Stress management weak and risky

<p>Kia ora,</p><p>Welcome to Thursday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.</p><p>I'm David Chaston and this is the international edition from Interest.co.nz.</p><p>And today we lead with news that stresses are building in China and so far they aren't doing much to effectively turn them around.</p><p>But first, aided by sharply retreating energy costs, annual <a href="https://www.bls.gov/news.release/cpi.nr0.htm" target="_blank"><strong>inflation ran at 4.9%</strong></a> in April in the US, lower than the 5.0% in March and the 5.0% rate expected. And very much lower than the 8.3% rate a year ago. That is the first time in two years it has been below 5%. Progress in taming inflation might seem slow, but actually they are making steady progress. However, the March to April annualised rate is 6.1% unadjusted for seasonal effects, or 4.8% adjusted for seasonal effects. So they might find it tricky to make progress from here. The next stage will require inflation expectations to recede. There are <a href="https://www.newyorkfed.org/microeconomics/sce#/" target="_blank"><strong>signs of that</strong></a>, but these signs are not solid yet.</p><p>Because the data is broadly in line with what analysts had expected, there has been only muted market reaction - it has been priced in. But that assumes the Fed is less likely to go hard on its rate increase track. The 5.25% policy rate is now not expected to rise from here. Maybe a brave market expectation, but that is what is priced in.</p><p>American <a href="https://www.mba.org/news-and-research/newsroom/news/2023/05/10/mortgage-applications-increase-in-latest-mba-weekly-survey" target="_blank"><strong>mortgage applications jumped</strong></a> 6.3% in the first week of May, the biggest rise in nearly two months and rebounding from a -1.2% fall in the prior week. But that is now three of the last six weeks recording notable rises, seven of the last twelve weeks. Helping is a slow retreat in benchmark mortgage rates.