China faces a population halving within 45 years

Kia ora,

Welcome to Friday's Economy Watch where we follow the economic events and trends that affect New Zealand.

I'm David Chaston and this is the International edition from Interest.co.nz.

Today we lead with news underestimates of China's birth rate will have very major long term impacts.

But first, new US jobless claims came it just under 300,000 last week, similar to the prior week. A surge in California masked improvements elsewhere. There are now 2.46 mln people on these benefits and also similar to last week.

The closely-watched Chicago PMI came in pretty much as expected in September with a very good expansion even if it was less than in July and August. The pace of new order intakes eased back a little, and the pressure of price increases did too.

The US Q2 final GDP result has ended better than the second estimate, which in turn was better than the initial estimate. A surge in corporate profits was the main reason for the improvement. The US economy grew +6.7% (real) in Q2-2021 to have economic activity running at a record US$22.7 tln (nominal) pace per year.

China is now on a week-long holiday, starting with National Day today.

But their energy crisis isn't going away, and Beijing has blinked on its climate and trade policies, issuing orders for energy companies to do whatever necessary to secure coal for the winter season. No doubt that will mean it will be back buying Australian coal.

The Caixin PMI for September shows the private sector factory sector neither expanding nor contracting - and that is a minor improvement from August. But if the energy crisis persists, it won't stay this 'good' for long. And the official version was more downbeat, reporting a contraction that is deepening due to the power cutbacks.

However, their services sector does show a noticeable improvement, moving from a sharp August contraction to a good September expansion.

And the Evergrande crisis rolls on. Last week, the company missed an US$83 mln interest payment on an overseas bond, but struck a haircut agreement with domestic investors over a US$36 mln payment which was also due. Now there are reports they have missed a second US$48 mln interest payment to offshore investors. There are grace periods involved, but they seem certain to be heading for default, despite prioritising payments to local investors and depositors. China is leaning heavily on its billionaires to buy-up distressed parts of the business, something they seem reluctant to do. But the risks to them personally for not are considerable.

And the liquidity injections by the central bank just keep coming - another +NZ$22 bln added for a tenth straight day.

And if demographics is destiny, China may be in real trouble. A local university has published a review of population trends and they say the birth rate problem has been seriously underestimated - and that China's population could halve in 45 years.

Hong Kong retail sales rose strongly in August off a very weak base and on the basis of some official vouchers the local government handed out to encourage spending. But they still haven't got back to retail levels they once had in 2014.

German inflation came in at +4.1% in September, higher than expected on a year-on-year basis. But in fact, there was no change mon-on-month, indicating the cost and price pressures there may be easing.

And we should note that container shipping rates were unchanged at their very high levels again last week. At least they have stopped rising.

The UST 10yr yield opens today at just on 1.53% and down -1 bp from this time yesterday. 

The price of gold will start today recovering, up +US$33 at US$1759/oz. Silver is recovering too.

And oil prices have been volatile overnight, but are now up +$1 to just under US$76/bbl in the US, while the international Brent price is just on US$79bbl. 

The Kiwi dollar opens today marginally firmer at just on 68.8 USc. Against the Australian dollar we are a little softer at just on 95.5 AUc. Against the euro we down again to 59.5 euro cents. That means our TWI-5 starts today at 72.8, and back towards the middle of the 72-74 range of the past eleven months.

The bitcoin price is higher since this time yesterday, up +3.4% to be now at US$42,923. Volatility in the past 24 hours has been high at just over +/- 3.6%.

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 on Monday.