US data generally upbeat. But the Fed's inflation concerns grow. Germany factory orders rise. Energy cost surges give global challenge.
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 overnight data has actually been quite positive, showing the global expansion isn't done yet.
The American logistics sector is still expanding fast. The June report shows that growth is rising at an increasing rate for inventory levels still which growth is increasing at a decreasing rate for inventory costs, warehouse utilisation, warehousing costs, and transportation capacity. It is still a very healthy rate of expansion, just not extreme like it was three months ago.
Even after adjusting for the short week ahead of their national holiday, American mortgage applications fell back rather sharply last week and this was despite a small rollback in mortgage interest rates.
The latest weekly survey for retail activity picked up last week from levels that were already quire buoyant. It was a gain that was better than expected.
The widely-watched American services PMI for June came in better than expected and only a trivial dip from May. If there is an issue with this, it is a slightly lower growth rate in new orders. The internationally-benchmarked version also reported weakness in new orders but otherwise came in better than expected
The level of job openings remained near record highs at 11.3 mln and coming in for May above the 11 mln expected. Their 'quit rate' fell to a four-month low of 2.8% and there are almost 2 openings for every unemployed person. Skill match is a problem however.
The latest US Fed minutes show their officials are concerned entrenched inflation poses a "significant risk" and a "more restrictive" policy stance may be needed (pg 9). They concluded they needed to raise rates faster and to levels designed to slow the economy because the inflation outlook had worsened. And broad inflation expectation surveys they watch most closely are about to get worse. Their key fear is inflation becoming entrenched. And that probably means a more muscular fight is ahead, even at the risk of lower economic activity.
We should also note that the Chinese and American foreign ministers are about to meet in an attempt to reset their relationship. It won't be easy. But the Americans may offer to roll back some tariffs (for their own inflation-fighting reasons), an idea that may attract China to help reinvigorate their stuttering economy. But you have to say, chances of any deal are not high.
In China, it looks like their police database has been hacked, with records of about 1 bln Chinese available for sale on the dark net.
And new flooding in the Pearl River basin is affecting logistics in the region.
German factory orders surprised with a small month-on-month rise when a sharpish fall was expected. This is just the latest data in a series that have been nowhere near as bad as you might think it would be. The pace of adaption in the German economy in the face of extreme stress is actually quite impressive.
In France, it looks like they are about to nationalise their big nuclear energy producer in an attempt to keep the lights on.
And in Australia, businesses there say they have a stark choice - either push through very sharp price increases from sharp hikes in energy costs, or close as insolvent. For consumers and businesses, either way they face huge jumps in energy costs.
And NSW flooding isn't getting better. The number of people under evacuation orders is huge, and rising.
The UST 10yr yield starts today back up at 2.90% and a +10 bps rise from this time yesterday.
The price of gold is down sharply again, down another -US$29 at US$1737/oz.
And oil prices are down further, down -US$1 at just under US$96/bbl in the US, while the international Brent price is just on US$99/bbl.
The Kiwi dollar will open today little-changed at 61.5 USc. Against the Australian dollar we are also barely-changed at 90.6 AUc. Against the euro we are firmer at 60.3 euro cents. That means our TWI-5 starts today at just under 70.3 and +20 bps firmer.
The bitcoin price has risen since this time yesterday and is now at US$20,260 and up +2.8%. Volatility over the past 24 hours has been moderate at +/-2.7%.
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.