Global expansion leaks on weakening US

Kia ora,

Welcome to Wednesday’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 the global economic expansion is losing pace, led by the US.

But first up today, the overnight full dairy auction pulled back, and expected, but perhaps not be as much as the derivatives markets suggested. In the end prices were down -1.6% in USD terms and -3.0% in NZD terms on a rising Kiwi dollar. It was a mixed picture across the commodities offered.

In the US, the weekly Redbook retail monitor pulled back last week to be 'only' +4.9% higher than the same week a year ago. That is a sharpish dip from the prior week's +6.1% and mid-April's +7.4%. Much of this may be attributable to tariff-tax increases, with sales volumes easing faster now.

Meanwhile, April job openings were little-changed but they did come in slightly higher than expected at 7.4 mln. We get the May non-farm payrolls report this Saturday (NZT) and that is expected to show a modest +130,000 rise.

Meanwhile April factory orders came in weak, down a sharp -3.7% following the boosted March gain of +3.4%. Between the two months, a slight easing that was setting in since November. From April 2024 these order levels are up +0.6% and that is before accounting for inflation.

The US Logistics Managers Index rose, but because inventory costs, warehousing utilisation, and transportation prices all rose at a faster rate, probably not the indicators that help their economy.

But the latest RCM/TIPP optimism survey did rise for 'positive' reasons, but only back to levels it was in November after retreating rather sharply from a February high. The tariff-tax staggers may be easing among investors and the surveyors say this indicates US "consumers are closer to optimism".

In Canada, Canadians have so heavily altered their travel plans to the US that the duty-free stores at the border seem to be on their knees in what is being called a 'collapse'.

In South Korea, the candidate of the more liberal Democratic Party seems to be the winner of Tuesday's snap presidential election. It is a clear break, with voters turning away from the conservative party, who’s previous President triggered their constitutional crisis. It’s a win for the rule of law. The other main candidate has conceded.

In China, they have delivered something of a surprise. The May Caixin China factory PMI unexpectedly dropped to 48.3, down from April’s expanding 50.4 and missing market forecasts of a faster expansion (50.6). This was the first contraction in the sector in eight months and the steepest since September 2022. Output shrank alongside a renewed drop in new orders, with foreign sales declining at a faster pace. The official factory PMI came in at 49.5, a small improvement (lesser decline).

Eurozone consumer price inflation eased to 1.9% in May, down from 2.2% in April and below market expectations of 2.0%. With inflation under control, that gives the ECB some room to trim interest rates further at their Friday (NZT) review.

Globally, the OECD has lowered its economic expansion forecasts as the Trump tariff-taxes bite, and the US an economy they see suffering as much as others from the impact.

That is spurring free trade talks among other nations, especially between Australia and the EU.

In Australia, their Fair Work Commission’s Expert Panel announced the National Minimum Wage and award wages will increase by +3.5% from 1 July 2025, following the 2024-25 Annual Wage Review. That means their National Minimum Wage will increase by +AU$0.85 to AU$24.95 per hour. (NZ$26.90/hr) The New Zealand adult minimum wage is currently $23.50/hr.

The UST 10yr yield is now at 4.46%, and unchanged from yesterday.

The price of gold will start today at US$3,353/oz, and down -US$22 from yesterday.

Oil prices are up +50 USc in the US at just over US$63.50/bbl and the international Brent price is up +US$1 at US$66/bbl.

The Kiwi dollar is now at 60.1 USc, a -10 bps dip from yesterday at this time. Against the Aussie we are down -10 bps at just on 92.8 AUc. Against the euro we are unchanged at 52.7 euro cents. That all means our TWI-5 starts today at just on 68.1 and down -10 bps from yesterday.

The bitcoin price starts today at US$105,965 and up +1.6% from yesterday. Volatility over the past 24 hours has been modest at just on +/-1.2%.

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.