Bond market steepens yield curves on messy policy

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 the US yield curve has steepened overnight on messy talk about the US Fed's independence, and arbitrary US tariff statements.

In more direct economic news, US mortgage applications fell sharply last week, even after adjusting for the holiday weekend. There were -10% lower than the prior week. But they are still +18% higher than a year ago. To be fair, year-ago levels were unusually low. Rising interest rates are getting the blame for the recent fall-off in activity

American producer prices rose +2.3% in June which was much less than the May +2.7% rise and less than the expected +2.5%. A rather large and unusual monthly drop in logistics costs kept the overall index restrained.

Meanwhile US industrial production inched higher, up +0.7% in June from a year ago. It was driven by a good rise in businesses equipment and mining but that masked a fall in the much larger sector manufacturing consumer goods. But to give better context, neither of those year-on-year gains showed up in June.

And that flat recent trend is showing up in the Fed's July Beige Book surveys. Economic activity increased slightly from late May through early July. Five Districts reported slight or modest gains, five had flat activity, and the remaining two Districts noted modest declines in activity. There was nothing here indicating rising business or consumer sentiment and impending investment - pointedly, quite the opposite.

Across the border, Canadian housing starts in June stayed high, and certainly higher than expected. They were expected to retreat somewhat after a strong May, but remained at those elevated levels.

And staying in Canada, they have released data that shows the gap between the top earners and the bottom earners has reached a record divide. The bottom 40% of households now have less than 3% of all household wealth. The top 10% have almost half. It is a twist that foreshadows future social stresses.

Later today we will get Japanese trade data for June, and that is expected to be positive.

And as expected. the Indonesian central bank cut its policy rate late yesterday by-25 bps to 5.25%. They said the tariff-rate 'deal' with the US will be positive for them.

Also later today we will be watching the June labour market report for Australia. Another good jobs gain is expected (+20,000), skewed sharply towards full-time positions. And we will get an update in Australian inflation expectations.

The UST 10yr yield is now at 4.46%, down -3 bps from yesterday at this time. 

The price of gold will start today at US$3,354/oz, up +US$27 from yesterday at this time.

American oil prices are little-changed at US$66.50/bbl while the international Brent price is still just over US$68.50/bbl.

The Kiwi dollar is now at 59.5 USc and up +10 bps from this time yesterday. Against the Aussie we are down -20 bps at 91.1 AUc. Against the euro we are also down -20 bps at 51.1 euro cents. That all means our TWI-5 starts today at just on 67.2, and down -20 bps.

The bitcoin price starts today at US$119,039 and up +1.4% from this time yesterday. And that takes it back to NZ$200,000. Volatility over the past 24 hours has been modest, at just on +/-1.5%.

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.