Equities rise globally as earnings stay resilient

Kia ora,

Welcome to Friday’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 Canada has conceded it has lost its dairy dispute with New Zealand.

But first in the US, actual initial jobless claims in the US rose sharply to 261,000 from the previous week but that was less than seasonal factors would have suggested. There are now 2,017,000 people on these benefits, +4% more than year ago levels and the most in four months.

After three down months, the Philly Fed factory survey recovered in July. New order intakes rose. But also rising was the prices firms paid for their inputs and what they charged their customers. 'Safe' behind a tariff wall, these firms are showing the expected reactions, ones that will make them internationally uncompetitive.

Also rising were US retail sales in June. This also came after two retreating months, and was not expected. Year on year these sales are up +3.7% of which car sales rose +5.3%. Other than vehicles, the rise was +3.3% and still quite positive. However 2.7% of that can be accounted for by CPI inflation.

US factory activity and retail sales may be rising but business inventories are not. And that is a resilient sign.

One sector not showing any resilience is their house-building sector. The NAHB sentiment survey shows it remains at a low ebb, down near its 2022 lows. Affordability issues remain at the heart of the sector's woes, and they are hardly likely to improve as tariff-taxes flow through.

In Canada, they have quietly conceded they have lost their dairy access dispute with New Zealand and will now honour the CPTPP treaty agreements. Although the US is not party to this dispute, the MFN clauses in its USMCA Agreement probably mean wider access for others to the Canadian dairy market.

Across the Pacific and continuing its yoyo pattern, Singapore's June exports jumped. In fact they rose +14.3% from May to be +13% higher than year-ago levels.

In Australia, their June labour market softened. They were expecting a jobs gain of +20,000 but only got +2,000. Their jobless rate ticked up to 4.3%. As a result, financial market pricing for an RBA rate cut on August 12 have risen.

And inflation expectations in Australia are staying stubbornly high - although not as high in July as they were in June. The Melbourne Institute's Survey of Consumer Inflationary and Wage Expectations came in with inflation expectations at 4.7% which was down from June's 5.0% but apart from that still its highest since mid 2023. Expected wage growth fell slightly in July and remains relatively weak.

A softening labour market but very high inflation expectations (and a frothy real estate market), will all make the RBA's assessments very difficult.

More globally, container freight rates fell -2.6% last week from the prior week to be -55% lower than year-ago levels. But those year-ago levels were unusually boosted by Red Sea tensions. Currently, outbound rates from China are the weak spots in this market. Bulk cargo rates rose a sharp +34% last week to be back to year-ago levels. To be fair these current overall levels are basically 'average' over the past 35 years (so in inflation-adjusted terms they are very low).

The UST 10yr yield is now at 4.47%, little-changed from yesterday at this time. 

Wall Street is firmer today with the S&P500 up +0.6%, enough to claim a new record high. Good corporate earnings are driving the mood.

The price of gold will start today at US$3,336/oz, down -US$18 from yesterday at this time.

American oil prices are up +US$1 at US$67.50/bbl while the international Brent price is now just under US$69.50/bbl.

The Kiwi dollar is now at 59.3 USc and down -25 bps from this time yesterday. Against the Aussie we are up +30 bps at 91.4 AUc. Against the euro we are also up +10 bps at 51.2 euro cents. That all means our TWI-5 starts today at just on 67.2, and unchanged.

The bitcoin price starts today at US$119,100 and essentially unchanged from this time yesterday. Volatility over the past 24 hours has remained modest, at just on +/-1.1%.

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 on Monday.