Halfway through a year of little progress

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.

And today we lead with news we are now halfway through 2025, closer to the next summer holiday break than the last one. We may need it more this time because economic 'progress' is hard to find.

Looking ahead this week, the big end of month data dumps for May from the RBNZ will give us an updated look at mortgage and term deposit activity. The ANZ will also update us on their business sentiment survey for June. Then later in the week the June updates from the real estate industry will be released.

In Australia it will also be about retail and trade updates for May.

The week end with the US on another summer holiday break, this one for their Independence Day. Their June labour market report will come a day earlier this week (another low +129,000 is expected), preceded by PMI updates from all over. Markets also expect the US to announce tariff actions after the so-called 90 day pause. But Trump deadlines mean little in war and other diplomatic areas so don't be surprised if they mean little here too. He will go head if they don't hurt his own businesses, pull back if they do.

Of more importance to us will be the results of both Chinese and Japanese data and surveys.

In China, deflationary pressures not helped by the tariff war are keeping China's industrial profits in a low zone. They barely hit ¥600 bln in May and that was their lowest level for a May month since 2019 and -9.1% lower than May 2024. For the five months they were down -1.1% so the pace of decline is unfortunately building.

Across the Pacific in the US, the squeeze on American household incomes shows up in the latest data for personal incomes and spending, this data for May. Incomes were only +1.7% higher than a year ago. Decreases in income support for struggling households is showing up in this data. And after inflation, they will be going backwards on the income front. On the consumption front, spending was up +2.2% from a year ago, also lower than the May 2.4% CPI inflation.

This is a sure sign of rising economic stress that is spreading.

The final reading of the University of Michigan survey of June consumer sentiment was out overnight and it confirmed the spreading household stress. This survey has been stuck at one of its worst readings on record for two months after plunging almost -30% in the first four months of 2025. Over the 80 years of the survey, a drop this large this fast has almost always predicted a recession. Sentiment readings improved slightly at the start of June but were -18% lower than at the start of the year to indicate Americans expect much higher prices and a much slower economy in the coming year. It should be no surprise this is the outcome of the changed US public policy direction - but the financial markets are ignoring this signal; willfully it seems.

They seem to be overlooking these same survey results that show sentiment has fallen fastest this year for the most well-off consumers, whose post-pandemic spending spree helped insulate the American economy from recession then. They aren't there to do it this time, according to the UofM survey data.

In Canada, they got weekend news that Trump is going to use tariffs to punish them for trying to tax US Big Tech companies via its Digital Services Tax initiative. The US wants free access to Canada and tax-free. Earlier the Canadians had confirmed the DST, which had been passed by their Parliament, would go into effect on June 30.

Separately, Canada has ordered one of the world's largest video surveillance equipment manufacturers, State-owned Hikvision, to cease operations there on national security grounds. The order bars Hikvision from conducting business in Canada and prohibits government departments and agencies from purchasing its products. Existing installations of Hikvision equipment across government properties are under review to ensure their eventual removal. Hikvision cameras and monitoring systems are widely available in Australia and New Zealand.

Economic sabotage may be spreading, but so are climate risks. It is early in the northern hemisphere summer season still, but both the US and Europe are struggling with dangerous heat dome conditions. China is not immune. These are sure to have economic implications if they extend through to September as expected.

The UST 10yr yield is now at 4.27%, and unchanged from Saturday.

The price of gold will start today at US$3,273/oz, and little-changed from Saturday. A week ago it was at US$3365/oz so a -2.8% fall from then.

American oil prices are +50c softer from Saturday at just on US$65/bbl while the international Brent price is now just on US$67.50/bbl.

The Kiwi dollar is now just on 60.6 USc, up +20 bps from Saturday. A week ago it was at 59.7 USc so a net +1.5% appreciation. Against the Aussie we are -10 bps softer at 92.7 AUc. Against the euro we are unchanged at 51.7 euro cents. That all means our TWI-5 starts today at 68.1 and +10 bps firmer than Saturday. A week ago it was at 67.7 so a net +40 bps gain.

The bitcoin price starts today at US$107,509 and up +0.6% from this time Saturday. Volatility over the past 24 hours has stayed low at just on +/-0.6%.

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.