Retail sales lead a broad range of positive American data. Canada CPI high. China inflation low. EU industrial production up. RBA to raise rates soon.
Kia ora,
Welcome to Thursday’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 that despite challenges from every direction, the giant American economy is proving quite resilient. Sensible leadership is certainly helping.
As we had indicated previously in other measures, American retail sales came in strong, and better than anticipated in January. There were up +12.3% from the same month a year ago, far higher than inflation. The month-on-month gain was +3.8% when a +2% rise was expected. This is strong in anyone's language, led by online retailing, furniture, and cars.
Also strong was US industrial production in January, up in real terms by +4.1% and now above pre-pandemic levels.
Some of this is due to inventory building, itself a response to the supply-chain problems. In fact, the rise in business inventories in December was the largest since 1992, up +2.1% in one month, up +10% in a year. However, it should also be noted that the inventory-to-sales ratio isn't rising. And that suggests the rising inventories are not a building economic problem.
American mortgage applications fell again and by quite a bit, and the third weekly fall in the past four weeks. Probably that is because mortgage interest rates rose sharply again, now over 4% plus points and taking them back to pre-pandemic levels.
The US has reported a capital and financial account deficit of -US$52 bln in December following a downwardly revised +US$217 bln surplus in November. It was their largest capital outflow in 15 months, since September 2020.
Canada's inflation rate rose to 5.1% in January, above estimates of 4.8%. It is the first time it has been above 5% in 31 years.
However, Chinese inflation is retreating as their economy slows. Their CPI was up just +0.9% in the year to January, and well below the December rate of +1.5%. Perhaps deflation threatens them? Their producer prices are rising but also not as fast. They were up +9.1% in January, a retreat from the +10.2% in December. Month-on-month they fell, and that is two consecutive months of month-on-month falls. Expect a Chinese rate cut soon.
Chinese official media can't hide the growing economic slowdown there. Chinese Premier Li Keqiang has "urged efforts to gather wisdom from all sides to improve the government's work, and specified measures to bolster China's industrial economy and service sectors". They are stepping up support for sectors who are doing it hard. And some local governments have lost their land sales gravy train, resulting in sharp pay cuts for some staff, certainly layoffs. Its bad when local governments are doing that. And all this comes at a time when 10+ mln people are about to join their jobs market. The last thing they need is a restless unemployed and disillusioned population.
And another large Chinese property developer is attempting to renegotiate repayment on about US$1 bln in bonds. That crisis goes on and on.
Separately, China has discovered a very large lithium resource in their Himalaya mountain region.
EU industrial production for December was more data that surprised on the positive side. But it was the small developed countries that drove this, outperforming Germany, France and Spain. Italy was the large economy that contributed.
After holding the line that rates won't rise in Australia for a long time yet, most observers now expect the RBA to crumble soon. Even their Treasury Secretary, who sits in the RBA board, now thinks that. Aussie home owners could face higher mortgage repayments as early as June. Financial markets and economists are warning a rapid run-up in inflation will force their central bank to lift official rates above 2% within a year.
The UST 10yr yield opens today at 2.04% and unchanged since this time yesterday.
The price of gold starts today at US$1865/oz and up +US$13 from this time yesterday.
And oil prices are up +US$2 to just under US$93/bbl in the US, while the international Brent price is just over US$94/bbl.
The Kiwi dollar will open today marginally firmer at 66.7 USc. Against the Australian dollar we unchanged at 92.8 AUc. Against the euro we are marginally firmer at 58.6 euro cents. That means our TWI-5 starts today at just on 71.1 and +30 bps firmer.
The bitcoin price is down -1.2% since this time yesterday and now at US$43,587. Volatility over the past 24 hours has modest at +/- 1.6%. And we should note there is a tussle going on in Russia between the central bank who are resisting a loose policy on cryptos due to the financial stability risks, and the Kremlin who want to go down that route.
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.