Elections in the balance. China misfires. India slows. US sentiment sags on debt-ceiling struggle. China and Australia try to make up.
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.
And today we lead with news democracy is being tested in two autocratic states, and demographic patience is being rewarded in one that has struggled for a decade.
Elections are underway in both Thailand and Turkey and autocrat rulers are under challenge. While there are doubts about the fairness in both countries, there does seem to be a mood for change which might overwhelm the incumbents. Or, if their controls hold, it might not. We won't know for a day or two although pro-democracy parties in Thailand seem to be in a good position, a rebuke for strongman military rule. In Turkey, both parties are claiming the lead which does not bode well for the challenger.
There are elections in Greece next weekend. They won't be so notable, except that if a similar government is formed it is expected they will regain investment grade for their government debt. That will end 12 years of 'junk' status. They had to swallow tough medicine at the time, but they have come through their crisis with an economy that is now one of the better in Europe in terms of expansion, certainly in Southern Europe.
In the coming week in the US, the spotlight will be on speeches by several Fed officials and retail trade data, followed by industrial production and several housing indicators, including housing starts, building permits, and existing home sales. Elsewhere, Q2-2023 economic growth rates will be released for Japan, Thailand, the Netherlands, Poland, Israel, and Russia. Investors will also be closely following industrial production and retail sales for China, as well as inflation rates for Canada and Japan, and unemployment rates for the UK, France, and Australia.
Recently, we pointed to deflating producer prices in China as a sign that their economy is misfiring. We can also note that loan demand has weakened much more sharply than expected too, confirming the funk. In the long term it is probably a good thing that debt levels aren't rising as fast, but this recent shift is caused by stuttering activity levels. Imports are very weak, suggesting the need for inputs is weak. And Chinese banks extended less than ¥720 bln in new loans in April, less than a fifth of March's level and just over half of the amount expected by analysts. That is a massive change in just one month. Analysts had expected a fall to ¥1.4 bln so this came in at about half of what was expected. For a country as large as China, this is huge.
More than that, Chinese household bank deposits dropped sharply in April too, by nearly -¥1.2 tln (-NZ$280 bln), according to the same data release. That too is a massive one-month change.
India's industrial production growth unexpectedly slowed sharply in March, rising just +1.1% from year-ago levels which was quite unexpected given the strong rises in the prior four months.
Indian inflation also slowed sharply to 4.7% in April, the lowest since October 2021. That is a full percentage point drop from 5.7% in March (and 7.8% a year ago). Food inflation came in at 3.8% and the lowest since November 2021. Climate isn't hampering Indian food production.
And Singapore is currently suffering under record-high heat at 37oC. Their records go back 84 years. While their population can stay inside and air-conditioned, it isn't a sustainable solution even for them - and the likelihood is that temperatures will rise from here over time. And they are not the first to suffer under brutal heat this year, and these record highs are coming ahead of the region's summer season that may peak in August. It is a grim prospect many are facing.
In the US, weaker consumer sentiment is took the wind out of Wall Street on Saturday, but it is also helping the Fed lower inflation expectations. The widely-watched University of Michigan consumer sentiment survey for May came in much lower than expected - in fact no change was expected, but it actually dipped to a six month low. Congress's debt limit crisis got a specific mention as a key reason for the sudden shift in attitudes.
As the days get closer to a June debt-limit crisis (which could come very early in the month), the US Treasury Secretary noted some American debt will inevitably be defaulted on if Congress doesn't act very soon. Short-term costs for insuring American bonds are skyrocketing, and the long-term effects of repeated flirtations with debt default are already a financial burden. These are costs that are spreading worldwide and even impacting our wholesale rates.
In Canada, their quarterly senior loan officer survey showed mortgage lending conditions tightened sharply in the March quarter. Other business lending showed tightening too, but not to the extent of mortgage lending. In fact mortgage lending was its tightest since their survey began in 2017.
It was reported in China that their foreign minister will be visiting Australia in July, in what they say is "improving ties" between the two.
The UST 10yr yield starts today at 3.46%, and unchanged from Saturday.
The price of gold will start today at US$2011/oz, unchanged from Saturday but down -US$20 from this time Friday.
And oil prices are unchanged from Saturday to be just on US$70/bbl in the US. The international Brent price is just on US$74/bbl. These are very low levels, back to 2021 when they were down here last, and we first say these levels in 2007, sixteen years ago.
The Kiwi dollar is -1c weaker against the USD from Friday but unchanged from Saturday, and now just under 61.9 USc. Against the Aussie we are also -1c lower at 93.3 AUc. Against the euro we are -¾c lower at 57.1 euro cents. That means the TWI-5 is now at 70.1 and -80 bps lower than this time Friday although unchanged from this time Saturday.
The bitcoin price is firmer today, now at US$26,943 and up +2.2% from this time Saturday. Volatility over the past 24 hours has been modest at just over +/- 1.1%. And Binance, the world’s biggest crypto exchange, said it will close down in Canada after the country moved to impose new regulations on digital-currency trading platforms.
You can find links to the articles mentioned today in our show notes.
You can get more news affecting the economy in New Zealand from interest.co.nz.
Kia ora. I'm David Chaston. And we will do this again tomorrow.