War expands; Japan rising; China jobs stress rises; India underperforms; US confidence drops; Canada jobs surge; food faces crisis; Lowe prepares for rate hikes
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 the war in Ukraine rages on, expanding and getting dangerously close to drawing in NATO. Russia seems frustrated it wasn't a quick affair (as in its takeovers of Belarus, Kazakhstan, and Georgia) and is lashing out.
In economic news, Japan might be rising from its national funk over the past few years. Household spending there increased by +6.9% in January in real terms from the same month a year ago, easily beating market forecasts of +3.6% and reversing from a -0.2% fall a month earlier. This was the first rise in personal spending since last July and the strongest pace in eight months. Consumption has recovered following soaring vaccination progress.
In China, their jobs imbalance is an issue at the highest levels in Beijing. In 2022, 16 mln "urban job seekers" will enter their labour force. But Government plans will only accommodate "11 mln to 13 mln urban jobs in 2022". Premier Li Keqiang revealed the imbalance at a Party conference - and at the same time announcing that he was stepping down (but this item is not suggesting the two issues are related at all). There is still no word on the expected crowning of Xi Jinping as President for life at the current party congress.
And staying in China, vehicle sales surged almost +19% year-on-year to 1.74 mln units in February. That was a sharp improvement from the lackluster January result. Sales of passenger cars rose almost +28% year-on-year to 1.49 mln units.
And China is ramping up its coal production fast.
China is also finding pandemic infections rising fast again, now at record levels for them. If the latest rapid spread brings out their standard playbook, lockdowns will quickly affect their economy, this time hit when vulnerable. Chinese cities with low health care budgets and low financial self-sufficiency tend to enforce more stringent curbs to reduce the risk of outbreaks - and that is a lot of cities.
India is continuing its tradition of underperformance with industrial production rising but well below expectations. India is consumed by their culture wars at present, and governance competence isn't on the minds of voters who have been going to the polls there and delivering strong results for the extremist Hindu nationalist party who currently hold power. 'Miscalculations' on their border with Pakistan are another potential flash-point. They have issues on their eastern border too.
In the US economic sentiment is sinking. The latest University of Michigan consumer sentiment survey fell to its lowest level since November 2011, as inflation expectations rose sharply, of course due to the surge in fuel prices caused by the Russian invasion of Ukraine.
Investor mood over the weekend isn't flash either with the S&P500 futures -1.3% lower ahead of tomorrow's Wall Street open.
Part of that mood shift may be because the Fed seems locked in for a +25 bps rise later this week and now markets are 'debating' their pricing for the next (early May) rise for which there is growing sentiment for a +50 bps rise.
In Canada their labour market is expanding fast again, mainly for part-time jobs (+215,000 in February), but even without that, the full-time jobs gain (+122,000) alone would have been good enough to call this an overall positive result, far better than was expected and far more than making up for past weaknesses.
Commodity prices are remaining extremely high, even if they haven't risen further at the end of this week. Nickel still isn't trading again on the Chinese-owned LME, a market embarrassment for the exchange operator, and for Beijing who are now weighing 'rescuing' the Chinese billionaire whose short bet has wrecked the market for nickel. Also shut for the foreseeable future is the Moscow stock exchange with authorities there not willing to have losses crystalised in on-market pricing.
More details are emerging of the impact the war will have on wheat and corn supplies, especially for animal feed. Some importing countries are raising the alarm already and the UN food agency has issued an alert on the coming crisis.
The cost of shipping containers by sea slipped again last week, now at its lowest overall level for 2022 even if that isn't much of a standard. Outbound freight rates from China are still the main pressure points.
In Australia, their new home building sector is under pressure. Their peak industry body said new home sales fell by -7.0% in February following an -8.3% drop in January. But the recent NSW and Queensland floods seem to have destroyed about 5000 houses, and that rebuilding will take years as insurers work through the mess. It won't be a quick salve for the existing home building industry.
And RBA Governor Lowe now says it would be 'prudent' to plan for interest rate increases there, reversing his 'let’s be patient' stance. Financial markets are way ahead of him, already pricing in five rate hikes in 2022 as sky-high commodity prices change the inflation landscape.
The UST 10yr yield opens today at 2.00% and unchanged from Saturday.
The price of gold starts today at US$1991/oz and up a minor +US$1/oz from this time yesterday.
And oil prices are a little firmer today. In the US they are now just over US$107.50/bbl. The international price is just over US$110.50/bbl.
The Kiwi dollar will open today softer at just over 68 USc. Against the Australian dollar we are now at 93.4 AUc which is a marginal firming since Saturday. Against the euro we unchanged at 62.4 euro cents. That all means our TWI-5 starts today at just on 73.5 and little-changed.
The bitcoin price is little-changed today, up +0.8% from this time Saturday to US$38,972. Volatility over the past 24 hours has been modest at +/- 1.3%.
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.