US on holiday but Canada data points to rate rises. China reports good data but real data undermines it. Beijing worried on multiple fronts.
Kia ora,
Welcome to Tuesday’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 sense of worry in Beijing is clearly rising for a number of reasons.
But first in the US, it is a public holiday with both the equity and bond markets closed for Martin Luther King Jr Day. The bullion markets are trading however.
North of the border in their Business Outlook Survey, which the Bank of Canada takes seriously, it hit its highest, most expansionary level ever in the December edition just released. It reveals fast-rising demand, capacity constraints and supply-chain issues, strong labour demand and higher pay, and fast-rising costs for which prices are being raised. If Omicron hadn't hit hard after this survey was conducted, the Canadian central bank almost certainly would be raising rates at their upcoming January meeting next week. Now it’s a line-call.
In Japan, November machinery orders rose faster than expected both on a month-on-month basis (+3.4%) and a year-on-year basis (+11.6%). That says a lot of positive things about global investment intentions.
In China they reported their Q4 GDP was up +4.0% from the same quarter in 2020, which is much better than anticipated but down from, +4.9% in Q3-2021.
However, Chinese retail activity struggled in December, rising just +1.7% year-on-year when a +3.7% rise was expected and November was up +3.9%. It's their slowest growth in 16 months, and looking past the 2020 pandemic, the slowest growth in China ever. For all of 2021 retail sales were up +12.5% so most of that came early in the year and relies on a suppressed base effect.
China's industrial production was a bright spot, up +4.3% and its best rise in four months even it is unusually low for them. Only a recovering rest-of-the-world and the export orders from them, saved the day.
Chinese electricity production tells a different and perhaps real story - it actually fell -2.1% year-on-year, so that kind of does cloud the other data results and suggests, even if they are positive, the real story might not be so good. Everything is 'national security' in China, so reporting 'declines' is frowned on again.
Clearly, Beijing is worried. The People’s Bank of China lowered the interest rate on 700 billion yuan worth of 1-year MLF loans by -10 bps to 2.85%, as well as on 100 billion yuan worth of 7-day reverse repos by the same margin to 2.1% late yesterday. But this wasn't enough new policy support to stop a sharp selloff in Chinese property developer bonds yesterday. This whole sector is now in crisis mode.
Adding to the sense of worry, President Xi made a speech where he implored Western nations not to raise interest rates. Even after acknowledging the supply-chain crunch, high commodity prices and tight energy markets, he called on Western central banks to sit tight.
The Beijing worry index is also rising on the Omicron front, with Winter Olympic ticket sales now cancelled. And in a related move anti-doping agency WADA has warned athletes not to eat meat in China because of the elevated likelihood it will contain banned steroids.
The UST 10yr yield opens today at 1.79% and holding while the New York bond market is closed.
The price of gold starts today at US$1820/oz and up +US$2.
And oil prices start today unchanged at just on US$83.50/bbl in the US, while the international Brent price is now just under US$86/bbl. These prices are close to a seven year high.
The Kiwi dollar will open today at 68 USc and unchanged from this time yesterday. Against the Australian dollar we are softish at 94.3 AUc. Against the euro we are holding at 59.6 euro cents. That means our TWI-5 starts the today at 72.3 and the same as this time yesterday.
The bitcoin price has moved down by -2.8% to US$42,174. Volatility over the past 24 hours has been modest at +/- 1.5%.
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.