US funding benchmarks rise to 16yr highs. China trims one benchmark rate to all-time low. China property risks a national threat. Aussie insurance profits rise.
Kia ora,
Welcome to Tuesday’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.
And today we lead with news the cost of money is ending its extended 'cheap' period. There is a whole generation unused it its 'normal' level where the benchmark is about 5% with lending costs above that.
We start today noting that American bond yields are moving ever higher. The yield on the UST 10yr has hit its highest since November of 2007. Markets see the Fed encouraged to stay hawkish on 'good data', and the US Federal deficit situation will need more issuance at a time of very partisan election uncertainty and rising risks of shutdown. Investors insist of compensation for these risks. Inflation-protected 10-year Treasuries rose past 2% for the first time since 2009.
In China however, they made a modest reduction to their loan prime rates yesterday. Markets were disappointed at the timid policy action. The August fixing cut the one-year loan prime rate by -10 bps to 3.45% (a record low) in an effort to ease borrowing costs for businesses, but maintained the five-year rate, the home loan benchmark, at 4.2%.
It was a disappointing regulatory response that saw foreign banks cutting their China forecasts further. And the property sector revealed even more signs of distress.
The commercial office market in both Beijing and Shanghai is tightening significantly, extending the residential property sector's woes into the wider sector. More tenants in Shanghai's Grade A offices terminated leases than signed them during the June 2023 quarter ending, the first time that has happened since 2015. Further Beijing experienced its third consecutive quarter of rising Grade A office vacancies, also the highest level since 2015.
But their property crisis is much wider than A-grade buildings in icon cities. It is said to be triggering a liquidity crisis for municipal and provincial borrowers that pose risks to the country’s whole financial system.
Meanwhile, Taiwanese export orders rose in July from June to be at their highest level since November. However they are still -12% lower than year ago levels - but that is a big improvement from the -25% shortfall in June.
Hong Kong recorded a 1.8% inflation rate in July, little-changed from the 1.9% in June.
Thailand reported its Q2 GDP growth yesterday and it slowed much more than anyone saw coming. The Thai economy is far from irrelevant and a big miss like this will have regional ramifications.
In Australia, and just like their banks, insurance giant IAG has announced sharply higher profits while claiming the future is cloudy. After tax profits rose +37% or +140% depending on the metric you choose. Premium income was up +10.6%. They also said New Zealand premiums rose +12%. They expect the 2023/24 insurance profit of between approximately AU$1.2 bln and AU$1.45 bln. That would be a huge +50% increase from the current AU$803 mln.
The UST 10yr yield will start today at 4.34%, up +9 bps from this time yesterday and a sixteen year high.
The price of gold will start today at US$1894/oz and up +US$4 from this time yesterday.
And oil prices are down -50 USc at just over US$80/bbl in the US. The international Brent price is now just over US$84/bbl.
The Kiwi dollar starts today little-changed at just on 59.2 USc. Against the Aussie we are softish at 92.4 AUc. Against the euro we are also softer at 54.3 euro cents. That all means the TWI-5 is at 68.3 and down another minor -10 bps from yesterday.
The bitcoin price is a little lower again today and now at US$26,038 and down -0.3% from yesterday. Volatility over the past 24 hours has been low at just on +/- 0.9%.
You can find links to the articles mentioned today in our show notes.
You can get more news affecting the economy in New Zealand from interest.co.nz.
Kia ora. I'm David Chaston. And we will do this again tomorrow.