Interest rates on move up again

Kia ora,

Welcome to Thursday'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 interest rates are on the move up again.

The closely-watched US Fed decision held all settings unchanged but there was change in their forward view. Overall, they now expect expect two rate increases by the end of 2023, an earlier date than previously indicated. Thirteen of 18 officials favoured at least one rate increase by the end of 2023, versus seven in March. Eleven officials saw at least two hikes by the end of that year. As telling, seven of them saw a move as early as 2022, up from four.

The US dollar rose on the release of these results. The UST 10yr bond yield also rose.

US housing starts stayed high in May and the April data was revised up. Building permits as an indication of the future pipeline, also stayed high. But they now say much more housing will be required "after decades of underinvestment". And that means a huge surge in the demand for timber.

In Canada, their May CPI inflation level came in higher than expected and is now running at 3.6% pa. That is its highest in ten years. Every component (and not just oil) contributed to this rise.

The growth of China's industrial production is still high but is tailing off now and at +8.8% year-on-year it came in lower than expected. Compared with May 2019, the latest data is +6.6% higher (+3.3% average per year) which in the Chinese context is somewhat underwhelming.

The growth of electricity production in China was up to +12.6% from May 2019, or an average gain per year of about +6.3%. That seems to be much faster than industrial production so it is households that are using much more (or perhaps industry is getting quickly less efficient?).

Chinese retail sales posted a good year-on-year gain of +12.3%, and from May 2019 these are up +9.3% and also a slowing in the long run.

China is ramping up its effort to control the rises in international commodity prices that is hurting it. Their National Food and Strategic Reserves Administration said overnight it will release state stockpiles of metals including copper, aluminium and zinc. Prices for these commodities fell in response on international markets. At the same time, Beijing has been advising SOE buyers to "control risks and limit their exposure to overseas commodities".

The iron ore price however hasn't yet adjusted lower.

China is pulling back at an increasing rate in its investment in international coal field development.

Wall Street is slipping today after the Fed announcement with the S&P500 down -0.4% in afternoon trade. Higher interest rates threaten the capitalisation rates of equity prices. 

The UST 10yr yield starts today up +6 bps at 1.56%. 

The price of gold starts today at US$1839/oz which is down -US$18 from this time yesterday.

Oil prices are softish at just under US$72/bbl in the US, while the international Brent price is under US$73.50/bbl.

The Kiwi dollar opens today at 70.7 USc and down -¾c since this time yesterday on the US Fed reaction. Against the Australian dollar we are softish at 92.7 AUc. Against the euro we are also softish at 58.7 euro cents. That means our TWI-5 starts today at 72.8 and a new two month low.

The bitcoin price is now at US$38,943 and down -3.6% from this time yesterday. Volatility in the past 24 hours has been high at +/- 3.7%.

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.