Here's our summary of key economic events overnight that affect New Zealand with news the new Biden Budget charts a sharply different path for the US.
But first in the US, household personal income fell by less than expected in April as pandemic support started to be withdrawn from households. Personal spending was unaffected by that pullback, rising the expected +0.5% as their jobs market picked up strongly and covered the transition.
However most economic interest in this data was on the PCE number for April, the inflation measure the Fed is reportedly more focused on for policy reasons than the CPI. It was up +3.6%. That was lower than the March level which was revised up to +4.7% (The April CPI was +4.2%.)
In the industrial heartland of America, the latest Chicago PMI paints a buoyant picture, reaching its highest level since November 1973. Demand provided a boost to business activity, but supply chain constraints remain. Among the main five indicators, New Orders and Order Backlogs saw the largest gains. Prices seemed less of an issue overall, and the Jobs indications weren't strong.
The latest American consumer sentiment survey keeps the level unchanged from their mid-month reading, but down from April. And the resurgent strength of the economy produced more immediate gains in demand than supply, causing consumers to expect a surge in inflation. Overall sentiment is much improved since January, but is still not back to pre-pandemic levels.
The new US Administration has launched its Budget with projections of spending and deficits out to 2035. The numbers are very large. It's been called a spending surge, but actually in 2020 and 2021 US Government spending ran at 32% of GDP whereas this budget takes it back to about 24%. What will be rising are taxes, from 16% of GDP to just under 20%. Both are still low by international standards. (New Zealand runs at 33%, and we are mid-pack.)
There is already partisan pushback. Maybe because it includes a massive +US$13 bln extra for the IRS for increased oversight of high income and corporate tax returns to ensure compliance; provide new and improved online tools.
The US budget deficits are expected to run at about -US$1.4 tln per year over that period and that is about -5.6% of US GDP, falling to under -4.6% by 2027. (See page 37.) (For 2022 the deficit is -US$1.8 tln.) For perspective, the New Zealand budget deficits are expected to run at -4.5% of GDP this year and -5.2% next year. Both governments are weighing against the damage the pandemic has done, and the US is also weighing against the damage done by the previous administration. Both will take years to rectify.
The US dollar is falling against a resurgent Chinese yuan, dipping to 6.37 to the US dollar now and back to levels last seen three years ago. The appreciation of the yuan will suppress their trade surpluses but it will also suppress inflationary impulses building quickly in the Chinese economy. To combat the natural instinct to import more, Beijing may have to adjust its opaque border and customs policies if the rush gets too unseemly, but that will be done secretly given its public commitment to its trade and tariff agreements, including the one with New Zealand.
Exporters in Guangdong province are facing a new threat. Not only is a rising yuan trouble for them, rising material costs are too, as are shipping costs, and now they face electricity rationing. Demand exceeds supply and that may mean more coal-fired production.
And so far, we are not seeing the price of key industrial commodities like iron ore or coal falling in price after last weekend's warnings from Beijing. However, shipping costs are easing, even if only slightly.
Flooding in the Yangtze River basin is an annual threat, but like last year, this year is also shaping up to be especially damaging.
In the EU, a strong improvement in business sentiment has been recorded in May and there are now many more optimists than pessimists in their commercial sector - unlike their consumers who are still net negative about their economy and economic prospects. However, that net negativity is evaporating fast in the EU.
In Australia, the Victorian pandemic lockdown is featuring a fast growing list of exposure sites. And it is happening at the same time the Canberra government is being accused of complacency.
On Wall Street, the S&P500 up +0.3% today in afternoon trade. That means it added almost +US$½ tln in value over the past week with a +1.4% gain. However most of that just makes back losses during the rest of May and it is heading for a tiny May gain of +0.7% of +US$¼ tln in capitalisation. Overnight, European markets rose about +0.8% with the exception of London which was unchanged. Yesterday the very large Tokyo market had a very strong day, rising +2.1% on the day and ending the week with a +2.9% gain. Hong Kong however closed flat on the day to book a weekly gain of +2.3%. Shanghai ended its Friday session down -0.3% for a weekly to lock in a weekly gain of +3.3%. The ASX200 ended at a record high, adding +1.2% in the Friday session to lock in a +2.1% weekly rise. But the NZX50 Capital Index couldn't match any of that. It fell -0.5% yesterday, adding to a weekly loss that ended down at -2.3%. So far in 2021 the NZX50 Capital Index has lost -11% overall.
The latest global compilation of COVID-19 data is here. The global tally is still rising, now 168,130,000 people have been infected at some point, up +577,000 in one day. India is on track to pass the US, as the country that has had the most infections, by the end of June. Global deaths reported now exceed 3,514,000 and up +12,000 in a day. Vaccinations in the world are still rising but at a slower pace, now up to 1.81 bln. In the US half of their population (50.5%) have had at least one dose. More than 40% of Americans have been fully vaccinated (134.4 mln people). The number of active cases there has fallen to 5,692,000 with fewer new infections than recoveries recently and steady if slow progress.
The UST 10yr yield starts today -3 bps lower at 1.58%. The US 2-10 rate curve is at +144 bps and a bit flatter that this time yesterday. Their 1-5 curve is at +75 bps and flatter, while their 3m-10 year curve is at +158 bps and also flatter. The Australian Govt ten year benchmark rate is up +2 bps at 1.63%. The China Govt ten year bond is also up +2 bps at 3.11%. However, the New Zealand Govt ten year is down -2 bps at 1.88%.
The price of gold starts today up at US$1902/oz, a gain of +US$5 since this time yesterday. Over the past week, the gold price has risen +US$24 or +1.3%.
Oil prices start today little-changed at just under US$66.50/bbl in the US, while the international Brent price is just over US$68.50/bbl.
The Kiwi dollar opens today lower against a sinking greenback, now at 72.5 USc and almost a -½c retreat. Against the Australian dollar we are down at 94.1 AUc. Against the euro we are down at 59.4 euro cents. That means our TWI-5 starts today at 74.1, still well above week-ago levels but by much less than yesterday.
The bitcoin price is now at US$35,301 and a sharp -9.9% drop from this time yesterday. Volatility in the past 24 hours has still been extreme again at +/- 5.7%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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