Global economy on the mend

Kia ora,

Welcome to Wednesday'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 that is generally positive and sees good progress in mending the global economy

The US trade deficit in goods and services remained high in April but it shrank from March as exports rose and imports fell. However year-on-year it is higher and now represents a deficit over the prior twelve months of -3.5% of GDP. A year ago it was -3.0% of GDP. Neither is a severe imbalance for such a large economy.

The latest April data for job openings records an American labour market on the rise with many more unfilled positions and a record number of positions awaiting to be filled.

The US Treasury auctioned US$66 bln in a three year bond overnight, and the Fed took only $5 bln of it, a recent low. The US$58 bln available to the public was very well supported getting US$143 bln in bids. The median yield was 0.295% pa, down from the prior equivalent 0.35% pa a month ago.

Japan announced an 'upgrade' to its Q1-2021 economic data overnight. Originally it has reported a -5.1% annualised rate of shrinkage. But that has now been reduced to shrinkage at an annual rate of -3.9% as it turns out domestic demand was better than first estimated.

In Germany, even though a key survey has found firms more upbeat about their current conditions, the same survey took an unexpected turn lower from a high level when it comes to how these firms see the future.

Business conditions in Australia rose to a fresh record high in May driven by further gains in every key component. But unlike in other countries, the prices aspect isn't zooming higher, not yet at least. A key aspect is the strong pickup in business investment, a positive portent for productivity. NAB is also saying the Australian economy is now larger than pre-pandemic, and the Q2-2021 growth will be strong.

The global air cargo trade rose sharply in April. Compared with April 2019 (which bypasses the pandemic impact), air cargo volumes were +13% higher in international markets, a remarkable improvement. In the Asia-Pacific region the rise was +9.2% on the same basis. The spike in prices we saw when stress levels were high seems to have dissipated.

And the World Bank says the global economy is set to expand +5.6% in 2021, its strongest post-recession pace in 80 years. But this recovery is uneven they say, and largely reflects sharp rebounds in the major economies, especially the US and China.

The May global food price rise is the biggest month-on-month gain since October 2010. It also it’s twelfth consecutive monthly rise and its highest value since September 2011 and now close to its all-time high registered in February 2011. The sharp increase in May reflected a surge in prices for oils, sugar and cereals, along with firmer meat and dairy prices. This is just another element of the broad surge in commodity prices. Semi- precious metals like copper are staying very high. Iron ore and coal prices are also staying high - even the command-economy mandarins in Beijing can't seem to get them reduced in a market that where high demand and limited supply is calling all the shots.

The UST 10yr yield starts today down -4 bps at 1.53%. 

The price of gold starts today at US$1893/oz, and down -US$4 overnight.

Oil prices start today just marginally firmer at just over US$69.50/bbl in the US, while the international Brent price is just over US$71.50/bbl.

The Kiwi dollar opens today almost -½c weaker at just under 72 USc. Against the Australian dollar we have fallen to just under 93 AUc. Against the euro we are down at 59.1 euro cents. That means our TWI-5 starts today at 73.5 and about where it was this time last month.

The bitcoin price is now at US$32,027 and down an eye-catching -10.2% than at this time yesterday. Volatility in the past 24 hours has been extreme at +/- 7.7%.

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.