Doubts remain in the US & Canada that inflation is beaten yet

Economy Watch

Kia ora,

Welcome to Wednesday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.

I'm David Chaston and this is the international edition from Interest.co.nz.

Today we lead with news questions remain about whether inflation's fall can be maintained.

Today is another shadow day with mostly second-tier data released, but some of it is interesting all the same.

First in the US, retail sales at physical stores were up +5.3% last week from the same week a year earlier, a good 'real' rise above inflation. But it was a slowing from earlier weeks and is the least rise since mid April.

But things don't seem to be expanding anymore in their factory sector. More Fed district surveys are being released, the latest one from the mid-Atlantic states and that brought a slowing in June largely based on retreating new order levels.

However the Chicago Fed's National Activity Index for May was less negative, turning up after two prior down months. This was on the back of expanding production levels and new order levels held their own.

The Dallas Fed's services PMI for June retreated again in June, but by far less than the sharpish May level. This is a key 'red state' that is struggling.

Nationally, the widely-watched Conference Board survey of consumer sentiment dipped in June from May, but not as much as expected. The 'present conditions' aspect remains buoyant, but it is the 'future expectations' component that eased a bit.

Separately there was a US Treasury 2 year bond auction earlier today and it was strongly supported, delivering a median yield of 4.66%. A month ago at the equivalent event the median yield was 4.85%, so a -19 bps easing since then. More than US$192 bln was offered for the US$71 bln available.

Is inflation under control in the US? A key Fed official doesn't think so yet, and said she is prepared to vote to raise rates again if the disinflation trend doesn't continue.

In Canada, they got a small surprise from their May CPI data. It rose to 2.9% from its three-year low of 2.7% in April. Analysts had expected it to retreat to 2.6%. While this move is still in the Bank of Canada's expectation range of "about 3%", the halt to the disinflation trend challenged earlier bets that the central bank would continue loosening monetary policy. Bond yields fell there.

In Japan, researchers have found more than 200 million tonnes of manganese nodules, rich in battery metals, in the Pacific Ocean and inside the country’s exclusive economic zone. They say that is the deposit contains 610,000 tonnes of cobalt (equivalent to 75 years of Japan’s consumption) and 740,000 tonnes of nickel (11 years).

The latest South Korean consumer sentiment survey rose in June to its highest level since March. Sentiment regarding current living standards increased, while future outlook improved by the same margin. Expectations for future household income also rose.

Australian consumer sentiment is mired in low territory, according the the June update of the Westpac-Melbourne Institute survey. Despite the improvement, consumer sentiment remains below its March level and still firmly in deeply pessimistic territory. The survey detail suggests positives from fiscal support measures are being negated by increased concerns about inflation and the outlook for interest rates.

In Europe, Denmark is set to become the first nation to impose climate taxes on their agriculture sector. They say they are doing it in part to encourage other countries to follow. Less than 2% of Denmark's GDP comes from their rural sector, but it delivers 22% of their exports.

In the UK, the sheer size of their housing crisis has been explained in a dramatic way. Since 1977, they have fallen behind other northern EU countries in building new homes, driving a severe shortage that has sent housing prices soaring and kept young Britons out of the market. A Bloomberg analysis found that the failure to keep housing production on pace has led to a massive 4.3 million missing homes - greater than the number of existing dwellings in all of London!

The UST 10yr yield is now at 4.23% and down -2 bps from this time yesterday.

The price of gold will start today down -US$13 from yesterday at US$2319/oz.

Oil prices are down -50 USc from yesterday at US$81/bbl in the US while the international Brent price is down -US$1 at just under US$84.50/bbl.

The Kiwi dollar starts today little-changed from yesterday at just under 61.2 USc. Against the Aussie we are still at 92 AUc. Against the euro we are also still at 57.1 euro cents. That all means our TWI-5 starts today little-changed at 70.8.

The bitcoin price starts today at US$61,577and bouncing back a partial +2.5% from this time yesterday. Volatility over the past 24 hours has high at just on +/- 3.0%.

You can find links to the articles mentioned today in our show notes.

You can get more news affecting the economy in New Zealand from interest.co.nz.

Kia ora. I'm David Chaston. And we will do this again tomorrow.