Weekend briefing; Economic fears ease

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Here is our summary of the key overnight economic events affecting New Zealand, with news of an easing of economic fears that have been pervasive since the invasion of Ukraine and the blockade of Taiwan.

The latest US sentiment survey, this one for August and by the highly watched series from the University of Michigan, indicates growing optimism. But to be fair, it’s only a long way from its deep bottom for current conditions. However, the economic outlook for the coming year has increased significantly, which is probably significant.

USDA WASDE report paints a much more relaxed picture of the international grain situation. Despite the European war, they now believe that most regions will see increases in production, especially for wheat. Maize and other coarse grains could get a little tighter, they say, but rice trade will be plenty, although slightly lower than last year. They also see slightly higher dairy prices and higher beef prices, but few supply issues.

In China, banks lent 679 billion yen in new yuan loans in July, the lowest reading in three months and well below ¥1.08tln a year earlier. The reading also disappointed investors who expected a similar expansion to last year, but the ongoing housing crisis weighed on consumer sentiment and government bond issuance slowed.

In Malaysia they reported an economic expansion in the June quarter that was more than expected, charging at an annualized rate of nearly +9% and impressive even if starting from a rather low base.

India has reported positively on their June industrial production levels, a fourth straight month of outsized gains.

EU industrial production data was released in June and it also brought a good surprise. It increased by +3.2% across the EU compared to a year ago, much better than the expected +1%. British industrial production increased by +2.4% on the same basis.

In Germany, some local regulators denounce shrinkage practices. Squeezing prices is not a new strategy by supermarkets and manufacturers to give the impression that they are holding the line on prices, but it seems to be unsettling in Germany. “Cheat Lists“Misleading packaging” attracts attention and can show that shrinkage is an effective price increase of up to +25%. Manufacturers also claim their costs increase in similar proportions.

In Russia, their economy contracted sharply in the June quarter as the economic consequences of the war in Ukraine were felt. Their economy shrank by -4% from April to June compared to a year ago. It is the first quarterly gross domestic product report to fully capture developments in the economy since the invasion of Ukraine in February, when Western sanctions cut Russia off from much of the financial system. world and that many countries have severed trade relations with Moscow. It is also a sharp turnaround from the first quarter, when the economy grew by +3.5%.

In Australia, sales of new homes plunged -13% in July compared to June, from a gain of nearly +2% in June. The sudden drop is blamed on recent increases in the cash rate, with builders reporting fewer inquiries and visits to billboard sites.

The UST 10-year yield starts today at 2.84% and -4 basis points below the same time yesterday. It is very little different from levels a week ago. The UST 2-10 yield curve is more inverted today, now at -40 bps and their 1-5 curve is also a bit more inverted at -28 bps. Their 30d-10y curve is now at +66bps and slightly flatter than yesterday at this time. The Australian 10-year bond is up +1 bps at 3.41%. The 10-year Chinese government bond is unchanged at 2.75%. And the New Zealand 10-year government will start today up 3.52% and up another +10bps from the same time yesterday. A week ago, it was at 3.33%, a recovery of +19 basis points.

Wall Street is firm in its late Friday trade with the S&P500 up 1.4% from this time yesterday and is +2.7% higher in a week. Overnight, European markets were all up around +0.5%. Yesterday, Tokyo closed up +2.6% for a weekly gain of +2.3%. Hong Kong closed up +0.5% for a weekly gain of +0.6%. Shanghai slipped -0.2% yesterday to end its week up +1.8%. The ASX200 ended its trade Friday down -0.5% for an insignificant weekly rise of +0.2% while the NZX50 was down -0.3% on Friday to end its week unchanged.

The price of gold will open today at US$1,802/oz, up +US$13/oz from the same time yesterday, and up +US$28/oz in a week, +1.6 %. It is also the first time above US$1,800 in seven weeks.

And oil prices are starting to fall -2.50 USD from the same time yesterday to just under 91.50 USD/bbl in the United States, while the international price of Brent is now slightly below 97 .50USD/bbl. A week ago, these prices were respectively US$88.50 and US$94.50/bbl, a weekly increase of +3%.

The Kiwi Dollar will open today at 64.5 USc, maintaining Thursday’s jump. But it is now more than +2c higher than last week and its highest level since early June. Against the Australian dollar, we maintain a rise at 90.6 AUc. Against the euro, we rose +½c overnight to 62.9 eurocents. That means our TWI-5 starts today at 72.7, our highest in over three months. This is an appreciation of +2.4% in one week.

Bitcoin price was down -1.1% this time yesterday at US$24,076. Volatility over the past 24 hours has been modest at just under +/-1.5%.

The easiest place to stay on top of the risks associated with today’s events is to follow our Economic calendar here ».

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