US data remains solid by Dimon is worried. Canada hikes by another +50 bps. Shanghai released. German retail sinks. Aussie GDP slips.
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.
Today we lead with news that tomorrow will be as good as today, and it will stay like that for a while. But more international data is softening.
US mortgage applications decreased yet again last week and that was even though mortgage interest rates slipped a bit.
But last week's survey of retail activity remained strong, expanding faster than the prior week and holding on to the momentum they have had since mid 2021.
There were two PMI reports out for the US factory sector overnight and both are recording a continuing healthy expansion. The widely watched local ISM one reported a faster expansion, while the internationally-benchmarked Markit one recorded a slower expansion.
They are backed up by the Fed's month Beige Book surveys which also record modest to moderate growth in almost all their regions, but with hints of slowing conditions.
Also confirming the continuing expansion are the American JOLTS data for April. The number of job openings in the US was 11.4 mln at the end of the month, down from a revised record high of 11.9 mln in March, matching market expectations and suggesting firms continued to struggle to find and hire new workers.
For all this positive data, it is probably worth noting the Jamie Dimon, the boss at JPMorgan, fears a "hurricane" is coming for the US economy but not until consumers use up more of their savings that are backing up current consumption levels. With a year, he thinks.
For the third consecutive time, the Bank of Canada raised its official cash rate, this time by another +50 bps to 1.5%, matching market expectations, and signaled that it will hike interest rates further in the coming meeting to curb rising inflation. It is also explicitly tightening monetary conditions and says it is ready to act "more forcefully".
Beijing has ordered state-owned policy banks to set up an ¥800 bln (NZ$185 bln) line of credit for infrastructure projects as it leans on construction to stimulate an economy battered by coronavirus lockdowns.
Meanwhile, Shanghai is waking up to many lockdown conditions that are being eased or released. There are still widespread restrictions but people are now allowed out, and businesses will now start to re-open. This release will give an initial boost in activity and demand, but after that things remain quite uncertain.
But just as Shanghai gets its release, there are signs that Hong Kong may have to be put back into a strict lockdown again. They have the same problem - low vaccination rates especially for older residents, which risks overwhelming their health system capacity. And Hong Kong may not be the only other large Chinese city to face renewed lockdowns.
With inflation pressing them hard, Germans are cutting back on their retail spending, and quite hard. The latest data is for April and retail sales fell more than -5% from March on an equivalent inflation adjusted basis.
Russia is reporting that both industrial production and retail sales fell, not only from March levels, but by much more than they expected. Their car industry is the hardest hit.
In Australia, there were two factory PMI reports out for May yesterday, (here and here) both reporting a slowing of their good expansion back to a more modest expansion.
Australia also reported its Q1-2022 economic growth rate yesterday and it came in at +3.3% pa which was better than the +2.9% expected, but a step back from the Q4-2021 rate of +4.2%.
One thing analysts have picked up on in this GDP result is that Aussie wages and consumption were tracking higher than other separate measures suggested. And that probably means the RBA is locking in a substantial +40 bps rate hike next Tuesday.
Globally, factory activity fell again in May, led by the drop-off in China. Overall, new order inflows remain lackluster, inflationary pressures stay elevated, and international trade volumes are declining. Luckily for us, we are not yet being impacted by the trade or new order weights many others are, who have high exposure to China.
The UST 10yr yield will start today up another chunky +9 bps at 2.94% on the strong US data.
The price of gold is up +US$1 today at US$1846/oz.
And oil prices are marginally firmer from this time yesterday, up +50 USc to just on US$114.50/bbl in the US, while the international Brent price is unchanged at US$116.50/bbl.
The Kiwi dollar will open today down another -¼c at 64.9 USc. Against the Australian dollar we are down at 90.3 AUc. Against the euro we are a little firmer at 60.9 euro cents. That all means our TWI-5 starts today little-changed at 71.9 because we rose against both the yen and the English pound.
The bitcoin price has fallen -5.6% since this time yesterday and is now at US$30,182. Volatility over the past 24 hours has been high at +/- 3.8%.
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.