Economic recovery gains momentum

Kia ora,

Welcome to Friday'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 generally positive economic news that is apparently gaining momentum.

In the US, economic activity rebounded better than expected in the first quarter on 2021, up +6.4% on an annualised basis. It built as the quarter progressed so the expectation is that Q2 is off to a flying start. And activity is probably back at pre-pandemic levels now. This rebound from the 2020 recession is very much faster than for the GFC. Whatever you think of the enormous stimulus support, it has seemed to provide a sharp V-shaped recovery and something that seemed optimistically unlikely a year ago.

American spending on services is rebounding, but it is not growing as rapidly as spending on goods, which is very sharp. And PCE prices were up at a +3.5% pa rate in the quarter. Given that PCE (personal consumption expenditure) prices are the Fed's preferred measure of inflation, and the Fed said yesterday that it will let inflation run hotter than it previously tolerated, this bolsters the view that a a period of financial repression may be ahead (inflating away the QE debt).

US initial jobless claims were marginally lower last week at 575,000, with now 3.8 mln on these benefits. Recall that 17.8 mln were on them a year ago.

Pending home sales rose in March, snapping two consecutive months of declines, but the bounce-back of +1.9% was far less than the expected +5%. Tight supply is said to be behind the miss.

In Canada, wages are still growing at a fast clip, up +9.0% in a year in February even as payroll employment rose. Higher-paid jobs were filled at a faster rate than lower-paid ones.

In Germany, there are signs of inflation too. Their April CPI was up at a +2.0% annual rate, more than expected and higher than the +1.7% rate for March. Their rise was driven by the price of goods, and fuel.

EU business sentiment rose sharply and by far more than expected in April. In fact it reached an all-time high. Consumer sentiment is improving, but it is still a net negative and a very long way from any records.

Airbus announced overnight that it had returned to a profit in the first quarter following a -€1.1 bln loss last year because of the pandemic.

In other company profit announcements, Big Tech stands out with huge earnings rises for Apple, Google, and Facebook in their Q1 results. Even McDonalds now say they are back at pre-pandemic customer demand. China is tackling their Big Tech companies on anti-trust grounds. The USA is likely to move in that direction soon too - and there is interesting bipartisan support for doing so.

In Australia, the trade data we reported a few days ago masked an interesting geopolitical point. Australian wine exports to China have fallen -96% since China froze them out as punishment for criticising China's human rights record.

The UST 10yr yield starts today at 1.65%, up +3 bps overnight on the brighter economic prospects and higher inflation expectations. 

The price of gold starts today at US$1768/oz and that is down -US$12 since this time yesterday.

Oil prices are up another +50c today at just over US$64.50/bbl in the US, while the international price (Brent benchmark) is just over US$67.50/bbl.

The Kiwi dollar opens today at 72.3 USc and little-changed since this time yesterday. But it did reach much higher in between. Against the Australian dollar we are unchanged at 93.2 AUc. Against the euro we are softer at 59.7 euro cents. That means our TWI-5 is now back at 74.

The bitcoin price is now at US$52,636 and -4.2% lower since this time yesterday. Volatility in the past 24 hours has been high at +/- 3.7%.

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 on Monday.