China moves to rescue SME exporters

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 moving to protect its smaller exporters caught in a demand/cost downdraft.

But first we must note that the Thanksgiving holiday weekend is underway in the US and financial markets are all closed, and won't reopen until Tuesday, NZT. There are major retail activity implications over this period, but they won't reveal themselves until next week at the earliest.

In China, their exporters are facing severe pressures as order levels fall, supply chains remain congested and costs jump. Beijing is worried about how many of their smaller exporters will survive and is rushing in new support measures (WTO rules, be dammed).

And staying in China, the cost of lithium carbonate rose above ¥200,000/tonne for the first time yesterday, the essential element in most batteries these days. The lithium price has risen more than the bitcoin price over the past year.

In Japan, carmaker Nissan is shifting rapidly to EV production and expects to sell more electric vehicles that ICE ones within 100 months.

In Korea, their central bank raised its policy rate by +25 bps to 1.00% in an anticipated rise driven by higher-than-target inflation. More rises are on their way there, in 2022.

In Hong Kong, their exports rose +21% year-on-year and their imports rose +18% on the same basis, with exports rising faster than in September and import growth slowing faster than in September. But it is notable that October 2021 exports are only +9% higher than for October 2018. And imports are only +5% high on the same basis. Given current inflation, this points out how much Hong Kong has become a shadow of its former self.

Yesterday, the US Fed released the minutes of its early November meeting and they contained no surprises but they did raise their forecasts for inflation and make them a bit more realistic.

But ECB meeting minutes that were released overnight shows this central bank still committed to the idea that inflation is transitory. But they did give some very general signals that they will be tapering their QE support starting in 2022 sometime.

In Turkey, their currency is losing internal legitimacy. Households have rushed to switch their bank accounts to US dollars, moving almost US$1 bln last week alone. Now almost 60% of all Turkish bank accounts are denominated in foreign currencies.

Aussie spending on capital goods fell -2.2% in October, and within that, spending on equipment was down a rather sharp -4.1% and that was despite a rise in the mining sector. Mainly the whole decline was driven by a -15% plunge in equipment sales in NSW.

Container shipping costs didn't fall noticeably last week, especially out of China. The expected easing isn't really happening yet. The Baltic Dry index has stopped falling to, and is now back to June 2021 levels.

The UST 10yr yield opens today at 1.65% and unchanged since this time yesterday. 

The price of gold will start today unchanged at US$1790.

And oil prices are little-changed at just under US$78/bbl in the US, while the international Brent price is now just over US$81/bbl. 

The Kiwi dollar opens today softer again at just under 68.6 USc and still its lowest since mid October. Against the Australian dollar we are soft at 95.4 AUc. Against the euro we are lower too at 61.2 euro cents. That means our TWI-5 starts today at 73.5 and also its lowest since mid October.

The bitcoin price is +4.3% higher since this time yesterday, up to US$59,053. Volatility over the past 24 hours has been moderate at just over +/-2.6%. India is about to ban almost all crypto activity in the country.

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.