Here's our summary of key economic events overnight that affect Australia, with news both superpowers are dicing with unsustainable budget deficits that are posed to explode. The Moody's downgrade was just a teaser. The bond market will make the real judgment.
US retail sales rose +5.4% last week from the same week a year ago, but this is clouded by the unknown impact of their new tariff-taxes. It is their slowest rise since late March and the impact of the tariff taxes will be starting to show up now. So it could well be that retail sales volumes are starting to decline now as a consequence.
On Wall Street, there is growing nervousness about how the Federal Government's budget is being planned. If it goes through as the Administration is proposing, the US deficit to balloon sharply. And the bond market will have something sharp to say about that.
In Canada, their inflation rate fell to 1.7% in April, but there was a special on-off factor that helped it. It dropped from 2.3% in March not quite hitting the expected 1.6% April level. A large part was a drop in energy prices not only because the oil price is easing but they also removed the consumer carbon tax. Food prices prices were up +3.8% however, especially the cost of fresh food.
China has cut its key lending rates to record lows at yesterday's May fixing. The one-year loan prime rate, the benchmark for most corporate and household loans, was lowered by 10 basis points to 3.0%, while the five-year LPR, which is the basis for mortgage rates, was cut by the same margin to 3.5%. These changes were what markets were expecting and the first reductions since October. It is another in the string of monetary easing measures announced earlier this month.
That official move was immediately followed by the four largest Chinese state-owned banks who cut deposit rates by between -5 bps and -25 bps. Those four core SOE banks are Bank of China, China Construction Bank, ICBC, (all of whom have New Zealand subsidiaries) and the Agricultural Bank of China. Other banks followed. Money is flowing out of savings accounts now, back to higher earning "wealth products', a move that in the past has been fraught with risk.
The US isn't the only superpower flirting with deficit spending danger. China is too, as its fiscal stimulus pushed its four-month budget deficit to a record high of -¥2.65 tln in 2025 (-NZ$620 bln). And there is no public pushback on the wisdom of that.
Malaysian exports took off in April with a strong +16.4% rise from the same month a year ago. If we look past the pandemic recovery growth, it was near their best export performance since 2018. But also came as imports surged +20% to a new all-time record high.
In Europe, it might have been marginal but it is worth noting all the same - consumer sentiment got less bad in May. This seems to have broken the 2025 run of declines in these survey results, a decline that really started in late 2024.
In Australia, the RBA cut the cash rate target by -25 bps as expected to 3.85% which they say is still at a restrictive level, just less so. Inflation and trade uncertainties are still on their mind - and the risks to their continuing expansion were more so than markets were anticipating. Governor Bullock's press conference comments were more dovish than the rate change statement, and more dovish that many were expecting. The RBA also trimmed its growth forecasts. Markets now expect at least two more -25 bps rate cuts to come through in 2025. Yesterday's Bullock comments opens up the possibility of more.
The UST 10yr yield is at 4.48%, up a mere +1 bp from this time yesterday. The key 2-10 yield curve is now steeper at +52 bps. Their 1-5 curve is now inverted by -5 bps. And their 3 mth-10yr curve is unchanged at +18 bps. The Australian 10 year bond yield starts today at 4.44% and down -15 bps from yesterday after the RBA signals. The China 10 year bond rate is down -1 bp at 1.67%.
Wall Street is lower again, with the S&P500 down -0.7% in Tuesday trade. Overnight European markets were up about +0.7% overall with another record high in Frankfurt. Yesterday Tokyo ended its Tuesday session up +0.1%, Hong Kong was up +1.5%, and Shanghai was up +0.4%. Singapore ended up +0.2%. The ASX200 rose +0.6% .
The price of gold will start today at US$3285/oz, and up +US$58 from yesterday.
Oil prices are a tad softer today at just over US$62/bbl in the US but the international Brent price is +50 USc firmer at US$65.50/bbl.
The Aussie dollar is now at 64.2 USc, down -20 bps from yesterday at this time. Against the Yen we are up +50 bps at ¥92.9. Against the euro we are down -30 bps at 57 euro cents.
The bitcoin price starts today at US$106,320 and up +0.9% from yesterday. Volatility over the past 24 hours has been modest however at just under +/-1.2%.