The US Fed worried about lack of inflation progress

Kia ora,

Welcome to Thursday’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 the American central bank is wondering if they have done enough yet to quash the inflation impulse.

But first, US mortgage applications rose +1.9% last week from the previous week, adding to the 0.5% increase from that earlier week and taking it to an unusual third consecutive week of gains in mortgage demand and only the second time this year that has happened. But they remain -11% lower than last year's weak level. Benchmark home loan rates slipped slightly (-6 bps) to just on 7%.

But the recent rise in existing home sales fell back in April, down -1.9% from a year ago and also down -1.9% from March. It would have been a larger fall, but a surge of homes selling at the high end of the market capped the weakness. These are transactions less likely to need a mortgage. And that recent trend is also raising the median price.

Yesterday's RBNZ scepticism that they are seeing needed 'last mile' progress in the inflation battle has been echoed by the US Fed in the minutes released earlier today for their May meeting. Getting to their target will take longer than they thought, these notes show. Some officials are open to another rate rise if needed to get on top of the stickiness. But in the end they stuck with their faith that disinflation will get them there. The equity market slipped when this document was released.

Prior to that release, the US Treasury had another very successful bond auction, for a 20 year maturity, and that delivered a median yield of 4.58%, down from 4.77% at the prior equivalent event.

Japan's machinery orders rose +2.9% in March from February, slowing from the +7.7% m/m gain in February but way better than market expectations which assumed a March correction was likely of -2.2%. Year-on-year March was up +11%. Their forecasts suggest the high levels of orders will be maintained in the coming three months. Of note is that orders for very large constructions (not included above) are running very strongly at present.

But in China, their excavator sales - a market canary - fell almost -10% in the first four months of 2024, with domestic sales down -3% and export sales down -17%.

In the UK, their CPI inflation rate eased to 2.3% in April, its lowest level since July 2021. However that was higher than the 2.1% rate expected. But that progress was overshadowed by the announcement that that country would go into an election on July 4, 2024. That is much earlier than expected. The UK pound rose on the news. There is currently expected to be a change of government at that election.

Some Australian survey data shows that most 45 year old Aussies plan to retire soon after they reach 65. That is unchanged since 2018/19. There are now 4.2 mln retirees in Australia. Given their workforce is 14.3 mln, that means there are currently 3.4 workers per retiree. The same ratio in New Zealand is 3.3.

The UST 10yr yield is now at 4.43% and up +1 bp from this time yesterday. 

The price of gold will start today down -US$33 at US$2387/oz.

Oil prices are down another -US$1 at US$77.50/bbl in the US while the international Brent price is down a bit more to US$81.50/bbl.

The Kiwi dollar starts today up only a net +10 bps from yesterday at just on 61 USc. Against the Aussie we are much firmer, up more than +½c at 92 AUc. Against the euro we are firmish at 56.3 euro cents. That all means our TWI-5 starts today just on 70.3, and up +20 bps from yesterday.

The bitcoin price starts today at US$69,853 and up a mere +0.2% from this time yesterday. Volatility over the past 24 hours has been modest at just on +/- 1.0%.

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.