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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.

Today we lead with news there is a growing sense that the world is close to running on empty the longer the US-Iran flareup carries on.

But markets are ignoring that risk.

In the US producer prices fell -0.3% in June from May, marking the first decline since August 2025 and an unexpected dip. A sharp decline in energy prices is getting the credit and the fact that energy risks are still around is being ignored. From a year ago US PPI was up +5.5%. Without that, the core index rose +0.2%, to be +4.7% higher than a year ago.

The New York Fed’s Empire State Manufacturing Index jumped 10 points to +15.6 in July 2026, signaling a significant pickup in business activity across New York State. Price increases remained elevated and supply availability continued to worsen, they said. The region is in a stockpiling mode, still expecting more cost impacts from tariffs. (Although the New York Fed boss indicated they are looking through these likely impacts. However, not every Fed member is so sanguine.)

The July Fed Beige Book reported "modest to moderate" activity, with prices rising, with greater price sensitivity among consumers.

US crude stocks fell again although not be as much as was expected this week. Their strategic reserves show not letup in their draining track.

Across the northern border, the Bank of Canada left the target for its overnight rate unchanged at 2.25% for a sixth consecutive decision in July 2026, and as expected. But they are seeing an improved economic outlook, however.

Across the Pacific and after impressing in April, Japanese machinery orders took an outsized tumble in May. down -12.4% from April and far worse than market forecasts for a -4.2% decline. It seems a broad-based weakness in business investment is setting in. Orders from manufacturers dropped -14.9% (vs 5.1% in April), while non-manufacturing orders fell -9.3% (vs 6.7%).

Chinese house prices are still falling but at a slower pace now as background support measures and market cleanup activity is puttin