World economy in strong upswing

Kia ora,

Welcome to Monday'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 a sharp V-shaped economic recovery is worldwide now, making the 2020 downturn one of the shortest recessions on record.

In China, their tax take is recovering sharply in 2021, basically split between Beijing and local governments. Income taxes are up an impressive +27%, and their GST is up +24% year-on-year. This is clear evidence the Chinese economy is on a good upswing.

In Japan, there is also some evidence that consumers are feeling more bullish that they have for a long time.

In Europe, we may be seeing a revival in their overall economy too. The May flash PMIs shows demand surging at its fastest rate for 15 years. Both manufacturing and services are benefiting, with strong rises for new orders, and employment growth seems to be following. They also recorded their sharpest rise in output price inflation on record. The German rise is at the core of these gains, although other countries are now showing faster expansions. The UK and France are among them.

All this positivity among business prospects is improving consumer sentiment - but they haven't yet got to the stage where optimists outnumber pessimists. A net scepticism still pervades Europe's consumers.

Globally, iron ore and copper prices look like they have topped out. And shipping prices are showing the same. After hitting an index level of 3200 and its highest in more than ten years, the Baltic Dry Index has settled back to over 2800.

In the US. the latest May updates of factory PMI's shows them expanding faster, in fact to a series high. And their service sector is expanding faster than that. Both are in full recovery mode. With all key categories rising (new orders, employment, etc.) the main interest in these surveys is on the price pressures. This survey noted: "The steep rise in costs fed through to the sharpest increase in output charges since data collection began in October 2009, with record rates of inflation registered for both goods and services as soaring demand boosted firms’ pricing power." The inflation genie may be out of the bottle.

But some Fed officials are now warning that a softer period may be ahead - especially for employment.

Consumers may be flush and buying, and factories roaring - but there was a surprise in their residential real estate market. April sales volumes were expected to rise +2%, but the data shows they actually fell -2.7%. April was supposed to bounce back from the -3.7% retreat in March but it compounded the earlier month fall. That is six straight months of declining sales since October 2020. It is as though Americans are shunning their housing market as mortgage rates start to rise - even though those rises are quite minor. "Supply" has been the excuse for a while now and that may actually be the case. Median prices are +19% higher than a year ago.

Canadian retail sales in March were stronger, up at an annual rate of +3.6% when a +2.3% rise was expected. (The year-on-year gains is pandemic-affected of course.) From March 2019 they are up +8.6%.

The UST 10yr yield starts today softish at 1.62% from this time Saturday. 

The price of gold starts today up at US$1881/oz, a rise of +US$39 in a week.

Oil prices start today marginally firmer at just under US$64/bbl in the US, while the international Brent price is just over US$66.50/bbl.

The Kiwi dollar opens today at 71.7 USc. Against the Australian dollar we are at 92.7 AUc. Against the euro we are at 58.9 euro cents. All of these levels are unchanged from where we left them on Saturday. That means our TWI-5 starts today still at 73.3 and a -1.1% weekly devaluation.

The bitcoin price is now at US$33,021 and another -7.5% drop from this time Saturday. Volatility in the past 24 hours has still been extreme at +/- 11.3%. The Bitcoin price has fallen -27% in just one week, -35% in a month.

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.