China's exports sink, but investors look ahead optimistically; commodity prices rise; US sentiment improves; Germany grows; Aussie housing lending falls.
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 some unexpected optimism is creeping back into financial markets.
This week, the spotlight will be taken by US retail sales, producer price inflation, several housing indicators, and earnings reports for some large companies. Also, fresh inflation data will be released for the UK, Japan, Canada, and South Africa and monetary policy meetings will be held in Japan, Norway, Malaysia, and Indonesia. Finally, investors will be waiting for Q4 GDP growth, Industrial production, and retail sales data from China.
We should also note that tomorrow is Martin Luther King Day tomorrow in the US, so many markets there including the NYSE will be closed.
But first, China said its exports were -9.9% lower in December than the same month a year ago, a slightly worse result than anticipated. Its exports to the US were little-changed in value terms. It bought a lot less from Australia and a little less from New Zealand. But its exports to Australia were up strongly, and even more so to New Zealand. Electric cars (Teslas and BYDs) drove those exports. Overall China's car exports are up +57% from year-ago levels.
Looking ahead, investors are turning bullish on China, looking past the immediate pandemic hurdles to the longer term benefits of opening up. The best indication is that commodity prices are rising. The iron ore price is its highest in six months (and China isn't happy about that). There have also been recent heady rises for tin, aluminium, zinc, and especially copper. Interestingly neither nickel nor lithium have benefited from these rises recently, but this may be more about copious new supplies coming on line.
Elsewhere in the region, South Korea raised its policy rate from 3.25% to 3.50% late Friday. This was as expected, and they say is necessary to combat high inflation.
In the US, and in an unexpected surprise, the closely-watched University of Michigan consumer sentiment survey recorded much sharper gains in consumer sentiment in is first January reading that was anticipated. A small gain was expected, but a big rise was recorded. Although the overall level remained low from a historical perspective this was a lift for a second consecutive month. Financial markets took note.
Separately, the US Fed is steadily shrinking its balance sheet. It has sold off US$456 bln since its peak in April 2022, taking it down to US$8.5 tln, a -5% reduction so far. Prior to the pandemic, it was at US$4.2 tln, so there is a very long way to go to 'normalise'.
In Germany, despite all the pressures on them, they have wrapped up 2022 with a +1.9% expansion in their economy. That might be slightly less than 2021, but it is another expansion greater than their ten year average.
Meanwhile, EU industrial production came in better than anticipated, rising +2.0% in November from a year ago when only +0.5% was expected. The expansion from October was better than expected too.
Turkey's inflation rate is falling now, up only +1.8% in December from November, and down to just a +64% annual rate. However, Argentina suffered a +5.7% rise in prices in the month, taking its annual rate to +95% pa!
In Australia, lending for housing fell again and more sharply than expected. The November data makes it the 10th consecutive month of decline and is now -26% down from its January 2022 peak. Lending to owner occupiers fell faster than for investors, but overall, it is now at a ten year low. Lending for construction dived substantially more in November from October as the sector shudders.
The sharp decline in American inflation might mean we are approaching the end of the rising interest rate cycle. Certainly, local wholesale rates are now retreating, mirroring American rate trajectories. But with the prospect of a 2023 recession still being expected by most professional analysts, rate curves have turned negative. The New Zealand rate curves are now at record 21st century inversions.
The UST 10yr yield starts today at 3.50%, and little-changed from Saturday.
The price of gold will open today at US$1921/oz and up another +US$4. For the week that is a +US$56 gain, or +3%.
And oil prices start today +50 USc higher than Saturday's levels at just over US$80/bbl in the US while the international Brent price is just under US$85.50/bbl. These levels are about US$6 higher than last week.
The Kiwi dollar has changed little, now at 63.8 USc. Against the Australian dollar however we are holding at 91.5 AUc. Against the euro we are a little firmer at 59 euro cents. That all means our TWI-5 starts today at 70.7, and unchanged since Saturday.
The bitcoin price is on the move higher, now at US$20,878 and up a very strong +8.5% from where we left it on Saturday. Recall, it was US$16,846 a week ago, so that is a +US$4000 rise since then, or +24%. Volatility over the past 24 hours has been modest however at just +/- 1.2% with most of the jump happening Saturday afternoon.
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 will do this tomorrow.