Talks & fights, truce awaits approvals

Kia ora. Welcome to Friday’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 the US and Iran have apparently (https://www.bloomberg.com/news/articles/2026-05-28/iran-us-accuse-each-other-of-truce-breach-with-no-deal-in-sight?srnd=homepage-americas) agreed a 60 day truce, pending Trump's signoff. All the while, both sides traded attacks (https://www.nytimes.com/live/2026/05/28/world/iran-war-us-trump-deal) in the region. The small number of ships transiting the Strait of Hormuz has virtually dried up. Meanwhile, US jobless claims (https://www.dol.gov/sites/dolgov/files/OPA/newsreleases/ui-claims/20260765.pdf) slipped last week to 185,600 and by about what seasonal factors would have indicated. There are now 1.68 mln people on these benefits, less than one and two years ago. There was a sharp drop in new home sales (https://www.census.gov/construction/nrs/pdf/newressales.pdf) reported for April, and they were -11.3% lower than year ago levels. Rising mortgage rates is weighing heavily on this sector. But they reported a sharp increase in durable goods orders (https://www.census.gov/manufacturing/m3/adv/pdf/durgd.pdf) in April, up +19% from a year ago, up notably from March. This is where we see the full effect of stockpiling as buyers try to get ahead of rising inflation. One reason was a +41% jump in capital goods on the same basis. But excluding defense and aircraft orders, the increase was modest. The second estimate of GDP growth (https://www.bea.gov/news/2026/gdp-second-estimate-and-corporate-profits-1st-quarter-2026) for Q1-2026 is out and it was revised lower, mainly on lower consumer spending and investment levels than in the initial estimate. They now say the US economy expanded +1.6% in the period. They also released the April data for US personal income and personal spending. This showed that personal disposable income fell from March, up +2.5% from a year ago, while personal consumption expenditures rose, up +5.9% from a year ago. In fact, their April PCE inflation (https://www.federalreserve.gov/economy-at-a-glance-inflation-pce.htm) measure rose to 3.8%, its highest since May 2023 and the end of the pandemic effect, and prior to that the highest since this data was collated in 2017. Undoubtedly, this has the Fed's attention, especially the accelerating nature of it. US crude oil and petrol stocks fell again (https://www.eia.gov/petroleum/supply/weekly/pdf/highlights.pdf) last week, but 'only' by about the levels expected. that extends the fall to five consecutive weeks, all substantial, and coming after three prior weeks of modest or no-change outcomes. Retail pump prices (https://gasprices.aaa.com/) for petrol are still +48% higher than at the start of the Iran-US conflict and closure of the Strait of Hormuz. There was a US Treasury 7yr note auction (https://www.treasurydirect.gov/instit/annceresult/press/preanre/2026/R_20260528_3.pdf) overnight and the yield increase was not as fierce as yesterday's event. This one delivered a median yield of 4.24% (high 4.29%), up from the 4.12% at the prior equivalent event (https://www.treasurydirect.gov/instit/annceresult/press/preanre/2026/R_20260428_3.pdf) a month ago. In Canada, their central bank has released and updated Financial Stability Report (https://www.bankofcanada.ca/wp-content/uploads/2026/05/opening-statement-280526.pdf) which found that Canada’s financial system has functioned well through a challenging year. Households and businesses remain in stable financial condition, and banks have strengthened their capacity to absorb shocks. Meanwhile they reported that average weekly earnings (https://www150.statcan.gc.ca/n1/daily-quotidien/260528/dq260528b-eng.htm) rose +3.5% in March from a year ago, a faster pace of increase. They have CPI inflation (https://www150.statcan.gc.ca/n1/daily-quotidien/260519/dq260519a-eng.htm?HPA=1&indid=3665-1&indgeo=0) of +2.8% at the same time so Canadian employees are generally staying ahead of the cost pressures. The Korean central bank kept its official rate unchanged (https://www.bok.or.kr/eng/bbs/E0000634/view.do?nttId=10098190&menuNo=400423&relate=Y&depth=400423&programType=newsDataEng) yesterday at 2.5%, as expected. Updated Australian household spending data (https://www.abs.gov.au/statistics/economy/finance/monthly-household-spending-indicator/apr-2026) for April shows it fell -1.1% month-on-month (on a current price, seasonally adjusted basis) to be +4.9% higher than in April 2025. In the same period CPI inflation rose 4.2%. The weak outcome is being attributed to the sharp hike in fuel costs, and compensating pullbacks elsewhere. It is their first fall in household spending in four months. And staying in Australia, they said private new capital expenditure (https://www.abs.gov.au/statistics/econ...