Deposit insurance coverage under review. Global PMIs mixed; Commodities weaker on China prospects; Eyes on RBA
Kia ora,
Welcome to Tuesday’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 deposit insurance and financial stability are getting involved in an unhealthy mix
But first up, in the US there were the two competing PMIs for April released overnight. The closely-watched local one recorded a contraction, although less than expected and less than in March. The internationally benchmarked one recorded a small expansion after a minor contraction in March. Both suggested price pressures are not yet easing.
And we should note that JPMorgan Chase was the 'winner' in the FDIC auction to take over the failed First Federal Bank. They beat out two other bidders (PNC and Citizens Bank). Meanwhile, regulators are reviewing their deposit insurance scheme, one that was found wanting during the recent turmoil. Rather than protecting deposits to a limit, they face having to expand it to some sort of unlimited version. Interestingly, financial markets have shrugged of worries about bank health.
The RBNZ is due to institute a deposit guarantee scheme here, so they will no doubt be assessing what lessons they can draw from all this. The world is shifting to a policy trap where no-one can get hurt from risks that go bad.
The Canadian PMI was out overnight too and recorded a tiny expansion with price pressures not easing.
In Japan, their PMI is neither expanding for contracting which is an improvement from March. New order levels are firmish. But price pressures are being passed on.
South Korea, their export engine is stuttering, extending a long decline to seven straight months. The pullback was led by a persistent slump in the semiconductor sector in the face of a global economic slowdown.
China is still on on its Golden Week holiday. Some financial businesses will start returning on Thursday. Travel volumes on the first day of this holiday were reportedly strong. But in commodities markets, prices for most raw materials are still retreating as confidence China will build back better evaporates.
In India, their factory PMI rose to a good expansion with increases in new orders and output.
In Australia, their factory PMI has declined further and is now contracting, capping almost three years of retreat. New order levels are declining faster.
Australian job ad levels fell again, now well off their peak. But the April slip was less than earlier months.
And staying in Australia, all eyes will be on their central bank and their monthly rate review, due at 4:30pm NZT today. No change is expected from the current 3.6% level, even though their inflation remains high and sticky at well over 6%. The RBA has been under severe political attack in Canberra, with substantial reforms planned for it. But so far their Governor is holding his course through these storms. The political pressure is to lower the policy rate levels to give highly-leveraged households debt-payment relief despite the unusually high level of inflation. And arguably the relatively low current policy interest rate is helping fuel a renewal of higher house prices. They are in a kind of no-man's land, policy-wise.
We should also probably note that Australia will essentially ban vaping, limiting it to prescriptions for legitimate therapeutic use, and calling it a menace to children and public health.
The UST 10yr yield starts today at 3.58%, and up a very sharp +15 bps from this time yesterday.
The price of gold will start today at US$1982/oz and down -US$9 from day-ago levels.
And oil prices have fallen -US$1 from yesterday to be just under US$75.50/bbl in the US. The international Brent price is just under US$79/bbl. Yesterday's weak Chinese PMI data is undermining this price.
The Kiwi dollar is little-changed against the USD and now at 61.7 USc. Against the Aussie we are -½c softer at 93 AUc. Against the euro we are up marginally at 56.2 euro cents. That means the TWI-5 is now at 69.8 and actually little-changed since this time yesterday.
The bitcoin price is lower today, down to US$28,297 and -4.5% lower than this time yesterday. Volatility over the past 24 hours has been moderate at +/- 2.9%.
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.