Climate and economic activity heating up

Kia ora,

Welcome to Tuesday's Economy Watch where we follow the economic events and trends that affect New Zealand.

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

Today we lead with news the American middle classes are expecting significantly higher pay and higher costs in 2021.

But we start today noting the IPCC's latest peer-reviewed update, which says there’s already enough greenhouse gas in the air to heat the planet by 1.5°C - which is thought to be a climate tipping point. For New Zealand, they forecast more rain in the south and west of the country, less in the north and east. They also expect more river flooding, and faster glacier retreats, with them likely to disappear during this century.

Elsewhere, the latest New York Fed consumer expectations survey for July shows consumer price inflation expectations are firmly anchored at a high +4.8% for the next year. However the same survey reveals households' expectations for year-ahead earnings growth and the likelihood of finding a job, rose sharply in July. Medium-term inflation expectation ticked up to +3.7% in three years. While remaining elevated, home price growth expectations declined to +6.0% over the coming year. Across the board, Americans expect to pay sharply more in the coming year for everything, and but expect their pay to rise only +2.9% to match that. While such surveys rarely work out with these signals, these expectations do strongly affect how people plan and react.

There is some evidence Americans may be underestimating their pay prospects. The latest JOLTS survey (for June) shows there is a surge in both job openings and quits, suggesting that labour shortages are still getting worse. While the acceleration in payroll gains in recent months suggests that is not proving as long-lasting a drag on hiring as some had feared, that is in part because employers have increased wages more rapidly that anticipated. Tighter labour market conditions will likely put more upward pressure on wages over the coming months.

China's consumer inflation came in marginally higher in July than expected, but still lower than for June. Retail prices for pork, beef and lamb are now all falling on a month-on-month basis. But their factory sector reported PPI up at +9.0% which was also higher than expected and matching the 13-year high reached in May. This is real pressure in a core component of the world's supply chain.

Analysts have noted that the weekend release of import data from China shows that copper imports fell -10% in July. That has brought a sharp retreat in the copper price today.

In Taiwan their exports rose at the same fast rate in July as they did in June. A moderating of growth was expected but hasn't happened yet. Taiwanese exports are a stunning+38% higher in July than the pre-pandemic July 2019 levels. Taiwanese imports also stayed high, indicating strong trading activity.

German export data for June was released overnight and they reported their 14th consecutive month of gains. Those export gains rose more than expected and were despite persisting supply bottlenecks. Germany depends on export demand and this gives another positive view of world trade at present even if German exports are only up +2.3% above June 2019 levels.

The UST 10yr yield starts today at 1.32% and up another +1 bp since yesterday. 

The price of gold took a bit of another hit overnight dropping right out of favour and down a further -US$33 to US$1730/oz. This time last week it was at US$1811/oz so that is a weekly retreat of -4.5%.

Oil prices are lower by -US$1.50 from this time Saturday, so in the US they are under US$66/bbl, while the international Brent price is just on US$68.50/bbl.

The Kiwi dollar opens today just on 70 USc. Against the Australian dollar we are little-changed at 95.4 AUc. Against the euro we are unchanged at 59.6 euro cents. That means our TWI-5 starts today still at 73.2 and still in the narrow range of between 72 and 74 we have been in for ten months now.

The bitcoin price has taken another step up is now at US$46,395 which is a gain of +7% from this time yesterday. Volatility in the past 24 hours has been very high at just under +/- 4.0%.

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

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

Kia ora. I'm David Chaston and we’ll do this again tomorrow.