Aussie rate cut hopes fade

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 expectations for a rate cut any time soon in Australia have faded significantly after the RBA's MPS yesterday.

But first, the overnight dairy auction brought slightly lower prices overall, down -0.5% although they were unchanged in NZD terms. WMP was sold in to weakish demand and ended down -2.5%. SMP fared better, rising a minor +0.7%. But the star of the show was demand for butter, up +6.2% to a new all-time record high in both USD and NZD. Volumes offered and sold at this event were quite low at 16,800 tonnes; in fact a four year low.

Moving on, in the US last week's retail sales at physical stores rose to be up +5.9% from year-ago levels, a rise from the prior week. But that was overshadowed by the May official retail sales data that was only up +2.3% from a year ago, up only +0.1% from April. And if it wasn't for good car sales it would have been less.

On the other hand, US industrial production rose more than expected in May, up +0.9% from April to end two months of weaker results

US business inventory levels were reported for April, and while they rose slightly, they actually fell in relation to current sales to remain at unconcerning levels.

Today's relatively small but still well supported US Treasury 20 year bond auction brought a lower median yield, down to just under 4.40%, -19 bps lower than the prior equivalent event a month ago.

In China, the wealthy are shipping out, it seems. China saw the world's biggest outflow of high-net-worth individuals last year and is expected to see a record exodus of 15,200 in 2024, dealing a further blow to its economy.

And homeowners with mortgages in China are prioritising paying them off faster as values sink. Owning your own home is now perceived as a liability, not an asset.

In the EU, CPI for May was confirmed at +2.7%. However, we should note that the ZEW Indicator of Economic Sentiment for the Euro Area surged in June to its highest since July 2021, and firmly above what was expected. That has built into nine consecutive months of rising EU business sentiment.

Yesterday's RBA monetary policy review indicated that rate cuts are further away than anticipated. Markets no longer have any cut priced in until mod 2025 now.

And the OECD says high school students in Singapore, Korea, Canada, Australia, New Zealand, Estonia and Finland were in the highest-performing education systems in the first-ever creative thinking assessment under the OECD’s Programme for International Student Assessment (PISA). Results of the global 2022 assessment, to understand the skills of 15-year-old students in 64 countries and economies worldwide, show that students in high-performing education systems are not only succeeding in standardised mathematics, reading and science tests, but also in new creative thinking tests.

On the other hand we should note that New Zealand doesn't rank highly in the latest World Competitive Rankings, slipping one place in 2024 to 32nd (out of 67 in the survey).

The UST 10yr yield is now at 4.22% and down -6 bps from this time yesterday.

The price of gold will start today up +US$11 at US$2328/oz.

Oil prices are up +US$1 at US$80.50/bbl in the US while the international Brent price is now just under US$84.50/bbl.

The Kiwi dollar starts today a little firmer at just under 61.5 USc. Against the Aussie we are -¼c softer at 92.4 AUc. Against the euro we are marginally firmer at 57.2 euro cents. That all means our TWI-5 starts today essentially unchanged at just on 70.9.

The bitcoin price starts today at US$64,612 and down -2.6% from this time yesterday. Volatility over the past 24 hours has again been moderate at just on +/- 2.3%.

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.