Here’s our summary of key economic events overnight that affect New Zealand, with news global investment sentiment is weakening as the Americans look ready to score an own goal.
The US debt negotiations are getting sillier. But at least they are still talking. While the White House is offering a spending pause, congressional Republicans are hardening their demand for deep cuts – but just not in spending that will affect their favoured programs or districts. It looks increasingly likely there will be a government shutdown in early June. They have had them before under Clinton and Obama, but never against Republican presidents. (The largest increase in US government debt occurred under Trump.)
Unnoticed at this time is that the US regional banking crisis seems to be over.
But US mortgage applications fell yet again last week and benchmark rates rose by more than +10 bps to almost 6.7% plus points. None of this suggests the American housing market is out of its now long-running funk. Apart from a brief pandemic uptick, you have to go back to the Obama years to find a period of steadily rising mortgage demand.
The release on the May FOMC minutes showed Fed officials uncertain about how much more policy tightening may be still be required and many focused on the need to retain their options for changed in policy direction. Some members saw the need for more rate hikes while others anticipated that deceleration in growth would eliminate the requirement for further tightening. This collective uncertainty just added to the Congressional debt limit uncertainties.
Risk premiums for American funding are rising on the Congressional inaction, raising the cost of money worldwide.
Across the Pacific, Japan’s real wage growth is expected to return to positive territory this year as prices stabilise and the largest pay hikes in three decades boost consumer purchasing power
And after four months of negative sentiment, Japanese manufacturers are feeling positive again with a sharp mood change. Ditto in South Korea.
But German investor sentiment is going backwards now after a period of seven rising months. And to be fair the May retreat is only back to where it was a year ago, so not net change over that period. However the mood of their investors is still a long way lower than pre-pandemic.
The EU is set to toughen up how the financial industry charge their clients. They now plan to ban them paying commission on sales of their products to brokers who gave no advice to customers. This is the latest attempt by regulators to address the hopelessly conflicted relationships between brokers and the financial industry where brokers get paid by these industries to pedal their products and still claim they work in their clients best interests. It’s a fiction. But brokers world-wide have proven adept at sidestepping any meaningful reforms.
British inflation is still very high and starting to rise again. In April it rose at an annualised rate from March that exceeded 14%. From a year ago it was running at 8.7% which is a fall from the same year-on-year level from March, but their core inflation rate rose on the same basis. It is the recent pickup that will concern them. Accelerating food costs are their biggest challenge. It is very noticeable how much higher British inflation is over that in the EU. The removal of competition from EU firms has allowed local firms room to raise prices sharply in their home market, perhaps to subsidise tougher competitive positions outside the country.
The UST 10yr yield starts today at 3.73% and up +3 bps from yesterday. Their key 2-10 yield curve is still inverted at -63 bps. Their 1-5 curve is at -137 bps and also little-changed. And their 3 mth-10yr curve is marginally more inverted at -200 bps. The Australian 10 year bond yield is now at 3.64% and down -2 bps from yesterday. The China 10 year bond rate is unchanged at 2.72%. And the NZ Government 10 year bond rate is at 4.40% and down -2 bps bp from yesterday, not much reaction at the long end of the curve.
Yesterday’s RBNZ Monetary Policy decisions saw local swap rate fall back sharply, but interestingly only to where they were a week ago, or a month ago. The corrections were no more than that.
Wall Street has opened its Wednesday session soft with the S&P500 down -0.5%. That is now a -1.5% fall from where we opened this week. Overnight, European markets all closed lower by a consistent -1.8%. Yesterday Tokyo closed its Wednesday session down -0.9%. And Hong Kong was down -1.6% continuing is volatile run. Shanghai ended down -1.3% and a continuation of unusually large falls for them. The ASX200 ended its Wednesday session down -0.6% while the NZX50 found things much more to their liking, rising +0.2% against the international trend.
The price of gold will start today at US$1962/oz and down -US$14 from yesterday.
But oil prices are another +50 USc firmer from yesterday to be just over US$73.50/bbl in the US. The international Brent price is now just over US$77.50/bbl.
The Kiwi dollar is a lot softer against the USD from yesterday, down -1½c and now just on 61 USc. Against the Aussie we are down more than -1c at just on 93.3 AUc. Against the euro we are down more than -1c also to 56.7 euro cents. That means the TWI-5 is has fallen -130 bps to 69.9, evaporating all of the May gains and putting us back to where we were in the first week of May.
The bitcoin price is -3.3% weaker today, now at US$26,287. Volatility over the past 24 hours has been moderate at just on +/- 2.2%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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