Commodity prices sag and takes the NZD with it

Kia ora,

Welcome to Tuesday’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 it’s been a toughish night for commodity currencies as markets mark down these prospects. That has been true for both hard and soft commodities, although it is more of a sag than a significant fall.

In the US, the Chicago Fed's National Activity Index rose again, although this time it was minor. But the May index was revised higher. That makes it three rises in the past six months, and is a sharpish positive change from a year ago. This is actually an important indicator but one that is usually ignored by markets.

In Japan, the newt meeting of their central bank is Wednesday, July 31. It has been widely expected they would raise their policy rate and make other moves toward normalisation, largely because their long-held goal of getting moderate inflation embedded seems to have been achieved. But now they are giving unofficial signals that there may be [yet another] delay because household consumption is not improving as they want.

Taiwanese export order growth eased in June, rising 3.1% year-on-year, but that missed expectations of a +12% rise. The miss is largely due to lower orders from Japan. You may recall that May orders rose 7% on this year-on-year basis.

Today is Budget day in India. This one may reflect the pressures on Modi from his coalition support parties, the ones he needed to stay in power. This price may not be 'cheap' and if it does seem excessive, there could well be financial market reactions.

The People's Bank of China unexpectedly cut key lending rates by -10 bps to fresh record lows. The 1-year loan prime rate (LPR), the benchmark for most corporate and household loans was cut to 3.35%. Meanwhile, the 5-year rate, a reference for property mortgages, was trimmed to 3.85%. Yesterday's decision came days after the Third Plenum meetings at the end of last week, and follows a slew of data that indicated the Chinese economy continues to lose steam. At the same time, the central bank reduced its collateral requirement for its MTF facility. What we are seeing is a skew to short-term priorities.

And staying in China, they are grappling not only with a fast-aging population, but an out-of-balance retirement age. Chinese men 'retire' at age 60, women at 50 to 55. By 2035 more than 30% of the population is expected to be at that age. Even though retirement support programs are skinny, these ages will have a dramatic impact sooner than many realise. But Beijing realises. And it moved at the Third Plenum meeting to raise that age. However the messaging is subtle because it is widely expected to generate substantial pushback among those affected. Demographics is destiny, and China won't have gotten rich like Japan before these trends become very difficult to manage, so their options are closing fast.

In the EU, the ECB's survey of professional analysts suggests markets expect them to make only begrudging progress against inflation, but progress none-the-less. It won't be until 2025 that inflation hits 2% these analysts suggest. They haven't changed their view on economic growth in the region with tepid +1.3% real growth in 2025. But they do see 'better' progress battling unemployment even though the levels will remain relatively high by international standards (6.4% in 2025).

The CrowdStrike IT disaster is still lingering, especially in the travel industry. It has raised many questions. One is, who will pay? That now largely seems to be insurers, and that has implications for premiums and coverage in the future.

The UST 10yr yield is now at 4.26% and up +2 bps from this time yesterday. 

The price of gold will start today down -US$6 from yesterday at US$2393/oz.

Oil prices are -50 USc lower at just over US$78/bbl in the US while the international Brent price is just on US$81.50/bbl.

The Kiwi dollar starts today down more than -¼c at 59.8 USc as commodity currencies take a hit. Against the Aussie we are still at 90 AUc. Against the euro we are also down more than -¼c at 54.9 euro cents. That all means our TWI-5 starts today at 68.8 but down -20 bps from yesterday.

The bitcoin price starts today at US$67,370 and up +1.0% from this time yesterday. Volatility over the past 24 hours has been moderate at just on +/- 2.0%.

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.