Volatility rises for high asset prices

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 you may have "sold in May and gone away" after the past week's swoon.

Then you would have missed the overnight equity recovery where some investors were determined to "buy the dips". Wall Street is making the Friday -1.3% dump back, and more - and ignoring the huge -3.3% retreat in Tokyo earlier. The Tokyo drop was said to be triggered by rising short term interest rates in the US, so the question is, why is Wall Street rising now? Mainly it in those sectors that benefit from the reflation trade.

In the US the Chicago Fed's national activity index reported a broad gain in May with all components rising - except personal spending which took a breather. Sales, production and employment categories all rose and reversing the April declines.

In Taiwan, their export order growth in May tailed off a bit from its +43% raging increase in April. The May rise is 'only' +35% year-on-year (or up +38% from May 2019).

Australian retail sales rose less than expected in May. The snap lockdown in Melbourne in that month kept things restrained. A national rise of +0.5% from April was expected but it came in at +0.1%. However, the -1.5% fall in Victoria was offset by +1.5% rises in Queensland and Western Australia. Separate NSW data wasn't released. Year-on-year the national retail sales were +7.4% higher than for May 2020. Compared with May 2019 the May 2021 sales are 13.6% higher.

And staying in Australia, the return of Barnaby Joyce as deputy Prime Minister and leader of the Country/National Party is a win for coal miners and the fossil fuel industry generally. It will be interesting to see how Prime Minister Scott Morrison squares his commitments at the G7 on limiting GHG emissions with his new coalition partner's stance. An early election in Australia is one option. In any event, the climate policy wars are likely to heat up across the ditch for a while with this rearguard activity.

Wall Street has started their week on a positive note, up +1.4% in afternoon trade. Overnight, European markets set the tone with a +0.6% rise on most exchanges, except Frankfurt which was up +1.0%. Yesterday the very large Tokyo market turned in a shocker, down -3.3%. Hong Kong was down -1.1%. But Shanghai managed to hold its own (+0.1%). The ASX200 ended with its own awful -1.8% drop while the NZX50 Capital Index ended with a -0.4% slippage.

The UST 10yr yield starts today up +4 bps at 1.48%. 

The price of gold starts at US$1784/oz which is up +US$20/oz from this time yesterday.

Oil prices are a lot stronger in the US at just on US$73/bbl which is a +US$2 daily rise, while the international Brent price is just on US$74/bbl which is a +US$1.50 gain.

The Kiwi dollar opens today back up at 70 USc and a full +¾c overnight recovery. Against the Australian dollar we are firmish at 92.8 AUc. Against the euro we are also firmer at 58.7 euro cents. That means our TWI-5 starts today at 72.4 and where it was at on Friday.

The bitcoin price is now at US$32,463 and down another -6.0% from this time yesterday. Volatility in the past 24 hours has been extreme at +/- 6.9%. In China, their central bank has told banks and Alipay to be more aggressive in cracking down on crypto currencies.

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.