Three elections, three rejections of the hard-line, hard right

Economy Watch

that in the three elections held over the weekend, 'democracy' seems to be signaling a rejection of the hard-line and hard-right.

But first in the week ahead the main event will be Wednesday's RBNZ OCR review. But there will be other important global data released as well, including the American CPI and PPI results for June. China will release its versions of inflation monitoring as well, and the data on new yuan loans. India will release its June CPI data too, plus industrial production data for May. And from Australia we will get the NAB business sentiment results for June, and the Westpac consumer sentiment survey results.

First up however we should note that China's foreign exchange reserves in USD were little-changed in June from May, holding the level they have been since late 2023. But they are rising in yuan, mainly because the yuan is depreciating. Their gold reserves remained unchanged for the second straight month at 72.8 million troy ounces (2264 tonnes) and that ends a gain for 18 consecutive months,

Those reserves have been put to political use. First it was Sri Lanka, now Laos has succumbed to China's 'debt trap' diplomacy. China's 'encouragement' to develop their countries - with official Chinese loans - has plunged Laos into a financially unsustainable situation, and Beijing is now promising to 'help' them out of the mess. Easy money and a drive to 'catch up' is too much of an enticement for local leaders. In the end the price is subservience. Essentially, China now owns Laos.

In Japan, their huge Government Pension Investment Fund, one of the world's biggest institutional investors, booked a +NZ$462 bln gain in the past year (more than New Zealand's entire economic activity as measured by GDP). They need it however. As wages rise there and their workforce ages further, the claims on that will rise. That fund alone has reserves of almost NZ$2.5 tln.

On Saturday (NZT) the closely watched non-farm payrolls report for the US was released with a headline result of +206,000 larger employment in June, slightly more than the +190,000 expected. Their unemployment rate changed little at 4.1%.

But this seasonally-adjusted data masks an actual rise of +547,000 people on company payrolls, although that was lower than the +844,000 increase the prior month. It also masks some downward revisions to the prior month.

There are now 161.8 mil people employed in June in the US, including the unincorporated self employed, up +433,000 from May. So all the growth is in company payrolls and people are shifting out of self-employment to the more formal workforce.

And that is conformed by pay rates. Average hourly pay hit US$30 for the first time ever in June, up +4.0% from a year ago (and rising faster than inflation). Average weekly earnings (which accounts for working hours), rose +3.7% (also more than inflation which is running at 3.3%). But these gains are now easing from earlier months.

Basically, this data changed their economic situation little but is has a sense of a slowing trend. US Treasury yields fell on the news, but Wall Street equities took it in its stride. The USD eased very slightly.

The Fed probably liked what it saw. New York Fed boss said the US economy was doing remarkably well and there had been significant progress towards inflation goals. Fed boss Powell will be testifying in Congress this coming week.

The next US Fed rate review is on August 1, 2024 NZT.

In Canada, their labour market report for June wasn't as positive. In fact their employed jobs fell a trivial -1,400 when a +22,500 rise was expected. They will be disappointed in that. This data probably advanced the case for a July rate cut when their central bank meets next on July 25, NZT. Their policy rate is currently 4.75%.

And staying in Canada, there was some more positive news. Their widely-watched local June PMI rebounded sharply back to April growth levels, consigning the lowish May result to outlier status. They have now had eleven consecutive month of economic growth, the second highest string since 2016 (the pandemic aftermath excepted).

France is voting in the second round of its most crucial legislative elections in recent years, with the early results suggest a sharp rejection of the far-right.. Voter turnout however is being described as being unusually high - as are the stakes. In Iran, the more moderate of the two options for 'President' (a position subservient to the top cleric) won handily in a signal their population wants a less confrontational government and more focus on economic improvement. And the British election delivered an unusually large 'landslide' for its center-left Labour Party, with strong gains for its third-force LibDems as well. The hard-right Reform Party won only 5 seats, despite getting 14% of the votes. Such is FPP. In Tokyo, their first female governor secured a third term on Sunday in the capital's election. It was also a clear rejection of hard-right nationalist opponents.

The UST 10yr yield is now at 4.28% and unchanged from Saturday and down -12 bps from a week ago. The key 2-10 yield curve inversion is little-changed at -33 bps. Their 1-5 curve is now at -78 bps. And their 3 mth-10yr curve inversion is still at -109 bps. The Australian 10 year bond yield starts today at 4.41% and unchanged. The China 10 year bond rate is now at 2.27% and also unchanged. The NZ Government 10 year bond rate is now at 4.77% and up +4 bps from a week ago, but unchanged from Saturday,

On Wall Street this week we will get the early corporate results for Q2, led as usual by some big banks. These upcoming Q2 reports will be following an unusually strong Q1 set, one that generally gave upbeat forward guidance. There will be interest over whether those bullish views have continued.

The price of gold will start today down -US$1 from Saturday at US$2389/oz. A week ago this price was US$2326/oz

Oil prices are marginally firmer at just on US$83/bbl in the US while the international Brent price is just under US$87/bbl.

The Kiwi dollar starts today +10 bps firmer from Saturday and now at 61.5 USc. A week ago it was under 61 USc so a +½c rise since. Against the Aussie we are at 91.1 AUc. Against the euro we are holding at 56.7 euro cents. That all means our TWI-5 starts today at 70.6 and little-changed.

The bitcoin price starts today at US$56,949 and up +0.7% from this time Saturday. Volatility over the past 24 hours has been modest at just on +/- 1.7%.