China returns with unsteady gains

Kia ora,

Welcome to Tuesday’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.

And today we lead with news we return from our long holiday weekend with the rest of the world delivering improved economic performances

The Chinese Lantern Festival has ended China's New Year celebrations and shows that the feared aggressive surge in infections did not hold back their re-opening. Hospitals and health services are swamped, but the relief drove Spring Festival travel and spending. However long this momentum will last is still an open question. And it seems likely the benefits will be spread unevenly across the country.

China's big state-owned banks are being opted into offering unsecured credit card loans for as low as 3.6% to try and keep the holiday momentum going. Worryingly for China, such lending is nowhere near where it was before the pandemic originally hit in early 2020. Mortgage rate cuts for new house buying are spreading too. Perhaps unsurprisingly in retrospect, mortgage loan growth in China was almost non-existent in 2022 (+1.5%, item #6). But that is a huge shift.

The private services PSI survey for China confirmed the official PSI rebound in their services sector in January. (Recall this same private survey did not confirm the factory improvement.)

The end of pandemic restrictions is restarting a migration of China's wealthy to move overseas taking their money with them. Canada is the most favoured destination but the shift to Singapore is substantial too. Other countries will get this flow too. A feature of the 2023 flows is the urgency that these migrants bring with their desire to leave.

Meanwhile, Hong Kong retail sales fell -0.7% in December on an inflation-adjusted basis, but that was a lesser decline that the -5.3% drop in November. For the whole 2022 year, sales fell -3.4% on an inflation-adjusted basis.

In the US there were positive surprises all over the place over the weekend. The biggest was from their labour market where the headline gain in non-farm payrolls came in very much higher than anyone expected, up +516,000 in January. That's its best January increase ever. Only a +185,000 gain was expected. And this data is from the usual "Establishment Survey" of employers. The data from the "Household Survey", which in the past has been less positive, is in fact even more positive this month, up +894,000 employed on the same seasonally adjusted basis. Unadjusted both surveys give a January level the best in more than a decade, probably longer.

Their unemployment rate is now its lowest since 1969.

Any way you look at this, it is strong. More people are in paid employment than ever before; either 160.1 mln in the Household Survey, or 155.1 mln in the employer survey (and the difference is probably unincorporated sole traders).

Also 'positive' in an economics way, wage growth is slowing. Average weekly earnings in January were up +4.7% from a year ago.

But the strong American results don't end there.

The widely-watched ISM services PMI reported a strong recovery in January, up from a small retreat in December. New order levels were the star here. The January level reports a healthy expansion again, and largely confirms the non-farm payrolls report. This is in contrast to the US Markit services PMI we reported earlier last week, which didn't show these gains; a rise to be sure, but that report was contracting still.

In Canada, housing sales in their largest city, Toronto (population 6.3 mln), "collapsed" to just 3100 in January, -40% below year-ago levels and prices down -20%.

In the EU, their producer price data didn't come down in December as it had trended earlier. In fact it rose unexpectedly, but 'only' at a +13% annualised rate from November, about half the year-on-year rate.

But German factory orders unexpectedly rose +3.2% in December from November, topping market forecasts of +2% and reversing a downwardly revised -4.4% fall in November. However, as positive as the December gain was, it is still -10% lower than year-ago levels.

Retail sales in Australia fell by -3.9% in December from November, unrevised from the flash data but reversing from a +1.7% rise in the prior month. This was their first decline in their retail trade in 2022 following eleven straight monthly rises.

In Australia, the value of new home loans for owner-occupied homes in Australia fell -4.2% in December from November, sliding for the seventh straight month and coming in worse than forecasts for a -2.75% decline. Refi is strong there however.

And here's an interesting factoid in the nationalist bragging rights corner; Australian GDP (on the up), is about to overtake Russian GDP ( which is falling now). Russia won't qualify for the G20 any more.

Air cargo volumes sagged in December and didn't get back to 2019 pre-pandemic levels as expected. And if it wasn't for strong North American gains the situation would have been a lot worse. China's weakness is still showing in this activity.

Passenger volumes are recovering with momentum, but are still miles below pre-pandemic levels even if the recent trends are strongly up. Again, the drag here is China, although nowhere, including North America, is back to the old normal.

The UST 10yr yield starts today at 3.64% and up a sharp +12 bps from this time Saturday. 

The price of gold will open today at US$1867/oz and up +US$5 from this time Saturday.

And oil prices start today little-changed, still at just under US$74/bbl in the US. The international Brent price is now just over US$80/bbl.

The Kiwi dollar is softer as the greenback surges. It is now at 62.8 USc and down another -¾c from Saturday. That's its lowest in a month. All commodity currencies are on the move down. Against the Australian dollar we slightly firmer at 91.5 AUc. Against the euro we are little-changed at 58.6 euro cents. That all means our TWI-5 starts today at 70.5 and down -20 bps from Saturday.

The bitcoin price is now at US$22,999 and down -2.6% from this time Saturday. Volatility over the past 24 hours has been modest at +/- 1.1%.

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 will do this again tomorrow.