US trapped in Iran quagmire; US inflation rises, oil stocks retreat; Canada holds; Japan PPI jumps; China CPI low but PPI high; Australian fuel tax cut nears end; UST 10yr at 4.54%; gold drops hard as oil rises; AU$1 = 70.1 USc;

Here's our summary of key economic events overnight that affect Australia, with news the US is frustrated with Iran and is promising even more military strikes. The deal Trump thought was close, isn't. The escalation threat has oil and financial markets reacting badly.

But first today, American CPI inflation jumped from 3.8% in April to 4.2% in May, largely as expected and largely based on higher fuel costs. This is its highest since April 2023. Today's geopolitical events and markets reactions probably mean it isn't finished with the current trajectory. Actually, for March, April and now May, their CPI index rose +2.0% in just those months, so the rate being experienced by consumers (annualised +8%?) is very much higher than the annual one reported.

The White House reaction was very unexpected: Trump said, "You know, I love the inflation." Certainly, financial markets were unimpressed.

There was a large jump in American mortgage applications last week even though benchmark home loan interest rates stayed elevated at about 6.6%. After six weeks of holding back, it seems borrowers are coming to accept that they have to pay these higher rates. Remember pre-war, these rates were under 6.1%. The jump in applications this week were from both new borrowers and those needing refinance.

For a seventh straight week, and including stocks in their strategic reserve, American crude oil stocks dropped in the latest update, and by almost double the rate expected.

Today's US Treasury 10yr bond auction was well supported and yield's rose only modestly for this one, with the median coming in at 4.48% (4.54% high bid), up from 4.41% at the prior equivalent event a month ago.

In Canada, their central bank kept its policy rate unchanged at 2.25% as expected, and for the fifth consecutive time. They had inflation at 2.8% in April so, so far, there is little evidence higher energy prices are being passed on or embedded in their consumer cost base.

Data out in Japan yesterday shows their May producer prices rose +6.3% from a year ago, up from 5.3% in April and the fastest rise since the end of the pandemic in March 2023. After the April spurt, they rose another +0.9% in May alone.

China's CPI inflation level was low and stable in May, coming in at 1.2% from a year ago, unchanged from April. Beef prices were up +4.2% however and lamb prices up +6.2%. Egg prices are up +6.6% on the same basis and a five year high. These were more than offset by a -16% drop in Chinese pork prices though. And dairy prices fell -1.2% on the same year-ago basis.

But China's producer prices are not so calm. In fact they rose an outsized +5.8% in May from a year ago for industrial products, up 3.9% overall when you broaden the categories to include food, clothing and other goods produced for consumers. Apart from the pandemic, the headline 3.9% is the highest they have had since August 2018.

Here in Australia, we should note that the emergency petrol tax concession will end at the end of June. That will juice up our inflation if it isn't extended.

The UST 10yr yield is now just on 4.54%, up +1 bp for the day. The key 2-10 yield curve is now at +42 bps (+1 bp). Their 1-5 curve is now at +37 bps (-6 bps) and the 3 mth-10yr curve is at +89 bps (-2 bps). The China 10 year bond rate was up +1 bp to just under 1.75%. The Japanese 10 year bond yield is little-changed at 2.69%. The Australian 10 year bond yield starts today at 4.90%, up +1 bp from yesterday.

Wall Street has stayed in 'fear' mode with the S&P500 down another -1.6% in Wednesday trade. The Nasdaq is down another -2.0%. Overnight, European markets were mixed between Frankfurt's -1.0% retreat and London's +0.3% firming. Yesterday, Tokyo fell -1.9%. Hong Kong was down -0.6% and Shanghai eased -0.4%. Singapore fell back -1.3%. The ASX200 closed up +0.6% in Wednesday trade. 

The price of gold will start today down another -US$160 from yesterday at US$4098/oz. Silver is down -50 USc at US$64.50/oz.

Oil prices are up +US$3 from yesterday at just under US$91.50/bbl in the US, while the international Brent price is now just on US$94.50/bbl. Hormuz transits are almost non-existent today, only 2 in the past 24 hours.

The Australian dollar is down -20 bps from this time yesterday at just on 70.1 USc. Against the Japanese yen we are down -10 bps at ¥112.6. Against the euro we are down -20 bps at just on 60.7 euro cents. 

The bitcoin price starts today at just on US$61,781 and little-changed (up +0.3%) from this time yesterday. Volatility over the past 24 hours has been modest at just over +/- 1.7%.