Weak Chinese economy poses global challenge. US retail sales healthy, other business growth-positive, but confidence low. commodity prices retreat.
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 China seems to be inching toward an economic reckoning.
But first up today, all eyes will be on the New Zealand CPI inflation rate for the June quarter, which will be released at 10:45am today. It was 6.9% in March and today's consensus expectation is that it will have risen to 7.1%. Variations from that may well shift financial markets. Check back with us then; we will have full coverage.
Meanwhile, China has reported bad economic activity levels for the June quarter, worse than the poor ones expected. And remember, these are the official data. GDP fell -2.6% in the June quarter from the March quarter, and that undermined the year-on-year expansion to just +0.4%, well below the expected +1.0% and miles lower than the March level of +4.8%. China's goal of a 2022 expansion of "about 5½%" is now lost. The upcoming Party Congress is likely to be a dour affair with a dark economic shadow hanging over it (the date for this Congress hasn't been set yet).
China's weak GDP result is after they reported asurprise rise in retail sales for June. the +3.1% year-on-year increase for June easily beat market estimates of a flat reading and shifting from a -6.7% drop in May. The latest figure marked the first increase in retail trade since February, as consumption recovered following a drop in pandemic lockdown restrictions.
After sliding all year, China says its electricity production rose sharply in June, up +1.5% from year ago levels after May was down -3.3% on the same basis. June's coal production, used mainly to fire up electricity generators, was up +15%.
China is scrubbing social media of any references to the growing mortgage boycott there. No one is suggesting this movement is enough to undermine their banking system yet, but it is a rare indication of widespread discontent over how their economy is putting pressure on homeowners. It does have a chance of being big - China's middle class has more than 70% of its personal wealth tied up in housing. Over the weekend, a banking regulator told their banks to lend to complete projects.
US June retail sales came in better than expected as our weekly monitoring had suggested. They were up +1.0% from May and up +8.9% from year-ago levels on an actual basis. Much will be price increases however.
Business inventories rose +1.4% in May from April to be almost +18% higher than year-ago levels. The Inventory/Sales ratio is creeping up now to be higher than year-ago levels, so you can see why managers are taking action on that front.
Still, factory data can still surprise on the positive side, and that is what we got from the New York factory survey for July. It bounced back unexpectedly, with increases in new orders, production activity, and employment. But even after those gains, firms grew more pessimistic, thinking it is down from here.
A more broad, national industrial production measure, this one for June, recorded a +4.2% gain year on year but that was lower than for May.
Businesses may be a little less optimistic, but somewhat surprisingly, consumers are picking themselves off the mat. The widely-watched national University of Michigan consumer sentiment survey rose in July from June. It is still very low, but an improvement was not anticipated.
Also still negative, but improving more than expected, was the Canadian senior loan officer survey.
And that is despite a retreating housing market there.
In Australia, where infections and deaths are again rising sharply, the new pandemic wave has seen their new Government backtrack and re-introduce support payments for workers forced to isolate. These payments, which ended on June 30 and entitled workers to get up to AU$750 for each seven-day quarantine period, will be restored and extended until September 30.
We should also note that the new pandemic wave is hitting New Zealand as hard as anywhere, with up to 30% of workers isolating at many companies. That will make customer service very difficult in the coming weeks and test the tolerance of many customers. Mask complacency is rife making the spread very difficult to stop.
Back in Australia, shareholder objections might have put the kibosh on ANZ's ambitions to buy MYOB. But the bank does look likely to be the winner in the race to buy Suncorp Bank. That would add AU$85 bln in banking assets to its existing AU$678 bln. After that, it would still leave ANZ as the #4 'big bank' at 67% the size of market leader CBA.
A review of some key commodity prices shows inflation isn't likely to be driven higher from these. Copper is down -28% since the start of the year with most of the fall since early June, nickel has now lost all its 2022 gains, iron ore is now lower than its 2022 start. Aluminium is similar. The oil price is still higher than when Russia invaded Ukraine, but is back a lot since early June. Even the wheat price is retreating and has given up all its invasion premium. If inflation stays high, it won't be because of these core commodities. "Transitory" still has a chance of being right.
The UST 10yr yield starts today down at 2.93% and unchanged from Saturday.
The price of gold will open today at US$1709/oz which is +US$4 firmer than this time Saturday. And that is -US$34 lower than this time last week.
And oil prices are little-changed at just under US$95/bbl in the US, while the international Brent price is just over US$98.50/bbl. A week ago these prices were US$103 and US$106/bbl respectively.
The Kiwi dollar will open today at 61.6 USc. A week ago it was at 61.9 USc. Against the Australian dollar we are little-changed at 90.7 AUc. Against the euro we are also little-changed at 61.1 euro cents. That means our TWI-5 starts today at just under 70.8 and up a mere +20 bps from this time last week.
The bitcoin price rose from this time Saturday by +0.6% to US$21,077. A week ago it was at US$ 21,598. Volatility over the past 24 hours however has been modest at just under +/-2.0%.
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.