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Podcast: Economy Watch
Episode:

Bond yields slip despite inflation signals
Category: Business
Duration: 00:04:22
Publish Date: 2021-06-09 19:41:20
Description:

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 the bond market is no longer sending 'recovery' signals, and that is despite the growing inflation rates.

But first, US mortgage applications fell again last week, embedding a trend. Higher house prices are said to be excluding more borrowers there.

The US Treasury had another bond auction overnight, this time a smallish for their ten year Note. They offered US$41 bln and the Fed took US$3 bln. For the remaining US$38 bln they got offers of US$98 bln so it was very well supported. The median yield was only 1.44% pa however reflecting that heavy demand. The previous equivalent auction a month ago resulted in a median yield of 1.62%, so this matches the market retreats in bond yields recently, probably as a reaction to the underwhelming non-farm payrolls report.

In Canada, their central bank kept all its policy setting on hold, even though Canada is getting weaker-than-expected economic growth and hotter-than-normal inflation at this time. Their vaccination outlook keeps them confident things will pan out as they expected.

China's producer prices grew +9.0% in May from a year ago, the fastest rate of increase in 13 years and higher than the +8.5% expected. In April they rose +6.8% on the same basis, so the pace is quickening. Their consumer prices rose +1.3% year-on-year and while that was faster than for the prior month it was less than the +1.6% pa expected.

Japanese machine tool order levels came in very strong in May. Ignoring the year-ago change, the change from 2019 which was the last normalised May month, this 2021 data is almost +14% higher. So that is a healthy rebound.

On the global tax front, the G7 proposal for a 15% minimum rate on multinational companies has been pushed on to the G20 for adoption. But China is sending signals that it may not sign up, preferring to keep their heavy tax concessions for their own big tech firms "to encourage innovation", which is a national goal. China is likely to drive a hard bargain and may not even sign up. In addition, it seems the UK also wants its City of London financial business exempt as well.

Yesterday we reported a strong recovery in air cargo volumes. But the same isn't true of international passenger travel. It is still moribund. However, there are strong recoveries in domestic air travel around the globe, with May 2022 volumes now only -25% lower than in May 2019 when they were 'normal'. International travel is still almost -90% lower.

The UST 10yr yield starts today down another -4 bps at 1.49% which makes the decline in the past week -13 bps. 

The price of gold starts today at US$1891/oz, and down -US$2 overnight.

Oil prices start today just marginally firmer at over US$69.50/bbl in the US, while the international Brent price is just under US$72/bbl.

The Kiwi dollar opens today slightly softer at just on 71.8 USc. Against the Australian dollar we have fallen to just on 92.8 AUc. Against the euro we are down at 55.8 euro cents. That means our TWI-5 starts today at 73.4 and a small dip from this time yesterday.

The bitcoin price is now at US$36,550 back up +14% higher than at this time yesterday. Volatility in the past 24 hours has remained extreme at +/- 7.4%.

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.
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