down another -30 bps at 68.8 from where we left it yesterday, and that's a six month low.
The bitcoin price is little-changed at US$26,505 and down a mere -0.7% from this time yesterday. However, volatility over the past 24 hours has been moderate at just on +/- 2.1%.
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.