Economic threats linger

Kia ora,

Welcome to Friday'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 economic threats to recovery are just not fading as fast as we need.

American unemployment claims jumped last week to 406,000, an unexpected turn higher. That took the total number of people on these benefits to 3.25 mln and a net rise of +100,000, also unexpected. Until this level gets down to 2 mln, the pandemic impact on their labour market won't be behind them.

Housing market sales in the US rose to about the expected level in June but it was a modest gain. A slowly improving rise in supply allowed the gains. But things are more spectacular on the pricing front with the median now US$363,300 (NZ$521,200) which is a startling +23% higher than a year ago - although some of this is because single family homes are in higher demand than condos and apartments, so the mix has shifted.

The Chicago Fed's national activity index suggests that economic activity moderated somewhat in June.

Meanwhile, the Kansas City Fed factory survey for July is positively glowing. Almost 90% of firms reported supply chain issues and a similar proportion reported labour shortages. Many have increased overtime for current workers and are raising starting wages to attract workers.

In Canada, the cost of housing will have a larger influence in how Canada’s main gauge of inflation is constructed. The shelter component of their CPI, which includes both owned and rented housing, along with other expenses, will comprise 29.8%t of the basket, up from 26.9%. Most of that increase is due to a sharp uptick in spending on real estate commissions and legal fees, owing to record transactions across the country. (In New Zealand, the equivalent portion is 28.0%.)

Housing won't be the largest influence on consumer prices soon. It is becoming clearer that northern hemisphere droughts are going to have very large impacts on food prices over the next year or so. China is scrambling to buy as much as it can, and yields are expected to drop sharply in the traditional food producing regions of North America.

In China, the Yellow River flooding emergencies are not fading. And now a typhoon is approaching the Yangtze River delta area and Shanghai which has authorities on high alert.

The Indonesian central bank reviewed its policy rates yesterday and left everything unchanged. But oddly, it raised its growth forecast slightly for 2021/22 because it expects their government to ease pandemic restrictions early despite the country having one of the world's worst coronavirus outbreaks.

The ECB also reviewed its policy positions overnight, and they too left them unchanged. They are sticking with negative rates in their push to re-ignite inflation.

The UK has asked Brussels to renegotiate its Brexit deal because it is finding it too hard to live with, especially in Northern Ireland. It is getting no interest from EU members however.

In Australian their June 2021 exports topped AU$41.3 bln with iron ore and other dug-up minerals making up almost half of that. These surging minerals exports allowed them to post a AU$13.3 bln merchandise trade surplus in the month.

The UST 10yr yield starts today at just on 1.26% and a -3 bps turn down. 

The price of gold is now just on US$1806/oz which is up +US$4/oz from this time yesterday.

Oil prices have risen by another +US$1.50 so in the US they are now just over US$71.50/bbl, while the international Brent price is now just over US$73/bbl.

The Kiwi dollar opens today just under 69.7 USc and unchanged since this time yesterday. Against the Australian dollar we are softish at 94.5 AUc. Against the euro we are firmish at 59.3 euro cents. That means our TWI-5 starts today unchanged at 72.8.

The bitcoin price is now at US$32,281 and up a minor +0.7% since this time on yesterday. Volatility in the past 24 hours has been moderate at just over +/- 2.0%.

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 on Monday.