Episode Details

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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 we may be facing a renewed oil supply shortage and this time reserves are at unusually low levels. The combined impacts of extended closures in the Persian Gulf, the Red Sea, and the Black Sea are mounting, and just as we thought the May-June stresses had faded.

US mortgage applications rose slightly last week and that was despite an unexpected fall in refinance activity. But since mid-June this US housing market indicator has essentially been flat. And US mortgage rates are now at an 11 month high.

US crude oil stocks rose unexpectedly last week when another fall was anticipated. Yes, it was minor, but still. Maybe it indicates that local production is rising faster than some assume. Or surging imports from Canada or Venezuela? Or maybe that demand is lackluster. Or all three. US Strategic Reserve levels fell again and to their lowest level since 1983.

Today's US Treasury 20yr bond auction saw its yield surge through 5%, ending with a median yield of 5.12% and a high of 5.16%. That is up sharply from the prior equivalent event a month ago of 4.88%. And demand was lower too (-4%). It is quite the rate move.

Not to be outdone, the overnight German 20 year bund auction rose to 3.60%, up from 3.38% a month ago.

Across the Pacific, Japanese exports rose faster than expected in June, up more than +19% from a year earlier. The weak yen helped as did strong demand for electronics and other data center equipment. The June export level was their second highest on record, just a whisker off the March record. At the same time their imports surged as well, up +25% and also more than expected to a new record high, just eclipsing the October 2022 level. Oil prices were high but oil import volumes retreated. The net result was a modest but stable trade deficit in June (from May), but slightly worse than the small trade surplus in June a year ago. None of this helped the yen however because it fell to a 40 year low against the USD. Against the NZD it has only been this low in 2024 and 2007.

In case anyone is still confused, or unaware, the Chinese regulator, China Securities Regulatory Commission, has been organising the SOE home team to bolster the Chinese stock markets recently, after they showed some negative indications. This has driven some good rises, but also a creeping state ownership in many listed Chinese companies. The Shanghai Composite closed up +1.8% yesterday, the Shenzhen Component was up +4.8%, while the ChiNext was up +7.1% and the STAR Market index jumped 8.8%. This is not to claim other governments don't manipulate markets; they do (Trump, Japan, etc.). But the Chinese moves don't seem sustainab