China borrowers pull back hard. Country Garden staggers, some Chinese funds managers too. Singapore downgrades its prospects. US PPI inflation not dead yet, but sentiment up.
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.
And today we lead with news this week, all eyes will be on the Wednesday RBNZ Monetary Policy Review, and especially the regulator's forecasts (even if no change in the OCR is anticipated).
Elsewhere, potential market moving data might come from the US Fed's release of the minutes of is July meeting, or US retail sales, or US industrial production data updates.
Or market movers might come from Japanese growth and CPI data, or Canadian CPI data, or EU GDP and CPI data. Who knows?
Of more likely from Chinese retail sales of industrial production data. They could be weak. Investors are watching what is unfolding in their economy with growing alarm. Maybe it isn't a "ticking time bomb" yet but stresses are building and not being dealt with. An economically struggling one-man-ruled situation is also politically risky because a military adventure might seem like a distraction worth trying.
China's banks lent ¥346 bln in new yuan loans in July, the least since November 2009 and well below analyst expectations of ¥800 bln. In June this new loan value was ¥3.05 tln; a year ago it was ¥679 bln so by every measure the July level is very low. If clients now won't take on more debt, it is something of a watershed moment (perhaps) and suggests it will be very hard for Beijing to use its usual levers to overcome the lackluster economic recovery. Household lending, mostly mortgages, was down to ¥201 bln, while corporate lending fell to ¥238 bln in July. Remember it was ¥2.3 tln in June. Meanwhile, outstanding yuan loan balances rose +11.1% in July.
Calls for more decisive action are growing more strident.
Meanwhile, vehicle sales slipped in July to just under the 24 mln/year pace in China, the world's largest vehicle market - by far. They fell -1.4% from the same month a year ago and this was the first decline since January. It was maybe a bit worse than it appears because the base a year ago was low too, but July is the off-season of their car market. Local sales went down -6.3% to under 2 mln units in the month, while export sales increased +35% to 392,000 units, some of which ended up here, especially EVs like Teslas and BYDs.
And property developer Country Garden signaled it will be reporting a very large loss soon, maybe as much a -NZ$12 bln. In the same period a year ago it said it made a profit of +NZ$440 mln. It might be going down and like its larger rival Evergrande, its fall is causing fury on social media. And there are also signs of liquidity problems in the wider funds management sector.
Elsewhere in the region, Singapore cut its economic growth expectations for this year to "0.5% to 1.5%", down from "0.5% to 2.5%" in an earlier assessment. They see a weak global economy and low demand from key trade partners like China.
Across the Pacific, annual producer price inflation in the US rose to +0.8% in July from +0.2% in June. A rise was expected but this was higher than those forecasts. Still it is quite a low level and doesn't really alter the downward trend that started in July 2022 when PPI was rising at more than an +11% annual rate. It's been slowing since.
Americans seem to be starting to acknowledge the gains being achieved in the battle against inflation. First the July, and now the August University of Michigan survey records a significant improvement in sentiment from a year ago, and this is really around 'current conditions'. This is a widely-watched and influential survey. Interestingly, this survey shows consumer inflation being felt at 3.3% which is almost exactly what the official data shows.
In Australia, RBA Governor Philip Lowe has told a Canberra parliamentary hearing that there would be major ramifications if productivity did not return to pre-Covid levels. Inflation will stay high and interest rates would too, unless this problem can be solved. It is doubtful he got much sympathy from that audience. But he will be proved right in the long term.
The UST 10yr yield will start today at 4.16% and little-changed from Saturday and still near its October 2022 highs.
The price of gold will start the week at US$1913/oz and unchanged from Saturday. But they are -US$28 lower than a week ago (-1.4%).
And oil prices are little-changed at just on US$82.50/bbl in the US. The international Brent price is up slightly at just over US$86/bbl. These levels are almost exactly what they were a week ago.
The Kiwi dollar starts today essentially unchanged at just on 59.8 USc. This is its lowest since November 2022. Against the Aussie we are holding at 92.2 AUc. Against the euro we are marginally firmer at 54.7 euro cents. That all means the TWI-5 is now still at 68.7 and only +10 bps firmer than Saturday. A week ago it was 69.4.new
The bitcoin price is also virtually unchanged today from this time Saturday and still at US$29,374 which is up +US$52 or +0.1%. Volatility over the past 24 hours has been very low at just on +/- 0.2%.
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.