WTO sees trade growth halving. Most Asian PMI's positive - except China. US payrolls grow slower than expected. US PMIs strong. EU inflation high.
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 China is struggling, the US is pumping, and everyone else is in between.
First up, the head of the World Trade Organisation has said the Ukraine war has forced them to cut their global trade growth forecast for this year from +4.7% to +2.5% due to "the impact of the war and related policies".
But so far, such a sharp turn down isn't showing up in the granular data. March factory PMIs in the Asian region shows most expanding at moderate levels. That includes Taiwan, South Korea and Japan.
And although Indian imports rose sharply, Indian exports rose to US$40.4 bln in March, easily an all-time record high and confirming global demand remains solid - although some of this could be a switch from China.
The private sector factory PMI for China came in lower than the official version (49.5), contracting at an index value of 48.1 when a steady-state 50 was expected. It was their biggest fall in more than two years. It will only get worse for China as they stumble over their new pandemic spread that is high risk because they have key demographics with very low vaccination rates - and they have a second-class vaccine that is barely 50% effective. A widely locked-down China will have broad trade implications.
More stories are emerging of retrenchments in China. And buyers are not emerging to re-invigorate their housing markets.
Elsewhere, US non-farm payrolls grew less than expected, up +431,000 in March from February on a seasonally adjusted basis. Markets had expected a +490,000 gain. But on an actual basis, +794,000 more people were employed in the month and it is the extra earnings of these 'actual' people that will drive consumption.
Their jobless rate fell, their participation rate inched up again, its sixth consecutive rise. Average weekly earnings rose +5.8% from a year ago, but average hourly earnings rose an impressive +6.7%, suggesting that workers on average are holding their position against fast-rising inflation. It will be fuel prices that will be the main pressure point and there might be some easing on that front soon.
Meanwhile, surveys of factory conditions in the US are uniformly positive. The two main ones report good expansions. The widely-watched ISM one shows overall growth marginally less in March than February, but with new orders, production and employment growing, new export orders growing, the order backlog growing, and the deterioration on supplier performance easing. The main negative issue is that all this demand is pushing up prices faster. The internationally-benchmarked Markit one was equally positive, noting production and new orders rising steeply, and cost pressures gaining renewed momentum.
These are the best American factory conditions in decades - and maybe the de-globalisation shift because of supply-chain issues are driving it.
In Europe, their PMIs slid to a 14-month low in March amid rising inflation and geopolitical tensions. But they are still expanding and at a moderate-to-good clip.
But like China, not everyone is expanding, and some contractions are rather steep.
EU inflation remains high with the March level up to 7.5% pa, driven of course by energy costs. That is similar to, but less than American CPI inflation. We get New Zealand inflation data on Thursday, April 21, and that is sure to be elevated too. What is interesting about global inflation is that the effects haven't hit some countries yet. And up to now that has included Australia and many East Asian countries. Why that should be, given their equal exposure to energy costs, is unclear, but the March outcomes when they are released should shed some light on these differences. It may just be a timing issue.
Globally, hiring is strong, especially in the West. But American bond markets are toying with inverted yield curves, even if it is with little conviction at this stage. Inverted yield curves suggest recession is ahead. However few, but perma-bears, really believe that, and the IMF doesn't. Expanding factories and strong demand for labour aren't usual signals for recession. Perhaps the supply chain realignments are helping here and that effect won't be temporary.
The UST 10yr yield opens today at 2.39% and up +1 bp from this time Saturday.
The price of gold starts today at US$1926/oz and up +US$2/oz from this time Saturday, but down -US$30 from this time last week.
And oil prices are down fractionally to just under US$99/bbl in the US. And the international Brent price is now just on US$104/bbl. These falls are because the US has ordered its largest-ever release of strategic reserves. And other nations are following suit.
The Kiwi dollar will open little-changed than at this time Saturday at 69.2 USc. Against the Australian dollar we are marginally firmer at 92.3 AUc. Against the euro we are also very slightly firmer at 62.7 euro cents. That all means our TWI-5 starts today at just under 74.5 but -50 bps lower in a week.
The bitcoin price is virtually unchanged from this time Saturday to US$46,394. But from this time last week, it is up +4.9%. Volatility over the past 24 hours has been modest at +/- 1.2%.
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.