Market fears of rising inflation push up interest rates

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 US benchmark interest rates rose notably after their apparently strong labour market report. But first, locally this week it will be about migration and travel data for April, possibly plus the May PMIs. In Australia, we will be watching for the April building permit data, along with updates for May for their consumer and business confidence surveys. In the US, they will release its consumer and producer inflation figures, the final price gauges before this month's Federal Reserve decision at the end of next week, in addition to existing home sales and their trade balance. Likewise, trade data and inflation data is coming from China as well as new yuan lending data. Trade data from Taiwan will drop this week too. And at the end of the week we will get central bank decisions from Canada and the ECB. On the corporate front, SpaceX will release what is likely to be the largest IPO on record. Over the weekend, China said its foreign exchange reserves swelled again and are now at US$3.44 tln and their highest since October 2015. They added a bit more gold but its value eased in the past month, so this wasn't a factor in the expanding reserves. Also, there was data out for Taiwanese inflation (firmish but low at 2.2%), Singapore retail (doing better with a +5.4% rise from a year ago), and an Indian central bank policy rate review (holding at 5.25%). None of these moved markets. Meanwhile, India said its Q1-2026 economic expansion rolled on with a better growth rate (+7.8%) than markets were expecting (+7.2%). In the US, the anticipated non-farm payrolls report delivered a strong result over the weekend, with a +172,000 jobs gain at the headline level and more than double the expected +82,000 gain. From a year ago, that is a rise of +503,000. But this data is the seasonally adjusted result from payroll employment. Looking more broadly, US civilian employment rose +149,000 in May from April but is -504,000 lower than year-ago levels. It is clearly very tough indeed for the unincorporated self employed. Of the headline jobs gain, +70,000 were in their hospitality sector (expecting a soccer World Cup boost?), local government added +55,000 jobs, healthcare +35,000, social assistance +17,000. There we no changes or declines in the manufacturing, IT and administration sectors, and little in the construction sector. Basically, lower paid jobs rose, higher paid ones shrank. The US no longer releases details of full-time, part-time job changes or detail. Total American consumer debt rose by +US$21 in May, following a downwardly revised +US$22 bln gain in April. This was slightly more than expected. Revolving credit, which includes credit card debt, rose +US$14 bln while nonrevolving credit, which includes vehicle and student loans, rose +US$8 bln in the month. This data shows sustained consumer demand for debt despite elevated borrowing costs and the rising interest-rate environment. And that, along with the gritty labour market questions, has driven a pullback in attitudes, to a more risk-off, defensive posture at the end of last week. More investors see the US Fed pushing ahead with rate hikes earlier than anticipated to try and not be blindsided from rising inflation getting embedded. After all, the Strait of Hormuz remains shut, and oil prices have ended the week higher than where they started. In turn that risk-off has driven US benchmark interest rates up, equity markets lower, and the US currency very much higher, Canada also released its May jobs data over the weekend and that was better than expected too. They added +88,000 jobs when a gain of only +10,000 was anticipated. Better, their full-time jobs grew +154,000 in the month, as part-time jobs shrank. Their jobless rates fell notably to 6.6%, from 6.9% in April and continuing the downward trend that started in October 2025. A stronger jobs market may also give the Bank of Canada cover to raise rates to get ahead of their inflation threats, too. In the EU, Ireland has had a stunning reversal of fortune, with their economy contracting more than -12% in Q1-2026. It alone was enough to twist the overall EU GDP lower. Ireland's multinational-dominated sectors contracted by -27% in Q1-2026 with their domestic sectors expanding by +0.4% and more in line with the other EU countries. The UST 10yr yield is now just on 4.54%, unchanged from this time Saturday but up +11 bps for the week.  The price of gold will start today up +US$4 from Saturday at US$4328/oz. That is down -US$227/oz (or -5.1%) from this time last week and about its lowest level of the year. Silver is down -50 USc at just under US$67.50/oz, down -10% for the week. Oil prices are little-changed from Saturday just on US$90.50/bbl in the US, while the international Brent price is now just on US$93/bbl. Hormuz transits are still very low despite the pricing optimism. A week ago these prices were US$87.50/bbl and US$91.50/bbl. The Kiwi dollar has stayed down from Saturday at this time at just under 58 USc. From a week ago it is down -190 bps. Against the Aussie we are unchanged at 82.3 AUc. Against the euro we are also unchanged at just on 50.3 euro cents. That all means our TWI-5 starts today at just under 61.6 which is down -10 bps from Saturday, down -170 bps for the week. The bitcoin price starts today at just on US$62,246 and recovering +3.4% from this time Saturday and still falling. Volatility over the past 24 hours has been moderate at just over +/- 2.1%.  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