China struggles to regain momentum. Japan retail surges. US manages last-ditch budget compromise. EU inflation retreats. Eyes on RBA & RBNZ.
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, a pair of surveys confirm the giant Chinese economy is just crawling along, neither expanding nor contracting.
First up today however, we need to note that it is a holiday in much of Australia, their Labour Day.
And late on Friday, they released a review of June quarter foreign investment rulings. In the residential section, China (including Hong Kong) had AU$1.3 bln of applications approved, taking the total for the prior 12 months to AU$4 bln (page 6). The next eight largest country sources got approvals for AU$2 bln combined. From all sources, they approved AU$7.9 bln in that year. So there seems to be a rush on by buyers from China and Hong Kong to acquire Aussie houses.
In China, their factory sector moved back to expansion in September, according to the official PMI survey, their first expansion since March. Their timid service sector expanded too, and at a fractionally faster rate. But also released over the weekend were the private Caixin PMI surveys for September. That confirmed the marginal factory expansion, but suggested the services expansion was weaker than the official measure.
And staying in China, their Mid-Autumn Festival has started and they are on holiday from Friday until the end of this week. This year, the National Day holiday spans from September 29 to October 6, overlapping with the Mid-Autumn Festival. To partially offset the seven consecutive days of the National Day holiday, Saturday, October 7 and Sunday, October 8, have been designated as official workdays, resulting in a 7-day working week next week. But Hong Kong will only be closed for National Day, on Monday, October 2, 2023.
All this is generating a surge in internal travel. More than 20 million trips were made across the rail network on the first day of the holiday, with travel by all means expected to jump almost 80%.
In Japan, August retail sales rose +7% from a year earlier, unchanged from an upwardly revised July result. This August increase was much higher than the consensus forecast for +6.6% growth and was the fastest pace since February. Consumption continues to recover solidly after the pandemic-induced retreat. Japan has CPI inflation at 3.2%.
In the US, a truly last minute short-term compromise to keep the US funded was agreed, but only after the blocking Republicans were sidelined with a bipartisan deal. They will be back with another attempt to get an enduring resolution in 45 days - mid-November, when all this silly drama will probably happen again.
In the meantime, progress on inflation. The American core PCE inflation level came in at 3.9% from a year ago, the lowest since May 2021. And the recent track has it running at an annualised rate well below 2%. So some inflation progress here.
US personal income growth however is running faster than that, picking up in August to be +4.6% higher than a year ago, and a faster pace recently. This is not a sign of stress among most households. Personal expenditure remains strong and is continuing to underpin the global economy.
US wholesale inventory levels are not rising, but retail inventories are although broadly in line with inflation. And the American merchandise trade deficit is falling.
The manufacturing heartland Chicago PMI fell back in September to July levels. The strikes at carmakers won't be helping.
But consumer sentiment held in the month, as measured in the widely-watched UofM survey, and is +16% better than a year ago. This result confirms its earlier 'flash' reading.
In Canada, an interesting class-action lawsuit is underway, claiming the residential real estate industry conspired to agree fixed prices for brokerage and commissions, and this has hurt vendors.
EU inflation fell more than expected in September, down to 4.3% year-on-year and reaching its lowest level since October 2021. Analysts had expected a 4.5% rate.
Tomorrow and Wednesday, we will get Monetary Policy Reviews from both the RBA and the RBNZ. Neither are expected to change policy rates. But each will still be important in its own way. The RBA's decision will be the first under new Governor Bullock. The RBNZ one is in the shadow of the upcoming election, and its observations about where we stand will be closely followed for how they will react after the election.
The UST 10yr yield starts today up +1 bp from Saturday at 4.58%. And that is up +12 bps from a week ago, up +38 bps in a month.
The price of gold will start today at just on US$1848/oz and down another -US$2 from Saturday. This is a new low since February 2023, all driven by the sharply rising yields. A week ago this price was US$1923/oz. A month ago it was US$1941/oz, so almost -5% lower since then.
Oil prices have moved little since Saturday so still at just on US$90/bbl in the US. The international Brent price is just over US$92/bbl. A week ago these prices were very similar. A month ago they were -US$5 lower.
The Kiwi dollar starts today at marginally under 60 USc. A week ago we were at 59.6 USc and at the start of the month 59.7 USc. Those indicate very little net movement. Against the Aussie we are firmish too at 93.3 AUc and to a four month high. Against the euro we up +½c at 56.7 euro cents. That all means our TWI-5 starts today at 69.9, up +60 bps from a week ago, and up +140 bps in a month. We have had significant rises against almost all others, except the greenback.
The bitcoin price has moved back up today from Saturday, and it is now at US$27,135 and +1.0% firmer from then. A week ago, this price was US$26,812, and a month ago US$27,303. So the net movements have all also been very minor. However, at the start of July the price was US$30,445 so a -12% quarterly loss for this benchmark crypto. Volatility over the past 24 hours has been low at just under +/-0.6%.
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.