Above-average activity, below-average sentiment

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.

And today we lead with news business owners are having difficulty matching their sentiment with the conditions around them.

And financial markets are in a bit of a pre-dawn shadow as they await the US CPI data tomorrow. Headline CPI is expected to tick up, core inflation tick lower. Both levels will be well above the US Fed's target.

American retail sales, as measured by the weekly Redbook index for bricks & mortar stores, rose +5.4% last week from the same week a year ago, far better than inflation. Despite that, SMEs reported slipping sentiment and interestingly, labour shortages were still a key concern. So despite record job creation and high migration, small business still can't get enough people for the roles they need to fill. Twenty-five percent of owners reported few qualified applicants for their open positions and 26% reported none.

Investors on the other hand stayed much more optimistic and above average levels over the past 2+ years.

There was a US$59 bln UST 3yr bond auction earlier today and that brought slightly higher yields. Today's median yield was 4.49% and that was up from 4.21% a month ago at the last equivalent event. Investors support for this fund-raising remains very strong with offers 2½ times availability. Today almost US$87 bln in bids were unsatisfied.

Japan is said to be pondering where-to for their inflation. Wage gains have been strong this year. Since their central bank raised rates for the first time in 17 years last month and ended its massive monetary easing program, market players have been focusing on hints for the timing of the next rate hikes. They may get 2.4% inflation this year, 2% next year. These are much higher levels than they have had for the long period since the GFC.

One country making progress on inflation reduction (but not battling deflation) is Taiwan. Their CPI inflation slowed to 2.1% in March from 3.1% in the previous month and coming less than market forecasts of 2.5%.

It is election day in South Korea and the main issues are domestic ones. It is hard to predict the outcome because the electorate is split 30/40/30 conservative/moderate/liberal and few know how the moderate voters will swing this time. Anything's possible.

In Australia, business confident was little-changed in March according to the widely-respected NAB survey. Both business conditions and confidence were little changed in the month, continuing the trend of above-average activity indicators alongside below-average confidence that has defined this survey for much of the past year.

The Westpac-Melbourne Institute Consumer Sentiment index in Australia fell -2.4% to 82.4 points in April, sliding for the second consecutive month as persistent inflation and high interest rates continued to weigh on Australian households. The index has also held below 100 for over two years, the longest since the early-1990s recession.

The overnight GDT Pulse dairy auction results for both WMP and SMP basically confirmed the uptick in prices that we first saw in the full GDT event a week ago.

The UST 10yr yield is now at 4.37% and down -5 bps from yesterday. 

The price of gold will start today a little higher by +US$13 from this time yesterday at US$2348/oz and yet another all-time high.

Oil prices have slipped another -US$1 to just on US$84.50/bbl in the US while the international Brent price is now down to just on US$89/bbl.

The Kiwi dollar starts today at just over 60.5 USc and up another +20 bps from yesterday. Against the Aussie we are also a bit firmer at 91.4 AUc. Against the euro we are firmer too at 55.8 euro cents. That all means our TWI-5 starts today just on 69.5 and up +20 bps.

The bitcoin price starts today softer at US$68,790 and down -4.1% from this time yesterday. Volatility over the past 24 hours has been moderate however at just on +/- 2.8%.

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.

And join us at 2pm today when we will have full coverage of the RBNZ’s monetary policy review.

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