Investors cautious despite strong data

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 while the global recovery is certainly underway, investors seem nervous about where to from here.

The Conference Board is reporting high but unchanged American consumer sentiment levels in May.

Sales of new single family home sales in the US stumbled in April, mirroring the hesitation in the existing homes market. After jumping to a new higher level in June/July 2020, it has been a slow trend shift lower since. And the level of unsold units is creeping up. Meanwhile, March brought a high annual rate of price growth in home prices, up +13.2% pa and the highest since December 2005, according to the Case-Shiller index.

The next US regional Fed manufacturing survey, this one from the Richmond Fed, shows activity is holding high in May, but that price pressures are unusually extreme. Employment levels are little-changed.

There was a UST 2yr note auction earlier today and yields fell. This one went for +0.11% pa for the US$71.6 bln offered (the Fed took US$11.6 bln). At the prior equivalent auction the yield was 0.15% for identical amounts raised.

The Chinese yuan has hit its highest level against the US dollar in three years, as it appears Beijing is using the appreciation as a way of limiting inflationary pressures at home. But it will have a tough impact on their goods exports if they keep this up. It won't hurt New Zealand exports however.

And after falling marginally on Monday (and many media reports highlighted that slip) the iron ore price resumed yesterday with a small rise on Chinese futures markets. Given Beijing's weekend instructions, that rise is something unexpected. The same turn higher happened for coking coal prices.

Singaporean industrial production data for April disappointed, undermined by an unexpectedly large fall in their biomedical sector.

In Germany, sentiment among managers has improved considerably. A widely-watched survey reached its highest value since May 2019. Companies were more satisfied with their current business situation. They are also more optimistic regarding the immediate future. The German economy is picking up speed.

The OECD is reporting that the international in goods reached record levels in Q1-2021. The rises was fast. Compared with the previous quarter, exports and imports increased by +8.0% and +8.1%, respectively. Prices for agricultural commodities, including cereals and vegetable oils, increased by over +10%. They say the UK was the only G20 economy to record negative merchandise trade growth, both for exports (-5.7%) and for imports (-10.5%).

The UST 10yr yield starts today -5 bps lower at 1.56%. 

The price of gold starts today up at US$1899/oz, a rise of +US$16 today. And that is a five month high.

Oil prices start today unchanged at just under US$66/bbl in the US, while the international Brent price is just under US$68.50/bbl.

The Kiwi dollar opens today marginally firmer at 72.3 USc. Against the Australian dollar we are up at 93.2 AUc. Against the euro we are unchanged at 59.1 euro cents. That means our TWI-5 starts today at 73.7.

The bitcoin price is now at US$37,936 and a trivial +0.4% higher than this time yesterday. However, volatility in the past 24 hours has still been very high at +/- 4.8%.

Locally today, there are some major economic events due, including a Fonterra update and a Reserve Bank monetary policy statement. We will have full coverage.

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.