Americans tackle BNPL. China's slowdown deepens. Europe struggles with inflation. Australia opens borders for skilled workers despite pandemic.
Kia ora,
Welcome to Monday’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 virulent Omicron is casting a pall over the close of 2021.
The run-up to the holidays will be all about retail sales (and whether the softness from supply chain issues and inflation can be overcome). There will not be not much economic news, although China is reviewing its prime rates and Taiwan's export order levels in November will come through later today. And many countries will report their final Q3 GDP results.
And there is another dairy auction on Wednesday morning.
Over this past weekend, an American regulator said it was investigating the buy-now, pay-later industry with an investigation into the largest operators there, which includes two of Australia's largest (AfterPay and Zip). Shares in both fell heavily after the announcement. The US regulator is concerned about accumulating debt, regulatory arbitrage, and data harvesting in a consumer credit market already quickly changing with technology.
And it is not only regulators. Consumer credit reports are now getting this BNPL debt added, the obligations for which have been a blind spot for lenders. Having BNPL debt can seriously hurt your chances of getting a loan or mortgage.
In China, they reported that fiscal revenue is still falling, and falling faster with a fifth straight month of declining tax receipts, especially from the private sector and SMEs.
And that comes after China revised down its 2020 GDP growth to 2.2%. Some now think 2021 growth will be lucky to reach 5%.
Meanwhile, S&P has become the latest ratings agency to declare Evergrande in default.
And staying in China, foreign direct investment rose almost +16% in November from the same month in 2020, reaching NZ$235 bln in the month. But most of this is now coming from 'partners' in their Belt & Road initiative, rather than from first world investment. These heady increases are slowing, from +20% in September to +18% in October to +16% in November.
In Germany, business confidence as measured by the widely-watched Ifo survey fell for a sixth month in December and to its lowest level since February. It was a fall greater than expected. Confidence in the near-term economic outlook is weakening due to renewed restrictions to curb the country's fourth wave of the pandemic as the effects of supply bottlenecks go on and on.
But there are some signs the factory inflationary pressures are moderating. Even though producer prices rose +19.2% from a year ago, the December level came in with a rise much less than expected over November (+0.8% vs +1.4% expected). That might not mean much if later data resumes the climb, or it could be an early indication of a topping out. It is hard to see however, how +19% cost increases can be tolerated, even if most of it comes from high-cost Russian energy.
In Russia, these same energy rises are causing their economy indigestion. They raised their official interest rate by +1% over the weekend to 8.5% and back to 2017 levels to keep a lid in their wave of inflation. They also said more hikes are coming because even more inflation is probably coming.
In Turkey, the situation is going from very bad to much worse. The further sharp fall in their currency after the recent interest rate cut (and the selling of FX reserves to support it turned into a vast waste of money) has brought a trading halt in the main stock exchange. Even after their 50% hike in the minimum wage a few days ago, the raging inflation means the affected workers are still worse off than a year ago. The situation is now so bad that what is required to sort the gigantic mess out will likely be equally painful.
Mexico also raised rates over the weekend, up +50 bps to 5.50% and also tackling entrenched inflation here. It was their fifth straight rise.
The Bank of Japan left its interest rate settings unchanged, but decided to wind down its pandemic support. They did say that they see a good economic recovery building there and private spending starting to rise in the way they want.
Europe is suffering a gigantic Omicron infection wave and many countries are going back into lockdown to deal with it. The Netherlands and the UK are especially hard hit although few others are escaping the surge.
Australia has opened its borders to "skilled workers" and they are starting to arrive in numbers to address critical labour shortages. How far a similar surge in Omicron pandemic infections will be will soon be known.
The UST 10yr yield opens today at 1.41% and a+2 bps firming since this time Saturday.
The price of gold will start today at US$1799/oz and down -US$6 from this time yesterday.
And oil prices start today -US$1 lower at just over US$70/bbl in the US, while the international Brent price is now just under US$73/bbl. But in Europe, natural gas prices are surging and from levels that were already high.
The Kiwi dollar opens today softer at 67.3 USc and that is -¾c lower than this time last week. Against the Australian dollar we are little-changed at 94.6 AUc. Against the euro we are still at 60 euro cents. That means our TWI-5 starts the today unchanged at 72.2 and back to its four month lows.
The bitcoin price is holding at US$47,191 and up a mere +0.5% from this time Saturday. Volatility over the past 24 hours has been low at +/- 0.9%.
You can find links to the articles mentioned today in our show notes.
And get more news affecting the economy in New Zealand from interest.co.nz.
Kia ora. I'm David Chaston and we’ll do this again tomorrow.