China's trade healthy

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 

China's export trade boom is holding up well.

But first, American consumer credit grew by just +US$19 bln in April from March and less than expected. Compared with April 2019, it was +4.2% higher (with the 2020 comparison essentially meaningless).

Meanwhile, Janet Yellen has been pointing out that the enormous "US$4 tln Biden Budget" is over a ten year timeframe and involves increased spending of about US$400 bln per year. She said that while that may put some upward pressure on inflation, in terms of the size of the US economy that will be relatively minor.

China reported a May trade surplus of +US$45.5 bln which was slightly lower than expected as imports grew faster than exports. Their surplus with the USA was +US$31.8 bln as the improving American economy swelled it. It's deficit with Australia was -US$8.7 bln as the new "iron ore" is natural gas. Its May deficit with New Zealand was -US$830 mln. Of course, year-on-year comparisons suffer from the pandemic base issue. So it is best to compare with May 2019. In that basis, China's surplus is +9% higher and the surplus with the USA is much higher now than the 2019 +US$26.9 bln. Tariffs failed, and as any Econ101 student could have forecast; it was the American who paid the imposts. The US is transitioning to compete on product features and supply-chain security, a much more promising strategy.

China's May foreign currency reserves rose marginally to US$3.22 tln or 22.2% of GDP (11.2 weeks) but just slightly down from 22.4% of GDP this time last year.

In Australia, another services PMI survey for May confirms a fast-expanding sector and its strongest in 18 years. Prices are still rising abut perhaps the increases have peaked. Wages paid however are now rising faster.

And Aussie job ads are rising faster and are at a 12 year high, pointing to a continued rapid tightening in their labour market and a steady fall in their jobless rate (5.5%) but which is still higher than New Zealand (4.7%).

Australia's rural economy is firing on all cylinders, but hindered by China's concerted efforts to handicap it. Dams are filling and the mood is lifting as a bumper harvest drives a forecast record agricultural haul in 2021, a sharp turnaround from the past three years of decline. Production is expected to hit AUS$66 bln but exports are expected to fall to AU$46 bln. They expect things to improve next year however.

Ratings agency S&P has affirmed Australia's credit rating as AAA and improved its outlook to 'stable'. This is similar to the Moody's rating. Moody's also rates New Zealand as Aaa, but S&P rates New Zealand one notch lower at AA+ and with a 'stable' outlook.

The UST 10yr yield starts today still at 1.57%.

The price of gold starts today at US$1897/oz, and up +US$5 overnight.

Oil prices start today just marginally softer at just over US$69/bbl in the US, while the international Brent price are just under US$71.50/bbl.

The Kiwi dollar opens today marginally firmer at 72.4 USc. Against the Australian dollar we have firmed slightly to 93.3 AUc. Against the euro we are at 59.4 euro cents. That means our TWI-5 starts today at 73.9.

The bitcoin price is now at US$35,684 and down a minor -0.9% than this time yesterday. Volatility in the past 24 hours has been moderate at +/- 2.2%.

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.