Kia ora,

Welcome to Thursday’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.

And today we lead with news that as tariffs kick in, the US gets higher prices and lower activity. The White House is signaling it wants to pull back from its bluster (whiff of panic?), although China is yet to respond.

But first in the US, mortgage applications fell sharply last week to be just +6% above the weak week a year ago. Benchmark interest rates rose, which seems to have choked off new purchase borrowers, and refinance borrowers.

Sales of new single-family homes rose +6.0% in March from a year ago at a seasonally adjusted annualised rate of 724,000 and the highest in six months, and much better than market expectations of 680,000 homes. But to be fair this latest level is still within the range it has been for the past 27 months. They still have unsold inventories of over 8 months of sales at the current rate, which is a lot for builders to carry.

The latest US Treasury bond auction, for the key 5yr Note, was well supported but delivered a yield of 3.93%, down from 4.04% at the prior equivalent event a month ago. This is the maturity that foreign institutions prefer so is a good indicator of foreign support of US debt instruments. More than a quarter of all US Treasury debt is owned by foreigners, more than a third in the 2-5 year maturities. If we see a pullback, it will be in these auctions, and evidenced by rising yields.

The S&P/Markit US Manufacturing PMI rose marginally in April from March to a small expansion, better than the market expectations of a small contraction. Although growth was modest, this marked the fourth consecutive month of expansion in factory activity. Meanwhile, the equivalent services PMI fell sharply to a two month low. There are warning signs here. Prices charged for goods and services rose in this latest month at the sharpest pace for 13 months, increasing especially steeply in manufacturing (where the rate of inflation hit a 29-month high) but also picking up further pace in services (where the rate of inflation struck a seven-month high). More generally, sentiment fell among the surveyed companies.

The US Fed's April Beige Book is out and it is picking up similar themes; lower sentiment, stuttering demand, and rising prices. They are more muted in the Beige Book surveys, but they are still being noted.

There were 'flash' PMIs out for other countries overnight too. The EU factory PMI contracted its least in 27 months, but their services PMI retreated a bit more. In India, both of their PMIs stayed very expansionary. In Japan, there was a "return to growth" in April. In Australia, the new order components are rising but most other aspects are not. Election uncertainty may be playing a role here.

In China, they said they will issue ¥1.3 tln (NZ$300 bln) in ultra-long-term special government bonds starting today (Thursday). Some of that liquidity will be used to fund consumption incentives as they try to speed their shift away from export dependency.

Coal prices hit a four year low yesterday as warm autumn weather in Asia, and lower industrial demand is being swamped by high output. Prices are now back to where they were in 2016. Rising supply and stunted demand is having the same price impact on oil.

Global financial stability regulators are increasingly worried about the resilience of the financial sector, and have issued a warning about the consequences of dodgy and capricious public policy.

The UST 10yr yield is now at 4.38%, down -2 bps from this time yesterday.

The price of gold will start today at US$3282/oz, and down -US$116 from yesterday.

Oil prices have fallen -US$2.50 from yesterday to be now just over US$61.50/bbl in the US and the international Brent price is now just on US$65.50/bbl.

The Kiwi dollar is now at 59.6 USc, down another -20 bps from yesterday at this time. Against the Aussie we are down -10 bps at 93.6 AUc. Against the euro we up +30 bps at just on 52.6 euro cents. That all means our TWI-5 starts today still just at 68 and unchanged from yesterday.

The bitcoin price starts today at US$93,933 and up +2.7% from this time yesterday. Volatility over the past 24 hours has again been modest at +/- 1.8%.

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 because tomorrow is the Anzac Day holiday, we will do this again on Monday.

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