Pandora Papers expose the usual suspects. Shipping costs revert sharply. Japan has new PM. US factories busier. Coal prices take off.
Kia ora,
Welcome to Monday's Economy Watch where we follow the economic events and trends that affect New Zealand.
I'm David Chaston and this is the International edition from Interest.co.nz.
Today we lead with news the price of coal is racing higher, making Australian and American miners rich, all based on extreme stress in both the Chinese and Indian electricity generation sectors.
But first up today, the ICIJ has released a new huge trove of documents that reveal "the inner workings of a shadow economy that benefits the wealthy and well-connected at the expense of everyone else." A small but crucial role in all this is played by New Zealand's "best place to do business" arrangements, allowing our reputation to shield dodgy dealings by some very wealthy individuals from Russia, China, and Brazil, among others. In Australia, more than 400 people have been identified as involved. The Pacific islands are involved too. This data dump is called the Pandora Papers, a similar expose as the Panama Papers which were released in 2016.
Separately, there are signs the extreme cost of shipping containers is easing, and fast. An executive with a Shanghai freight company said overnight that the cost of shipping a 40-foot container from China to the US West Coast dropped by nearly half in the previous four days, going from about US$15,000 to just over US$8,000. The spot rate for shipping to the US East Coast had fallen by more than one-quarter from over US$20,000 to less than US$15,000. The shipping off-season is almost here, the Chinese power crunch has slowed Chinese factory output, and seeing this, speculators are rushing to sell-off their hoarded shipping spots.
In the more broad east Asian region, the World Bank has said that while China’s economy is projected to expand by +8.5% off a very low base, the rest of the region is forecast to grow at just + 2.5%, nearly 2 percentage points less than forecast in April 2021. Employment rates and labour force participation have dropped, and as many as 24 million people will not be able to escape poverty in 2021.
China is still on its Golden Week national holiday, and markets don't reopen until Friday.
Japan has a new Prime Minister, Fumio Kishida, who was their foreign minister. He will lead the ruling party into new elections at some point relatively soon and probably in November. He won the role with overwhelming support amongst his parliamentary colleagues, although he didn't poll as high among the general public.
Japan has ended its Covid state of emergency, and life there is returning to 'normal'.
The US released its PCE inflation data over the weekend, the preferred measure of the Fed and gives a lower reading that their CPI. It was higher at +4.3% in August, the fourth straight month it has been above 4% pa. On a core basis it was up too, but at 3.6% pa it is still its highest in 30 years.
This same data shows consumer spending edged higher, and separate data shows consumer sentiment edged up in late September as well, but the real surprise over the weekend was on factory floors.
The widely-watched ISM PMI for September came in reporting a strong expansion, better than for August and better than expected. Order backlogs remained high as did pricing pressures.
The internationally-benchmarked Markit PMI for the US was equally positive, showing the same attributes even if it did pull back from an even stronger August. Orders and prices both rose in this report at a record pace.
There were factory PMIs reported for most of the main global economies released over the weekend but the US was the strongest.
In commodity markets, the hottest item right now is coal. Both China and India face immediate and severe shortages, and the competition for global supplies is driving prices sharply higher. Australia is a significant beneficiary. The carbon 'cost' is borne by the buying user and not Australia.
The UST 10yr yield opens today at just over 1.46% and down -2 bps from this time Saturday and at the levels of a week ago.
The price of gold will start today little-changed, up just +US$1 at US$1761/oz.
And oil prices are still at just under US$75.50/bbl in the US, while the international Brent price is just on US$79/bbl.
The Kiwi dollar opens today little-changed at just on 69.3 USc. Against the Australian dollar we are also little-changed at just on 95.6 AUc. Against the euro we still at 59.9 euro cents and back to week-ago levels. That means our TWI-5 starts the week at 73.1, and back at the middle of the 72-74 range of the past eleven months.
The bitcoin price is marginally higher since this time Saturday, to be now at US$47,496. Volatility in the past 24 hours has been low at just over +/- 1.2%.
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.