Asset prices fall and inflation rises as world adjusts to globalisation pullback. Economic activity data positive. Evergrande-type issues spread. Java volcano erupts.
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 last week's Wall Street selloff looks like it will resume this week.
We get a dairy auction again this week on Wednesday morning after another RBA review tomorrow. We also get rate reviews in Canada, India and Brazil this week.
Then the US and China will be releasing inflation and foreign trade data. Other important data to follow include US consumer confidence, UK October GDP data, German investor sentiment and factory orders, Japan current account and producer prices, and Indian industrial output.
Most of this recent data is expected to be reasonably positive. But investors are focused what is coming - and see inflation, and central banks winding up to hike rates sooner than previously assumed, and reduce QE imminently. The punchbowl is about to be taken away, or at least down-sized. That means the pressure on asset price inflation is waning. And that means investors are facing revaluation losses even if businesses aren't facing reduced trading profits.
Over the weekend, the rise in US non farm payrolls for November was a sharp disappointment, with the headline number rising just +210,000 when a rise of +550,000 was expected. It is the lowest monthly rise of 2021.
However, average weekly hours worked rose. Their participation rate rose. Average weekly earnings in November were up +5.6% from a year ago, and that is above the 2021 average. None of this data really supports the weak payroll number reported.
The Fed is likely to overlook these headline jobs numbers.
US factory orders were reported +1.0% higher in October than September, and +17% above year ago levels.
And the widely-watched ISM services PMI rose very sharply in November to an all-time high (and after a fall was expected from its already high level). Strong demand, labour shortages, and high prices all feature in this survey. The Markit services PMI for the US shows similar attributes, even if it isn't at a record high.
In Canada, their November payroll data beat expectations, and by some margin. Even if you discount that half of the big gain was for part-time jobs, the full-time jobs rise was double the overall expected increase.
In China, Evergrande said: "In light of the current liquidity status of the Group, there is no guarantee that the Group will have sufficient funds to continue to perform its financial obligations." Local government authorities have descended on the company to see if they can save it. Kaisa is teetering too. Sunshine 100 China holdings defaulted on a US$179 mln debt and interest payment yesterday, citing liquidity issues. The collateral damage is starting to spread.
And staying in China, the world's largest container port said it is raising prices by +10%. This comes at a time that the rest of the world is pulling back from globalisation, and seems to be largely prepared to pay the inflation price for doing so.
Despite low consumer confidence, the Japanese service sector PMI rose in November to its highest in more than two years. Meanwhile, the private Caixin services PMI for China expanded more slowly with a lame result, and one that was weaker than the official services PMI. But the same services PMI survey in Australia is reporting a rising expansion.
EU retail sales volumes surprised on the upside in October data released over the weekend. It isn't running hot, but it is expanding modestly and the September data was revised up as well.
In Turkey, the president has dismissed his finance minister as the currency collapses and ration queues start to form for subsidised bread.
Global wheat prices are near ten year highs on struggling northern hemisphere production. They are likely to rise from here because Russia is contemplating an export limit this year. Australian production is strong and they have the most to benefit.
The price of tin reached a record US$40,500 on the LME in Friday trading, a sign that technology for climate change adaption is going to be expensive. The price of lithium carbonate is almost at US$32,000/tonne, reinforcing that feeling.
In Indonesia, we should note that a Javan volcano has erupted, causing widespread damage and casualties.
The UST 10yr yield opens today at 1.36% and unchanged from this time Saturday and a 72 day low.
Last week was a generally tough one for equities and this week might not be much different. The S&P500 futures suggests Wall Street will open tomorrow almost -1% lower.
The price of gold will start today at US$1783/oz and very little changed in a week.
And oil prices are still languishing at just over US$66/bbl in the US, while the international Brent price is back down -US$1 and now just under US$69.50/bbl.
The Kiwi dollar opens today softer yet again at 67.4 USc and a -¾c fall from this Friday. Against the Australian dollar however we are unchanged at 96.4 AUc. Against the euro we are also unchanged at 59.7 euro cents and still its lowest since early October. That means our TWI-5 starts the week at 72.3 at a 100 day low.
The bitcoin price has fallen to US$48,571 and a very sharp -11.7% lower than the level at this time on Saturday. We are now at its lowest since early October and a drop if -28% since it its peak on November 10, and now in a strong bear phase. Volatility over the past 24 hours has been moderate at just over +/- 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.