China's debt stimulus takes off

Kia ora,

and welcome to Wednesday'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 news financial markets are still in a holding pattern.

In an under-the-radar adjustment, the growth of American labour costs was not as high as initially reported for the third quarter. The change was significant; it was earlier reported as +3.3% pa whereas the corrected level is +2.3% pa. And US productivity actually dropped unexpectedly in the same period.

And in a rare bipartisan deal, the American Congress voted to back the US Administration's US-Canada-Mexico trade deal after winning changes they say will make it better.

Although 'progress' is being reported in the US-China trade talks, both sides are becoming increasingly mistrustful of each other. The US side is fearful the Chinese are out-negotiating them, and the Chinese side fears the Americans won't adhere to any deal made.

In China, food prices pushed up their November CPI to a higher level than expected, driven by their pork crisis. Pork prices were up +110%, and along for the ride were other proteins, with beef prices up +22% and lamb prices up +14%. Non-food prices however rose just +1.0% pa. And on the producer price side, they actually fell by -1.4% pa, slightly less than for October, but near historical lows.

And China’s bank debt growth picked up sharply in November after October’s slump, with banks lending more than expected. Banks lent almost ¥1.4 tln in new loans in the latest month and far higher than the ¥1.2 tln expected. And that is far more than the weak ¥660 bln in October. The government's stimulus measures have started to support their economy.

A new report from CBRE Group points to an unprecedented rise in the vacancy rates for office buildings in China's leading cities. According to the report as of the end of the third quarter the office building vacancy rate was at least 10% in all four of China's first-tier cities of Shanghai, Guangzhou, Beijing and Shenzhen, while vacancy rates were even higher in second-tier cities.

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In Canada, like New Zealand, they are also on a program to get banks to raise the amount of capital support by shareholders, announcing increased capital buffers for 2020.

And back in the US, Boeing has said it will deliver less than half the airplanes than 2019 compared to 2018, and about half the level of its rival Airbus. The fallout from the 737MAX disasters has been major.

The latest German and EU ZEW sentiment survey suggests that the gloom is lifting in that region, with sharp improvements.

The UST 10yr yield is at 1.85% and up +2 bps overnight.

Gold is now at US$1,464/oz and up +US$4 overnight.

US oil prices are unchanged at just over US$59/bbl. The Brent benchmark is still just over US$64/bbl.

The Kiwi dollar is marginally lower today at 65.4 USc. On the cross rates we are holding at 96 AUc. Against the euro we have dipped to 59 euro cents. That puts the TWI-5 little-changed at 70.6.

Bitcoin is a little lower, now at US$7,233 and another -2.6% fall.

You can find links to the articles mentioned today in our show notes.

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