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 commodity prices are weak today as global factory activity slows. And some banks have run out of places to invest their excess cash holdings.
But first in the US there were two factory PMIs out for June today and this sector is back at its lowest level since May 2020. The widely-watched ISM one was quite downbeat. It contracted again and by more than expected as softness continues and optimism about the second half of 2023 is sharply weakening. In this survey new orders contracted less in June than in May, but they still contracted. In the internationally-benchmarked Markit factory PMI, the story was similar but new orders fell in that one although to be fair they were recorded higher in May and the decline in June is to a level that matches the ISM version. In both, price and cost pressures are easing quickly now.
American petrol prices are quite stable again ahead of their holidays and summer driving season.
And we should note that reinsurers raised premium costs for their cover by +50% in many cases on July 1, reflecting the claims cost of climate-related events.
Janet Yellen isn't on holiday. She is off to China later this week to keep up efforts to try and normalise relations between the two superpowers.
In China, again less negative than the official measure, the Caixin factory PMI for China did not contract in the way the official survey suggested. But it isn't really an expansion either. But this 'good news' is enough to help Kong Kong and Shanghai equities maintain their rise, although the yuan remains under severe pressure.
Factory PMIs in Taiwan and South Korea are contracting although not at faster fates than previously in 2023. In Japan they are like China, neither expanding nor contracting.
India is the stand-out factory hub at present, recording surging demand and clearly benefiting from 'de-risking' strategies away from China.
Hong Kong retail sales were virtually unchanged in May from April in data released overnight. But because the base was so low, they have recorded very large year-on-year gains, especially in luxury goods. A year ago, their tourism sector was in the doldrums.
The EU factory PMIs are weak with demand and production sinking further in June.
In Singapore, their largest bank, DBS, said that deposits are flowing in much faster than it can invest them so it has had to lay off more than NZ$36 bln to Singapore's central bank, the Monetary Authority of Singapore, as it is “not finding enough opportunities to put the money to work.” They aren't the only ones worrying about future prospects for Singapore. Elsewhere, surplus liquidity is building up in Japan as well.
Australian building permits rose sharply in May, driven by the volatile apartment-building sector. The total number of dwellings approved rose +20.6% following a -6.8% decrease in April. By far the largest rises were in Sydney.
In Australia it is a different story with house prices turning up, according to CoreLogic analysis. The cumulative +4.1% lift since February comes after a -9.7% decline over the previous ten months. The pace of Annual price declines moderated from -6.8% in the year to May to -4.8% in the year to June. The recent turn up is consistent with the new lending data.
And staying in Australia, one of their largest pension funds has slashed the value of its local office property assets by as much as -20% as commercial property woes hit them as one of Australia's biggest landlords. The Australian Retirement Trust, which manages NZ$260 bln of assets, said its local office buildings have seen “material downward movements ranging between 5% to 20%”.
Later today, the RBA will review its cash rate target which is presently at 4.10%. Markets expect a +25 bps rise to 4.35% given they have a strong labour market and housing distortions are featuring again. They also have inflation at 5.6% which is well higher than they want. Higher interest rates won't help those commercial property valuations.
The UST 10yr yield will start today at 3.86% and up +2 bps from yesterday.
The price of gold will start today at US$1921/oz and little-changed from yesterday.
And oil prices are a little softer at just under US$70/bbl in the US. The international Brent price is a tad softer too at just on US$74.50/bbl. Low oil prices are worrying producers. Saudi Arabia said that it would extend a cut in oil production of one million barrels a day that it announced in June through at least August, trying to push up what officials view as stubbornly weak oil prices. The Saudis were joined by Russia.
The Kiwi dollar starts today at 61.5 USc and only marginally firmer than this time yesterday. Against the Aussie we are little-changed at 92.1 AUc. Against the euro we are similarly little-changed at 56.4 euro cents. That means the TWI-5 is now at 69.9 and fractionally firmer.
The bitcoin price has risen from this time yesterday and now is at US$31,011 which is a +1.7% rise and still above NZ$50,000. Volatility over the past 24 hours has been modest however at just under +/- 1.3%.
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.
