Global Economic Update
The world’s two largest economies, the US and China, are showing vulnerabilities, with potential global consequences. Many markets were closed on Monday in the US for Juneteenth, a Federal holiday that remembers June 19, 1865, when emancipation was declared in Texas, ending the US Civil War.
US Economic Data
US data shows the Philly Fed’s factory index booked another retreat, the third in a row, although only a small one. New order levels fell, and price increases reported continued at a high level, although the pace eased somewhat in this latest update. The Conference Board’s leading economic indicator series also slipped, triggering a recession signal. Industrial production was the weakest contributor to the index in May.
Interest Rates and Recession
At least one influential Fed governor thinks the FOMC will have to start cutting interest rates soon to lean against the recession threat. A July cut is what he suggested, saying “I think we’ve got room to bring it down, and then we can kind of see what happens with inflation.” Recession threats trump inflation threats for him.
Global Economic News
In Japan, May CPI inflation edged lower to 3.5%, the lowest annual rate of the year. Energy costs remained elevated but dipped in the month. Also, elevated and dipping were food prices, now running at a +6.5% rate. In China, foreign direct investment in April was a net outflow of -US$4.8 billion, but it was positive by +US$17.8 billion in May.
Central Bank Updates
The Bank of England kept its policy rate steady at 4.25% at its June meeting, although three governors voted for a -25 bps cut. In Norway, the policy rate was cut by -25 bps to 4.25%, the first cut in five years. Taiwan held its official rate steady at 2%, while the Philippines cut its rate by -25 bps to 5.25%. China’s central bank left its Loan Prime Rates unchanged at record low levels.
Market Updates
Aussie miners are looking at surprisingly weak May data for steel production in China, with a -6.9% lower production compared to the same month in 2024. Global container rates fell -7% last week, while bulk freight rates retreated, ending -9% lower than week-ago levels. The UST 10yr yield is now at 4.38%, and the Australian 10-year bond yield starts today at 4.21%.
Currency and Commodity Updates
The Kiwi dollar is now just on 59.7 USc, down -½c from Thursday. The price of gold will start today at US$3,365/oz, and down -US$21 from Thursday. American oil prices are marginally lower, down -50 USc from Thursday, while the international Brent price is up +US$1, now just on US$77/bbl.
Conclusion
The global economy is showing signs of vulnerability, with potential recession threats in the US and slowing growth in China. Central banks are taking steps to mitigate these risks, with interest rate cuts and steady policy rates. The market updates show a mixed picture, with falling container rates and bulk freight rates, but steady bond yields. The currency and commodity markets are also showing signs of volatility, with the Kiwi dollar and gold price fluctuating. As the global economy continues to evolve, it’s essential to stay up-to-date with the latest economic news and updates.
