China concerned about food security. Chinese households save rather than spend or invest. US budget in huge positive turnaround. eyes on Ukraine.
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 financial markets are adjusting to the rising political threats.
But first in China, Beijing is focused on food security, promising more support, especially for their winter wheat plantings which are described as 'weak'.
The sluggish Chinese economy is pumping up household savings, and Chinese households turn risk-averse. It seems when it comes to their money, Chinese are sceptical of "Xi Jinping Thought' and have their doubts about the future. Their household sector is reluctant to spend and the corporate sector's demand for long-term loans remained weak.
Taiwanese inflation rose to 2.8% in January, and although it is rising, it remains well controlled there. Their PPI remains high, although it was flat in January from December, suggesting it is past its peak.
Meanwhile, Taiwanese exports remain very high, although they did slip in January from December. Recall, there is no base effect in these levels, with the island nation a regional export powerhouse.
On Friday noted that a small +US$25 bln surplus was expected in the US Federal Budget in January. In the event it was a +US$119 bln surplus, a massive +US$282 bln turnaround from January 2021 and the best result since April 2019.
The latest closely-watched measure of American consumer sentiment shows rising angst. The University of Michigan survey fell sharply for a second straight month to 61.7 in February, the lowest in more than ten years and well below market forecasts of 67.5.
In Canada, their senior loan officer survey remained negative, only slightly less so.
The German inflation rate eased slightly to 4.9% in January, the expected level, after hitting a 30 year high in December of 5.3%. Base effects are easing now. But energy prices remain the core reason German inflation is high.
Ratings agency Fitch has downgraded Turkey to a deeper junk rating of 'B+' with a negative outlook, the same as S&P. Moody's rates them at 'B2'.
The Russian central bank raised its policy rate sharply overnight, by +100 bps to 9.5% and its highest in five years in a bid to tame persistently high inflation and as their currency was hit by the Ukraine crisis. They said more hikes will likely be necessary. Inflation there is running at almost +9%. A year ago it was under 5%. They say the will be on this tightening track until inflation is back under 4%.
The Ukraine crisis might seem a very European cold war era tussle, but it is likely to have global implications if it turns hot. Ukraine is a top global gain exporter, especially of wheat. Russia is a top oil exporter. A hot war, even a minor one that invokes sanctions retaliation by NATO will cause commodity prices to spike, especially food and oil, and both are currently at high levels to start with. It will certainly put the focus squarely back on food security, and global supply chain integration. Shipping will suddenly go from very bad now to much worse.
The latest container shipping rate levels have eased overall only marginally last week. But the overall picture masks the fact the rates out of China remain sky high, those to China very low. Rates to destinations other than China are also quite low. The backlog at US West Coast ports of ships waiting to be unloaded is easing. In Los Angeles, it is down to 78 ships from 110 at the end of last year. Bulk cargo rates have been on a downward track since October, but rose marginally last week.
In Australia, their competition regulator has had to make a very embarrassing backdown on a case it said was of cartel behaviour, a case that was brought at the height of the Hayne bank bashing saga, and what it turns out was just a regulator pile-on. The prosecuting agency withdrew the case when it became clear that there was no chance of any conviction based on the evidence the regulator wanted to present.
The UST 10yr yield opens today at 1.92% and -12 bps lower than this time on Saturday. At the end of Wall Street trade on Friday, markets retreated on fears the Ukraine situation was raising political risk.
The price of gold starts today at US$1859/oz and up another +US$5 from this time yesterday and up more than +US$50 in a week and a 12 week high.
However oil prices are up +US$1.50 at just over US$92/bbl in the US, while the international Brent price is still just on US$94/bbl. These prices have motivated a sharp rise in the number of US oil rigs brought back into production.
The Kiwi dollar will open this week at 66.4 USc. Against the Australian dollar however we have risen marginally to 93.2 AUc. Against the euro we are holding at 58.6 euro cents. That means our TWI-5 starts today just on 71.1 but that is up almost +30 bps in a week.
The bitcoin price is -0.9% lower since this time on Saturday and now at US$42,303. 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.