China ignores global concerns

Kia ora,

Welcome to Friday’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 essentially ignoring COP26, responding to immediate pressures - not the least of which is crowning Xi as an effective emperor.

But first, it is Veterans Day in the United States and that is a Federal holiday. Equity markets are open but not their bond markets. US Government offices are closed and that means the usual flow of economic data releases there are very light.

It is a break that will give the Fed policy makers time to reflect on their oft-repeated claim that the current bout of inflation will be "transitory". They first made the claim in April, suggesting that the building pressures would dissipate by Christmas. Clearly that isn't happening. Perhaps they need to change their tune. Markets sense they will.

In the US it is becoming clear that this year, the 'specials' on offer for the retail events 'Black Friday' and 'Cyber Monday' aren't going to be the discounts - they are going to be that there is something to buy. The supply chain issues are seriously crimping availability.

In China, Evergrande did make those late interest payments we mentioned yesterday. A German investor filed proceedings, but now they are paid that probably pushes the default risk back somewhat. But other Chinese property developers face the same pressures, the latest Kaisa.

Chinese property developers’ fundraising slumped at the fastest pace this year in October, even after the government urged financial institutions to meet the real estate sector’s "reasonable funding needs". But their banks are providing more funds for mortgages, and that saw an uptick in residential real estate demand in October, perhaps a lifeline for those developers.

It is also clear that China isn't signing up to restrictions on its use of coal, despite its 'deal' with the US at COP26. Their shortage of coal to meet current demand has global implications. Urea is a by-product and a key fertiliser in India. And other by-products include diesel ingredients used for trucking, in South Korea for example. Locally they mined 12 mln tonnes yesterday, a new daily record.

New forecasts from the ECB for EU policy makers claim their economies are expected to grow at a faster +5% this year, compared to the +4.8% forecasted in July. But the Eurozone will likely expand a slower 4.3% in 2022 (vs 4.5% in the July forecast) and 2.4% in 2023.

In the world of shipping, there was little change last week in the cost of shipping containers by sea. The Baltic Dry Index has also stopped falling.

But the iron ore price has sunk further, however in the long perspective only back to April 2020 levels. Still it will hurt Australia, shaving AU$3 bln of tax revenues there.

The Australian unemployment rate jumped way more than expected yesterday. Employment dropped by -46,000 in October when a +50,000 rise was expected. Most of the jobs lost were full-time jobs, bringing to more than -326,000 the number of jobs lost during lockdowns in NSW, Victoria and Canberra. Their jobless rate went from 4.6% to 5.2%.

The UST 10yr yield opens today at 1.57% and up +2 bps since this time yesterday. 

The price of gold will start today up +US$8 to US$1862/oz and to a 5 month high.

And oil prices are softer by about -US$1.50 and are now at just over US$79.50/bbl in the US, while the international Brent price is now just over US$81.50/bbl.

The Kiwi dollar opens today giving up more it its recent gains and is back to 70.3 USc with more than a -½c fall. Against the Australian dollar we are unchanged at 96.3 AUc. Against the euro we are softish at 61.3 euro cents. That means our TWI-5 starts today at just on 74.5.

The bitcoin price has slipped back from its record high level and is now at US$65,135  US$68,616 and a -5.1% retreat from this time yesterday. Volatility over the past 24 hours has very high at just over +/-4.5%.

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.