US recession fears overstated, apparently

Economy Watch

Kia ora,

Welcome to Wednesday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.

I'm David Chaston and this is the international edition from Interest.co.nz.

Today we lead with news global equity markets have essentially bounced back, consigning the Monday ructions to just a 'summer wobble'.

But first up, there was another full dairy auction earlier today. It was a much larger event with more than 35,000 tonnes sold. Overall prices rose +0.5% from the prior full event three weeks ago. More than a quarter of the volumes were for SMP which fell -2.7%. More than a half were for WMP which rose +2.4%. The rest of the products offered brought variable results too. Although the result was little-changed in USD, the much lower NZD brought a +1.9% rise in local currency.

Globally, world food prices are low and little-changed. If any category is changing, it is a slight uptick in meat prices.

In the US, the data released overnight was largely positive, assisting the financial market recoveries. The US Redbook index of retail sales at physical stores was up +5.1% last week from a year ago, rising from the prior week.

Their Logistics Managers Index (LMI) rose more than expected showing their logistics industry expanding more than expected in July and at a good clip.

The RCM/TIPP Economic Optimism Index for investors rose in August to its highest in seven months.

And US exports for both goods and services rose more in June than imports, allowing their trade deficit to ease back slightly. Those exports are now +5.9% higher than year-ago levels. As we have noted before, this deficit is just a rounding error for the giant US economy, even if it is a political football.

While none of these overnight data releases on their own are terrible important, the combination supported the sharp mood change. The earlier suggestion of imminent recession in the US may only have been from summer keyboard warriors.

Canadian exports also rose notably in June to be +10.6% higher than a year ago.

I know we have mentioned this before, along with the reasons, but the Chinese steel rebar price is turning into a bit of a rout, with extended sharp dives. It is now down almost -23% lower than year-ago levels. The copper price is wavering too.

In fact, aggressive price discounting in many Chinese sectors has become the norm there casting a pall over general business conditions. It probably can't go on like that without widespread enterprise failures.

Elsewhere EU retail sales volumes fell in June after the small rise in May. Most countries in the bloc struggled, but Spain, Portugal and Denmark were among the few that bucked the trend.

Yesterday the RBA left its policy rate unchanged at 4.35%. But its accompanying commentary was direct and specific; they haven't beaten inflation yet and the progress they may have made isn't sufficient. It was a hawkish hold. Markets bid up yields on benchmark bonds following the statement. The AUD rose. (And that pushed the NZD down.) It seems there will be no rate cuts in Australia in 2024. What will now be of interest is whether financial markets take the RBA guidance on board in its pricing.

Later this morning StatsNZ will release the June labour market report. Our unemployment rate is expected to come in at 4.7%, a rise from 4.3% in Q1. That would be an increase of +10,000 more people without jobs in the quarter. But it could be more than that. The rise of those on JobSeeker benefits was +8,450 in the same period but not everyone who is jobless claims for those benefits. But a notable rise above a 4.7% rate would probably be influential in the next week's RBNZ considerations (even if there is no longer a jobs mandate).

The UST 10yr yield is now at just on 3.88% and up +11 bps from yesterday.

The price of gold will start today down -US$12 from yesterday at US$2391/oz.

Oil prices are +50 USc firmer at just under US$73/bbl in the US while the international Brent price is just over US$76.50/bbl.

The Kiwi dollar starts today up +¼c from this time yesterday at just on 59.6 USc. Against the Aussie we are down -20 bps at 91.1 AUc. Against the euro we are up +30 bps at 54.5 euro cents. That all means our TWI-5 starts today at 68.2 and up +20 bps.

The bitcoin price starts today at US$56,690 and up +3.9% from where we left it yesterday continuing the recent volatility. In fact, the volatility over the past 24 hours has been very high, at +/- 4.2%.

You can find links to the articles mentioned today in our show notes.

You can get more news affecting the economy in New Zealand from interest.co.nz.

Kia ora. I'm David Chaston. And we will do this again tomorrow.