Here's our summary of key economic events overnight that affect New Zealand with news the tussle between bull and bear forces is far from being resolved.
Analysts had expected American non-farm payrolls to rise +325,000 but the key reported rise was +390,000 and this is being considered a positive result. But that leaves them -822,000 jobs fewer that before the pandemic struck. Wall Street sees it as confirmation that the US Fed will hike aggressively at its next review on June 16, and is ending the week on a glum note.
But as regular readers will know, we like to look past the 'seasonally adjusted' numbers everyone else looks at, and drill into the actual shifts. And these explain why the giant American economy is actually more resilient than most are noticing. The actual May rise was +809,000 more people employed in May than April, on top of the actual +1.1 mln rise in April from March, and the +762,000 rise in March from February. These are huge gains, taking the actual paid workforce to 151.8 mln people. And even more revealing, that is more than +800,000 above the actual 151 mln employed before the pandemic struck. Yes, they have now recovered all the lost jobs on an actual basis, way better than the standard narratives.
They have a situation where average pay of workers not in management is rising +6.4% pa, and overall payrolls are expanding fast. The combination adds purchasing power to their economy very aggressively - probably too frothy for policy makers.
Most of these employees are in the service sector, and the latest evidence is that this is expanding solidly in the US too. The widely watched ISM survey has it expanding slightly slower than in the prior month, with the internationally benchmarked survey also recording a solid but slightly slower expansion. They may be at the limits of what is achievable with their workforce.
To do better than they currently are, the US will need to find a way to raise its labour force participation rate. It is running at 62.3% of the working aged population, and while it is creeping up it is still low by international standards and still -1% below pre-pandemic levels. But with immigration low and an ageing population, that would involve encouraging those who chose early retirement at the start of the pandemic to get back into the workforce, and that seems an unlikely change.
This week, the US Fed began the process of shrinking its almost US$9 tln asset portfolio (~35% of US GDP and probably much smaller than you may have assumed) by not reinvesting some of the maturities. This is a sure sign their economy is recovering fast, and builds on the fast-shrinking Federal Government deficit. Both are evidence of much more professional economic management in place there now.
But not everyone is upbeat about where their economy is headed. Both Elon Musk and Jamie Dimon have issued warnings about what their own companies face, although in Musk's case it might be a sign of stress from over-reach, especially in China and Europe, and in Dimon's case it could be that a leveling out might threaten his giant bonus. It's all about the future, so anything is possible.
In China, the gradual easing of pandemic restrictions in Shanghai will see their key Pudong and Hangzhou port centers reopen. And export volumes are predicted to jump in the immediate future. Demand for ocean freight services and container shipping costs are expected to tick up as firms rush to get goods out.
And officials are also claiming that activity is returning to their housing markets. But Chinese workers must now endure regular PCR testing to get back on the job.
Encouraging them are a rush of 'red envelopes', direct cash payments and coupon stimulus to residents to encourage them to get out and spend. An interesting twist is that authorities are rushing out some of this as digital money. Having stimulus bypass the banking system is an attraction to central bankers, and not only in China.
Yesterday, South Korea reported a CPI inflation rate of +5.4%, well above the +4.8% in April and the expected +5.1%.
Singapore reported retail sales up more than +12% in April from a year ago, but they might have been disappointed in the tepid rise from March.
The EU also reported April retail sales volume levels and they didn't bounce back as much as they had expected, and they would certainly have been disappointed in the monthly slip.
In Australia, there has been something of a crash in mortgage lending. Lending to owner-occupiers was down -7.3% in April from March and down a stunning -12.8% year-on-year. Even lending to investors fell -4.8% in April from March. There are getting more commentary there of "a great house price correction' being underway, targeting a -15% to -20% from peak to trough. Negative equity worries are rising.
And in Canberra, their new government is pushing for a +5.1% minimum pay increase for the "low paid". It will take their minimum wage to AU$812/week (NZ$22.50/hr NZ$900/week or NZ$46,800 pa). It will go to about 1.3 mln Australians. Australia's CPI is currently running at 5.1%.(New Zealand's adult minimum wage is currently NZ$21.20/hr. Given Australia's taxes are higher, it may surprise readers how low Australia's minimum wages are, compared to ours.)
The World Food Price Index slipped in May as prices for vegetable oils and dairy products retreated somewhat. But prices for cereals and meat rose again, both to record highs. And the overall index is more than +22% higher than a year ago. Food price stress remains extreme.
The UST 10yr yield will start today up +4 bps at 2.96%. A week ago it was at 2.74%. The UST 2-10 rate curve is marginally steeper at +29 bps and their 1-5 curve is a little steeper too at +79 bps. Their 30 day-10yr curve is flatter however at +209 bps. The Australian ten year bond is now at 3.53% and up another +2 bps. The China Govt ten year bond is little-changed at 2.82%. And the New Zealand Govt ten year will start today up +2 bps at 3.66%. A week ago it was at 3.52%, so a +14 bps rise in seven days.
Wall Street is lower today with the S&P500 down -1.6% at the end of Friday trade, but a weekly gain of +0.8%. Overnight European markets drifted slightly lower by about -0.3%. London remained closed. Yesterday Tokyo ended up a strong +1.3% on the day and up and even stronger +2.5% for the week. Both Kong Kong and Shanghai were closed for public holidays. The ASX200 ended its Friday session up +0.9% allowing it to post a weekly gain of +0.8%. The NZX50 closed Friday up +0.6% to book a stellar +3.2% weekly gain, or on a capitalisation basis, up +3.0%. Either way, it is impressive.
The price of gold is down -US$20 today from yesterday at US$1849/oz. It is back to week-ago levels again.
And oil prices are again firmer from this time yesterday, up +US$2 to just under US$117.50/bbl in the US, while the international Brent price is up at just over US$119/bbl. That international price was -US$3.50/bbl lower a week ago.
The Kiwi dollar will open today down -½c at 65.1 USc. Against the Australian dollar we are unchanged at 90.3 AUc. Against the euro we are a little softer at 60.7 euro cents. That all means our TWI-5 starts today at 71.9 and little-changed in a week.
The bitcoin price has retreated by -2.4% and is now at US$29,501. But it is up +3.5% from this time last week. Volatility over the past 24 hours has been moderate at +/- 2.4%. And in Japan, their parliament has passed important legal protections for stablecoins.
It is a public holiday in New Zealand on Monday.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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