US retail sales waver. China under stress and social unrest surfaces. EU sentiment stabilises. ALP wins in Victoria. insurance pressure.
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 of growing and spreading unrest in China, even in some key cities.
But first, the Americans finished their Thanksgiving Day holiday, and then turned their attention to shopping. It looks like the huge Black Friday retail event won't have quite the impact it once did, but it will still be important and markets will react to retailer sales reports. Early indications are not auspicious. However online shopping has hit a record for the day in nominal terms at least.
As we forecast a few days ago, China has pulled the trigger on lowering its bank reserve ratio requirements (RRR) by -25 bps, effective from December 5th, releasing around CNY ¥½ tln in long-term liquidity (NZ$110 bln) in an attempt to boost economic activity. It follows a similar move in April. The RRR for big banks now stands at 11%, the lowest since mid-2007 while the weighted average ratio for financial institutions stands at 7.8%. Authorities also said they aim to "keep liquidity reasonably ample".
China's industrial profits were officially reported to be -3% less in October than a year ago, a slightly steeper decline than in September. However they say SOE profits rose +1.1%; while those in the private sector fell -2.1%. It is unclear how overall results could be down -3%, but these are results "for the new Era, with Chinese characteristics". For us the main takeaway is that even the official data is unusually weak. Don't forget that Chinese enterprises are built on heavy debt funding, so falling profits can cause a rather sudden rise in credit stress. And we must always realise that SOEs in trouble will be bailed out with even more debt. If it ever comes, the end could be spectacular, but we are probably a long way from that yet.
However, social unrest is boiling over from the endless lockdown pressures. It started when crowds took to the streets in Xinjiang's capital of Urumqi, chanting "End the lockdown!" and pumping their fists in the air, after a deadly fire on Thursday triggered anger over their prolonged lockdowns. And in Beijing, under a lot less covid pressure, some residents under their lockdown staged smaller-scale protests or confronted their local officials over movement restrictions placed on them, with some successfully pressuring them into lifting them ahead of schedule. And there were aggressive protests in Shanghai over the weekend as well. Now other cities are reporting unrest.
Singapore saw its industrial production rise in October from September, and by more than expected, but that wasn't enough to avoid a year-on-year dip.
Somewhat confounding expectations, Germany reported an improved economic expansion on their September quarter than earlier estimated. Consumer sentiment has stopped falling too, but it remains very weak. French consumer confidence improved too, but it is also very weak.
And Spain is pushing ahead with new wealth taxes and new taxes on banks and energy companies, although it is now clear that the amount they expect to raise is much less than earlier indicated, especially on energy companies.
In Australia, voters in Victoria went to the polls Saturday to elect a State Government. It was expected to be a close race but in the end it was an easy victory for the ALP. The Murdoch press had been going hard against Premier Daniel Andrews with some pretty wild accusations. It backfired rather spectacularly.
The Financial Times is reporting that property catastrophe reinsurance premiums are set to soar as several companies have been forced out of the market after another year of extreme weather. The January 1 renewals may see premiums up more than +30%, on top of inflation's adjustment. All this comes as reinsurers become wary of supporting the exposures of other fellow reinsurers. EQC seems to have locked in our 2023 cover. However we haven't heard how much more they will be paying.
The UST 10yr yield starts today at 3.69% and unchanged.
The price of gold will open today up +US$2 at US$1755/oz. This almost exactly the same as a week ago.
And oil prices start today down -50 USc from this time Saturday at just on US$76.50/bbl in the US while the international Brent price is just under US$84/bbl. These levels are -US$2 lower than a week ago.
The Kiwi dollar will open today at 62.5 USc, up almost +1c since this time last week. Against the Australian dollar we are little-changed at 92.6 AUc. Against the euro we are still firm at 60.2 euro cents. That all means our TWI-5 starts today at 71.3 and up +70 bps from this time last week.
The bitcoin price is now at US$16,536 and virtually unchanged from this time Saturday. Volatility over the past 24 hours has low at just +/- 0.6%.
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.