Here's our summary of key economic events over the long weekend that affect New Zealand, with news most of the major 2024 elections have now been held, with overall results tending to go the way of the incumbents. The only major one left to go is in the US - but some may find the UK one of local interest in the meantime.
But first, today marks the 35th anniversary of the deadly June 4, 1989, crackdown on protesters near Beijing's Tiananmen Square. Hong Kong is expected to keep a tight lid on memorials that were once an annual tradition, as sweeping security legislation imposed in the city has forced organisers to disband, sent dissidents to jail and prompted many citizens to steer clear of sensitive political issues. But significant commemorations are still expected in Taiwan and other parts of the world.
This coming week will end with the US non-farm payrolls report, and it is currently expected to bring a +180,000 jobs expansion, so no start of their long-expected slowdown yet. Prior, they will report factory order levels and JOLTs data.
And this week we get the ECB monetary policy update on Friday and everyone expects then to cut by -25 bps to 4.25%. The Canadians are also expected to trim -25 bps from their official rate on Thursday, to 4.75%. And before that, the Indian central bank will do its own review, and they are expected to hold at 6.5%.
First in the US, the ISM factory PMI sagged on weaker than expected new orders which was a surprise to analysts. Overall the small contraction extended. This is a shift that moved bond markets, but not so much the equity markets. But this version was quite different to the internationally benchmarked S&P Global/Markit version which recorded an improved expansion - and on expanding new orders. Take your pick.
US PCE inflation steadied at 2.7% in April from the same month a year ago, and the monthly rate held at +0.3%. But the core PCE price index, the Fed’s preferred gauge to measure inflation, rose by +0.2% from the previous month in April after a +0.3% increase in March, the slowest increase so far in 2024, and below market expectations of a +0.3% rise. Even though these changes were actually tiny, the easing bias did move financial markets (and probably by more than they deserved).
The monthly rise in personal consumption expenditure was pretty tame in April, and was matched by an equally tame monthly rise in personal disposable incomes.
American petrol pump prices are now lower than a year ago, as weakness and oversupply spread in global oil markets. (The EU is getting the same lower price advantage.)
Canada said its Q1-2024 GDP expansion was +0.4% for the quarter to be +1.7% higher than year-ago levels. But a -25 bps rate cut to 4.75% is still expected on Thursday this coming week from its central bank.
We should note that Canada has been abnormally dry recently, and its famed hydro-power network is on reduced rations. That will have big consequences for their aluminium smelting industry, among others.
The Mexican presidential election delivered a landslide win for their first female president (her opponent was female too). She has almost won a supermajority in both houses of their parliament. Her party is the main left-wing force in Mexico, and continues its rule since 2018. This extends the global trend of incumbents winning big.
India's elections are over now and early tallies suggest the incumbent BJP candidate Modi has won in a landslide.
And India's Q1-2024 GDP expansion came in larger than expected at +7.8% higher than year-ago levels. Analysts were expecting a +6.7% expansion, but it has maintained the "about +8%" rate they have delivered for four consecutive quarters now. Over the past year the expansion is +8.2%. Given India's rising heat and water stress levels, it is hard to be confident it can maintain that level of expansion for long.
Japanese retail sales made good gains in April, up +2.4% from a year earlier and above the +1.9% rise expected. But some of this was catchup from the modest +1.1% rise in March. But Japanese industrial production was little-changed in April, a hesitation after their large +4.4% rise in March from February. Still, they have some more recovery required to peg back the prior declines.
After two months of small expansions, the official China factory PMI contracted in May. A small expansion was expected again in May, so this will be a disappointment. Meanwhile their official services PMI is still expanding, but at an unchanged and low rate.
China's banks are increasingly called on to "support" various sectors that are stuttering. That is resulting in shrinking margins. Even in the face of that commercial pressure, they are choosing not to support trade with Russia, a long-time gravy-train for them.
The EU reported that Euro Area inflation rose to 2.6% in May, boosted by services (+4.1%) and restrained by low oil and energy prices (+0.3%). Their core inflation rate therefore is rising, up +2.9%.
The bromance between Europe and China seems to be fading fast. Reports out Saturday say that major carmaker Great Wall Motors has closed its EU headquarters and released all its employees in a major pullback from is European ambitions. Apparently product acceptance in these markets was surprisingly weak. And Chinese EV battery makers are reassessing their grand expansion plans there too.
In Australia, their minimum wage will rise +3.75% on July 1, 2024. More than 20% of their workforce is on minimum wage awards. The award is less than expected but more than current inflation (3.6%). Markets remain unsure of the next RBA on June 18 with many still expecting a hike. They point out the risks are high for inflation to stay elevated with this minimum wage hike because their target band is "between 2 and 3 percent".
New Zealand trade representatives are to sign three of the four-pillar Indo-Pacific Economic Framework agreements in Singapore. The IPEF is a US-sponsored trade initiative (with bi-partisan support in Congress) designed as a competing trade arrangement to China's RCEP. The IPEF is a high-standard agreement, imposing standards that some signers are baulking at (India, for example). It looks like the one we aren't signing up to at present is the supply chain deal. After signing, we become committed to China's RECP, The US's IPEF, and the nonaligned CPTPP. IPEF’s 14 partners represent 40% of global GDP and account for 50% of New Zealand’s exports.
The UST 10yr yield is now at 4.40% and down -10 bps from where we left it last week (Saturday). The key 2-10 yield curve inversion is la little more at -42 bps. Their 1-5 curve is also deeper at -74 bps. And their 3 mth-10yr curve inversion is very much deeper at -98 bps. The Australian 10 year bond yield is now at 4.33% and down a sharp -13 bps from yesterday. The China 10 year bond rate is little-changed at 2.32%. The NZ Government 10 year bond rate is still at 4.88% but will probably adjust when trading opens.
Wall Street has started it's week down -0.2% in Monday trade on the S&P500. European markets started its week up about +0.5%, except Paris which was unchanged. Tokyo ended its Monday trade up +1.1%. Hong Kong rallied +1.8% but Shanghai fell -0.3%. Singapore was up +0.4%. The ASX200 ended its Monday trade up +0.8% and of course the NZX50 didn't trade because of the long holiday weekend.
The price of gold will start today down -US$1 from yesterday at US$2348/oz.
Oil prices are down -US$3 at just over US$74/bbl in the US while the international Brent price is now just over US$78/bbl. These are four month lows.
The Kiwi dollar starts today more than +¼c firmer from yesterday at just under 61.8 USc. Against the Aussie we are nearly +¼c firmer at 92.6 AUc. Against the euro we are also marginally firmer at 56.7 euro cents. That all means our TWI-5 starts today at just on 70.9, up +20 bps from yesterday.
The bitcoin price starts today at US$69,275 and back up +3.0% from this time yesterday. Volatility over the past 24 hours has been moderate at just on +/- 2.2%.
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