Powell focused on inflation control; US data weaker than expected; Japan machine tool orders rise; EU factories busy; Aussie labour market rises; freight rates rise; UST 10yr at 4.45%; gold up, oil down; NZ$1 = 58.7 USc; TWI-5 = 67.2

Here's our summary of key economic events overnight that affect New Zealand, with news Trump's backdown on tariffs came as corporate decision-makers concluded reshoring isn't a good idea. There are few moves to bolster US-based production.

But first today, Fed boss Powell spoke overnight and he focused on the challenges they face keeping inflation under control. He noted long-term interest rates are now notably higher, driven mainly by risk premiums rather than shifts in inflation expectations, while estimates of the longer-run neutral policy rate have also risen. He noted the US economy has changed a lot since their last review and warned that inflation might become more volatile in future due to more frequent supply shocks, which will make it harder for central banks to achieve price stability. Throughout his remarks, Powell also stressed the critical role of anchored inflation expectations. 

Meanwhile US initial jobless claims slipped slightly to 205,200 but that was what seasonal factors accounted for and what analysts were expecting. There are now 1.783 mln people on these benefits, a reduction from last week, but it is up almost +100,000 from this time last year.

Maybe surprisingly, American producer prices fell by -0.5% in April, following a revised flat reading in March and defying market expectations of a +0.2% increase. This was the first decline in the PPI since October 2023 and the sharpest drop since April 2020, during the early pandemic period. The retreat was largely driven by a -0.7% fall in service costs, the largest since data collection began in December 2009, and that was due to a -1.6% drop in margins for trade services, because businesses are absorbing much of the impact from higher tariffs. PPI is now up +2.4% from a year ago.

Industrial production in the US didn't rise as expected in April. In fact factory output fell -0.4%, reversing the increase in March. And the prospects of shifting significant production "back to the US" seem remote in many diverse categories.

There were two regional factory surveys released for May overnight, and both declined somewhat. The NY Fed's Empire State survey reported another modest decline. The Philly Fed's survey for their core rust belt region recorded a sharp improvement, better than the improvement expected. But it is still in decline.

In a sign of the times a major lithium battery recycler has entered bankruptcy.

US retail sales were little-changed in April, following the upwardly revised +1.7% front-loaded pre-tariff surge in March. 2024 gains mean they are +5.2% higher than year-ago levels.

The NAHB/Wells Fargo Housing Market Index in the US fell sharply in May to its the lowest since November 2023 and well below what was expected. Home builders are glum. Current sales conditions fell, sales expectations in the next six months edged lower, and they said traffic of prospective buyers has dropped recently.

Meanwhile, housing starts in Canada jumped +30% in April from March and that was well above what was expected. It was their most since June 2023. US tariffs on Canadian softwoods is likely making Canadian house building costs lower.

Across the Pacific, Japanese machine tool orders rose +7.7% in April from a year ago, but that growth was a slowing from +11.4% growth in March. But it was the seventh consecutive month of rising machine tool orders. Local orders dropped -5.4% from a year earlier while foreign orders jumped +13.3% on the same basis. 

India's exports were nothing special in April, certainly not reflective of a rising industrial power. They slipped from March but they were up +9.0% from a year ago due to gains in prior months.

In Europe, industrial production rose by +2.6% in March from February, marking the strongest increase since November 2020 and rising from a good +1.1% gain in February. The result easily beat market expectations of a +1.8% rise. The surge was driven primarily by a rebound in output of durable consumer goods.

In Australia, they added +75,500 jobs in April, almost 47,500 of them full-time positions. Their employed workforce grew +2.75% in the past year. Their jobless rate eased to 4.1% from 4.3% (although staying at 4.1% on a seasonally adjusted basis which is the metric others report). Inflation pressure plus this strong jobs report might have the RBA re-thinking the wisdom of a rate cut.

Bulk freight rates fell -7.0% in the last week to be -18.5% lower than year-ago levels. Container freight rates were also -18.0% lower than year ago levels, but they did rise +8% last week with a surge in outbound cargoes from China across the Pacific on the sudden 'pause' in tariff hikes.

The UST 10yr yield is at 4.45%, down -8 bps so far today. The key 2-10 yield curve is still at +48 bps. Their 1-5 curve is now inverted by -3 bps. And their 3 mth-10yr curve is much less positive at +14 bps. The Australian 10 year bond yield starts today at 4.56% and down -1 bp from yesterday. The China 10 year bond rate is down -2 bps at 1.66%. The NZ Government 10 year bond rate is up +1 bp at 4.65%.

Wall Street is up +0.4% on the S&P500 in Thursday trade. Overnight, European markets were mostly +0.5% firmer. Yesterday Tokyo ended down -1.0%, Hong Kong fell -0.8% and Shanghai fell -0.7%. Singapore rose rose +0.5%. The ASX200 ended its Thursday session up a minor +0.2% but the NZX50 rose +0.8%.

The price of gold will start today at US$3218/oz, and up +US$43 from yesterday.

Oil prices are -US$2 lower today at just over US$61.50/bbl in the US and the international Brent price is just on US$64.50/bbl.

The Kiwi dollar is now at 58.7 USc, down -40 bps from yesterday at this time. Against the Aussie we are down -10 bps at 91.7 AUc. Against the euro we are down -30 bps at 52.5 euro cents. That all means our TWI-5 starts today just over 67.2 and down a net -40 bps from this time yesterday.

The bitcoin price starts today at US$104,020 and up +0.8% from yesterday. Volatility over the past 24 hours has remained modest at just under +/- 1.2%.

The easiest place to stay up with event risk is by following our Economic Calendar here ».