The opening of Hormuz expected to create new distortions; US data soft; Taiwan data strong; China harvests swell; Aussie inflation stays high; UST 10yr at 4.40%; gold and oil drop hard; AU$1 = 68.9 USc

Here's our summary of key economic events that affect Australia, with news of falls in many metrics across the board today, highlighted by commodity prices, crypto and interest rates. Equities are lower too. But the USD is rising on risk-aversion.

There is now international agreement to open the Strait of Hormuz ("without tolls") and that is expected to see a rush of hundreds of ships and cargoes on the move, flooding refiners with product just as indications are that demand is weakening. Urea prices are now back below pre-war levels although sulphur prices are remaining unusually high. (Key Chinese sulphur inventories are currently at a decade low.)

But first in the US, mortgage applications were little-changed last week as were mortgage interest rates, when refi activity firmed but new purchase activity eased.

And that is consistent with new home sales in the US that fell away in May to levels they had in the late stages of the pandemic in 2022. This was surprise because they were expected to rise from April's level.

There was also a surprise bigger-than-expected fall in US crude oil stocks last week, extending the outsized trend to nine straight weeks. Again, this is the longest streak of weakness since the post-pandemic 2021-2022 period. Petrol stocks rose however, suggesting much lower demand is the new trend.

There was a well-supported US Treasury 5yr bond auction earlier today and the median yield came in at 4.14% (4.20% high), little changed from the 4.12% median at the prior equivalent event a month ago.

Across the Pacific, Taiwanese industrial production was up +11.8% in May from a year ago, easing from an upwardly revised 14.9% rise in April. But this was their slowest expansion since January 2025 even if it was a new all-time record high in value terms.

Going the other way, Taiwanese retail sales are still rising fast, up +4.9% in May to extend their about +5% growth rate to four consecutive months. Clearly their stellar economic expansion is spilling into the wider consumer community.

In Japan, the minutes of the last central bank meeting show its decisionmakers view it appropriate to continue raising its policy interest rate, as underlying inflation has been moving toward the 2% target while financial conditions have remained accommodative. They say that if the economy and prices evolve in line with the Bank's outlook, further rate hikes would become warranted. Some argued Japan's policy rate remains below the estimated neutral interest rate, seen at around 2%, and should be brought closer to that level. It is currently at 1%.

In China, their important grain harvest season is well underway with record output and high yields. This is expected to keep Chinese import demand on the lowish side.

Here in Australia, a +6.5% rise in housing costs (mainly from a +21% jump in electricity costs) drove the May CPI 4.0% inflation rate, not fuel or food. But that was lower than the expected 4.4% rate and in fact a four month low. The overall trimmed mean was up 3.6% however, a rise from April. So the underlying inflation trend is still firming.

The UST 10yr yield is now just on 4.40%, down another -6 bps from this time yesterday. The key 2-10 yield curve is now at +26 bps (down -1 bp). Their 1-5 curve is now at +20 bps (-6 bps) and the 3 mth-10yr curve is at +78 bps (also down -6 bps). The China 10 year bond rate is unchanged at 1.74%. The Japanese 10 year bond yield is also unchanged at 2.67%. The Australian 10 year bond yield starts today at 4.72%, down another -6 bps from yesterday. 

Wall Street is soft today, down -0.1% on the S&P500 while the Nasdaq was down -0.4%. (Musk is no longer a trillionaire.) Overnight, European markets were mixed between Frankfurt's -0.6% dip and Paris's +0.5% rise. Yesterday Tokyo closed down -0.9%. Hong Kong closed up +0.3% and Shanghai firmed +0.1%. Singapore ended up +0.2%. The ASX200 ended its Wednesday session up +0.2%.

The price of gold has fallen to US$3978/oz, down a net -US$152/oz from yesterday. Silver is just under US$56.50/oz, down a huge -US$5.50 from yesterday (-9%).

Oil prices are down -US$2.50 from yesterday at just on US$70.50/bbl in the US, while the international Brent price is -US$3 lower and now just on US$74/bbl. Hormuz transits have stayed modest with 13 crude or product tankers exiting over the past 24 hours (1 dark with transponders off) and 12 entering for new loads (2 dark). This is expected to change soon.

The Australian dollar is down another -30 bps from this time yesterday at just on 68.9 USc and a seven month low. Against the Japanese yen we are down -30 bps at ¥111.4. Against the euro we are down -10 bps at just on 60.7 euro cents.

The bitcoin price dipped today to US$59,403 and down a sharp -4.9% from this time yesterday. Volatility over the past 24 hours has been high at just over +/- 3.1%.