Intense pressure but financial markets still holding

Kia ora. Welcome to Monday’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 it has now been 66 days since the Strait of Hormuz has been largely shut and the two combatants seem to have descended into stalemate (although the Iranian's seem to have attacked one cargo ship overnight, let others through). The result has been much higher fuel prices, fertiliser prices, and a settling in of inflationary pressure everywhere. These pressures are intense. This week will start out locally with the Barfoot results for April (today), followed by the March quarter jobs report (on Wednesday). The RBNZ will be reviewing financial stability on Wednesday as well. In Australia, it will be all about the Tuesday afternoon decisions by the Reserve Bank of Australia, where a +25 bps hike seems likely (but is not certain). But inflation risks tied to the Iran conflict are building and they risk getting embedded. Also due out this week is data for building consents, job ads, household spending, and trade data. Trade data is also due from Taiwan and PMIs will come for many countries. Sweden and Norway will be reviewing their monetary policy settings this week too. American financial markets will be eyeing their labour market data, with their non-farm, payrolls report coming at the end of the week. There will also be important updates for their services sector, plus the preliminary May sentiment survey from the University of Michigan, also at the end of the week. At the end of last week, there were two factory PMI surveys out for the US and both were positive. The ISM reported a modest expansion, unchanged from a month ago. But they also reported a rise in new orders even though export orders fell. And employment fell, and rather sharply. Prices rose sharply and at their fastest pace since the pandemic. The S&P Global US Manufacturing PMI was even more positive, but they said it was driven by stockpiling amid rising prices and supply disruptions. New orders increased at the fastest pace in four years, despite an eleventh consecutive monthly decline in exports. On the price front, input cost inflation reached a ten-month high. If stockpiling and inventory builds are behind this American rise, while they lose global market share, this is not very sustainable. Stock building seems to be behind a sharp rise in Canadian factory activity too. Their PMI showed production, employment and purchasing all increased in April. But theirs also featured new export orders which rose solidly and at the fastest rate since the start of 2022. Across the Pacific, Japanese factories are reporting their fastest expansion in twelve years. It is no doubt welcome, but they are now having capacity problems affecting supply-chain performance. This April production data supports earlier official industrial production reports for March. And the Japanese yen strengthened suddenly and sharply on Friday, ending a long period of devaluation against the USD. The shift is likely due to Bank of Japan intervention which seems to have cost the US$35 bln to pull off. In China, China Southern Airlines has ordered 137 aircraft from Airbus said to be worth US$28 bln. This comes after China Eastern Airlines ordered 101 Airbus aircraft worth US$16 bln a month ago. It appears that China won't be offering Trump aircraft orders when Xi and he meets on May 14 in Beijing. The UST 10yr yield is now just on 4.38%, unchanged from this time Friday but up +7 bps for the week.  The price of gold will start today down -US$7 at US$4613/oz and down -US$103/oz for the week. Silver is down -US$1 at just on US$75/oz. American oil prices are down -50 USc at just on US$102/bbl, while the international Brent price is also down -50 USc, and now at US$108/bbl. A week ago these prices were US$94/bbl and US$105/bbl so the really big move up was in the US. The Kiwi dollar is unchanged from Saturday at this time at 59 USc, up +20 bps for the week. Against the Aussie we are holding at 81.9 AUc. Against the euro we are down -10 bps at just on 50.3 euro cents. That all means our TWI-5 starts today at just under 62.3 which is essentially unchanged from Saturday and up +10 bps from this time last week. The bitcoin price starts today at US$78,723 and up +0.3% from this time Saturday. It is up only +1.1% from a week ago however. Volatility over the past 24 hours has been low at just on +/- 0.7%. You can 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. Audio soundtrack opening is licensed from Shutterstock, Track 1219389 Monetization ID TFGEPGEI0LHEIJAI