US inflation jumps. US budget deficit shrinks. China's exports swell. Europe inflation modest. Aussie business confidence knocked.
Kia ora,
Welcome to Wednesday's Economy Watch where we follow the economic events and trends that affect New Zealand.
I'm David Chaston and this is the International edition from Interest.co.nz.
Today we lead with news of a hint of stagflation risk.
The big story overnight is that the June American inflation rate has jumped more than the big jump expected. It came in at 5.4% when a 4.9% rate was expected. That is the fastest jump since 2008. Core inflation (without food or fuel) came in at 4.5% in June when a 4% rate was expected. Every component except medical care, rent and at-home food was up sharply. A lot of the pressure is coming from supply shortages which are expected to persist. And those supply shortages will depress economic activity. So fast-rising prices and lower-than-expected activity sets them up for a stagflation risk.
Markets have reacted cautiously. Equities are marking time, hesitating on rising bond yields. The US dollar is strengthening. Commodity prices are up in US dollars, so they will be rising even faster in local currencies.
The San Francisco Fed boss still sees this inflation as temporary and economic activity rising, so that Fed tapering is very much still the plan.
Earlier today there was a US$44 bln 30yr Treasury bond auction of which the Fed took US$6 bln. US$97 bln was bid, and the median winning yield was 1.31%. That is lower than the 1.44% yield at the prior event when bids exceeded US$101 bln. That slip is causing observers to judge today's auction a 'poor' one.
The US Government's June budget deficit came in lower than expected at -US$174 bln for the month to reach -$2.6 tln for the previous twelve months. But these large deficits represent huge improvements from a year ago where the June 2020 deficit was a massive -US$864 bln in the month and the whole year recorded -US$3.1 tln in deficit. Better fiscal management seems to be paying off. Tax revenues rose a remarkable +35% in June.
Both China's exports and their imports were up strongly in June 2021. Their exports grew at a much faster than expected pace in June on solid global demand. Imports growth also beat expectations, though the pace eased from May, with the values boosted by high commodity prices. From June 2019, exports are up +32% and imports are up +42%. They booked a +US$32.6 trade surplus with the US in June, and a -US$9.2 bln deficit with Australia. With New Zealand their records show a -US$772 mln deficit for them. These results come despite well publicised shipping and container availability issues. But despite this, China's export growth momentum is expected to continue for the rest of 2021.
In Europe, consumer inflation is being reported at more modest levels. In Germany, the June level was 2.3% and in France it was only 1.5%. The energy bite doesn't seem as fierce there, and food price changes hardly exist.
In Australia, June business confidence levels have taken a hit as their pandemic spread gathered pace in NSW and Queensland. But it was a pall that affected the whole country and not just those two states. Despite this fall, they are still at strong levels but the hit to growth is expected to build.
As a consequence, Canberra has reinstated its broad Jobkeeper subsidy support for firms affected in NSW on a 50/50 basis with the state government.
There were 89 locally acquired cases in NSW yesterday and another death.
The UST 10yr yield starts today at 1.41% and up +5 bps.
The price of gold is now just over US$1805/oz which is down -US$3/oz from this time yesterday. There are indications of selling pressure in India as the pandemic hurts family finances.
Oil prices have risen +US$2/bbl today and in the US they are now just over US$74.50/bbl, while the international Brent price is now just under US$76/bbl.
The Kiwi dollar opens today just under 69.5 USc and softer than where we left it on yesterday. Against the Australian dollar we are unchanged at 93.3 AUc. Against the euro we are also little-changed at 58.9 euro cents. That means our TWI-5 starts today down slightly at 72.4.
The bitcoin price is now at US$32,755 and down another -1.0% from this time on yesterday. Since May 24, the bitcoin price has been held in a relatively tight band. Volatility in the past 24 hours has been low at +/- 1.6%.
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.