Weaker factory orders, lingering high inflation

Kia ora,

Welcome to Tuesday’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 tough economic news keeps coming, even during this lazy August vacation period in the northern hemisphere.

First, in the US factory orders were expected to retreat in June, consistent with the labour market and PMI signals - and they did. They were down -4.8% from May, although they are still up +6.6% from a year ago. The June falls were largely driven by a -22% plunge in transportation equipment orders. This same data confirmed the earlier durable goods order decrease in June of -9.4%.

We are awaiting important services PMIs for July and they are expected to be much better than those for their factory sector.

American economic uncertainty is now well embedded in consumer behaviour. Some brands are really suffering, and causing large writedowns.

Meanwhile, American vehicle sales rose in July to an annualised rate of 16.4 mln, slightly more than expected because they got a boost ahead of expected price increases from the August 1 tariff-taxes. But the boost was relatively minor, just +3.6% ahead of the same level in July 2024.

In China, parts of the country are battling heavier-than-usual rainfall. And that includes Beijing itself, a city of 22 mln. Dozens of people have died in flooding already. They are expecting 200 mm of rain to fall over the next 24 hours, on top of what they have had which created their emergency. Beijing's normal annual rainfall is 600 mm.

In Australia, the Melbourne Institute's inflation gauge survey result brought an unwelcome surprise. It surged +0.9% in July, the steepest rise since December 2023 and a sharp rebound from June’s modest +0.1% increase. The RBA is unlikely to be impressed because even if inflation is within range it seems to be testing the upper end of that range and a rate cut could well push it up out-of-range. Still, financial markets are pricing in a full -25 bps cut for Tuesday, August 12 when the RBA next meets. And they have priced in two more by the end of 2025. At this time, given inflation is proving harder to lick, that seems unlikely. And in turn there could be many disappointed market traders - and mortgage holders - as the year unfolds.

The UST 10yr yield is now at 4.19%, down -3 bps from yesterday.

The price of gold will start today at US$3,372/oz, up +US$10 from yesterday.

American oil prices have slipped back again, down -US$1 to just under US$66.50/bbl with the international Brent price just over US$68.50/bbl.

The Kiwi dollar is at 59 USc and down -20 bps from yesterday. Against the Aussie we are down -10 bps at 91.4 AUc. Against the euro we are also down -10 bps at 51 euro cents. That all means our TWI-5 starts today at just on 67, down -10 bps as well.

The bitcoin price started today at US$115,217 and up +0.9% from this time yesterday. Volatility over the past 24 hours has been low again at just under +/-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 will do this again tomorrow.