US inflation high but unchanged. US budget deficit leaps. Canadian building permits strong. Japanese machine tool orders strong with sentiment.
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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 the pressure is off the US Fed from inflation threats, temporarily at least.
First today, and as markets had expected, US CPI inflation came in at 3.4% in July, dipping from 3.5% in June. Food prices were up +3.0% from a year ago, petrol prices up more than +24%. From June petrol prices fell -2.9% however, which was a bit more than expected. (In August, petrol prices dipped slightly in the first week, but have since started rising again.) Rents were up +3.2%. Electricity prices were up +4.2%.
US core inflation - without food and energy - was up +2.5% and this is probably the Fed's get-out-of-jail card. US PCE July inflation data is next due August 27.
US mortgage applications recovered notably last week, up +3.6% from the prior week after four of the prior six weeks were decreases. The rise was driven by refinance activity, borrowers who could not wait any longer and taking advantage of a very minor dip in mortgage rates to 6.77% (which will seem high to our readers).
Last week, the US reported a huge surge in crude oil stocks, the larges weekly rise in more than three years. It wasn't expected - in fact another retreat was expected. It is not clear why, because it wasn't driven by imports, according to this data. Strategic reserves will next be reported at month-end.
The August USDA WASDE report has raised its estimates for beef imports in 2026 and 2027, and lowered its expected milk prices marginally.
The US Treasury reported a much larger budget deficit for July than expected, and the expected July deficit was outsized to start with. They ended up with almost a -US$½ tln deficit in the month alone. The public mismanagement is now epic. For their fiscal year to September, they will be reporting a deficit of at least US$2 tln (-US$1.95 tln over the past 12 months), easily a new record. Trump's swamp creatures are helping themselves.
Meanwhile, a well-supported UST 10yr auction delivered a yield of 4.63% today (high ofg 4.68%), compared to 4.53% at the prior equivalent event a month ago.
Canadian building consents jumped notably in June, up +18% from the same month a year ago driven by non-residential construction. Residential construction rose too, just not as sharply as the commercial sector.
In Japan, the Reuters Tankan index for manufacturers rose in August to its highest reading since March. Leading the mood improvement was solid semiconductor demand. But the chemicals also rose along with the metal and machinery sector. Non-manufacturers' sentiment also rose, buoyed by strong domestic consumption. This survey likely points to a similar rise in the official Tankan survey that will come later in August.
Japanese machine tool orders continued their very strong growth in July, up +50% from a year ago and which the value wasn't a record, it was very close. These orders have taken off since March 2026. Demand was huge from both domestic and export customers.
China's vehicle sales slipped below 2.5 mln in July and recorded a year on year dip of -0.3%. But it is the September to December period when their domestic vehicle sales usually peak.
The UST 10yr yield is now just on 4.67%, dipping -2 bps from this time yesterday.
The price of gold is holding at US$4417/oz, up +US$51 from yesterday. Silver has risen +US$1 to just over US$65.50/oz.
Oil prices are down -50 USc from yesterday at just under US$83/bbl in the US, while the international Brent price is now just over US$88.50/bbl. Hormuz transits are still very low.
The Kiwi dollar is down -25 bps from yesterday at just under 58.6 USc. Against the Aussie we are down -40 bps at 82.9 AUc. Against the euro we have retreated -20 bps to 50.8 euro cents. That all means our TWI-5 starts today at just on 62.2 which is down -30 bps from this time yesterday.
The bitcoin price starts today at US$63,420 and down a -0.2% from this time yesterday. Volatility over the past 24 hours has also been low at just on +/-0.9%.
You can 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.
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