China's recovery boosts global prospects

Kia ora,

Welcome to Wednesday’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 the IMF says the world in back on a rising expansion track, even if it is pretty modest by past standards.

But first, remember all local eyes will be on Stats NZ at 10:45am this morning and the December labour market stats. Our jobless rate is expected to remain at a very low 3.3% but jobs growth is expected to be a minimal +0.3% in a very tight labour market. Any significant changes from these levels could be market-moving.

In China, according to their official survey, their factory sector bounced back to an expansion in January. It was an unexpected improvement.

Better yet for them, their services sector survey recorded a very large improvement, one that indicates the non-manufacturing sector is expanding its fastest in seven months. This was also very much better than anticipated. Most analysts had expected both sectors to struggle for some months yet as they reopened.

Both indicators, if they are confirmed in the private surveys, will probably light a fire under commodity prices in the days and weeks to come.

Japanese industrial production was weaker in December however, but only marginally so, and nowhere near as weak as expected.

Meanwhile, Japanese retail sales rose +3.8% in December from a year earlier, better than expected and following a +2.5% gain in November which was considered very good at the time. This was also the tenth straight month of growth in their retail trade, as domestic consumption continued to recover from the pandemic slump.

While it is still depressed, Japanese consumer sentiment rose again in January, its best reading since the turnaround started in September last year.

South Korean industrial production however is struggling, down sharply in December and by much more than anticipated.

American retail sales picked up a bit last week on a same-store basis but are still expanding barely higher than US CPI inflation, which has been the case all January.

The next American sentiment indicator, this one from the Conference Board, is little-changed but holds the positive outlook it has had for the past six months

In the factory sector, the Chicago PMI was also unchanged, but remained in contraction, and for its fifth month in this heartland area. It's not a great start to the year for them.

German retail sales turned in a very poor December result, far worse than expected. Although they were up +4.2% in December from a year ago, if you remove inflation, their real retail sales fell an eye-watering -6.4%. To be fair to them, they are one of the few countries that highlight their 'real' retail sales result. This time, it isn't good.

But German labour markets eased back only a minor extent in December, and probably not statistically significant. They like many other economies have tight labour markets with widespread skill shortages.

The EU managed to eke out a minor expansion in the overall Q4-2022 result, which took their annual growth to +1.9% and slightly better than expected. Markets were expecting a small overall contraction in this last quarter.

In Norway, their sovereign wealth fund, one of the world's largest investors, posted a record loss of -1.64 trillion crowns (-NZ$250 bln) for 2022, bringing to an end a three-year run of soaring profits, as their stock and bond holdings were hit by the Ukraine war and inflation.

Meanwhile, Australian retail sales fell sharply by -3.9% in December from November, surprising markets. Although strong Black Friday sales and a shift to travel spending in late 2022 put downward pressure on December retail sales, the extent of the fall suggests households have started to cut back on discretionary spending.

Through all this data chatter and changes, the IMF says global growth is projected to fall from an estimated +3.4% in 2022 to +2.9% in 2023, then rise to +3.1% in 2024. These are higher estimates than those made in October, especially for 2023. They also see inflation easing. A lot of this will be led by a Chinese recovery they say, although the 2022 result found the EU outperforming both China and the US.

The UST 10yr yield starts today at 3.53%, and down -2 bps from this time yesterday. 

The price of gold will open today at US$1927/oz and up a mere +US$3 from this time yesterday.

And oil prices start today down another -50 USc at just under US$78.50/bbl in the US. The international Brent price is now just on US$85/bbl. The continued fall in the natural gas price is something to behold, now back below long term averages.

The Kiwi dollar is softish at 64.6 USc. Against the Australian dollar we start today at 91.7 AUc and unchanged. Against the euro we are softish at 59.5 euro cents. That all means our TWI-5 starts today at 71.4 and down -20 bps from yesterday.

The bitcoin price is now at US$23,111 and virtually unchanged from this time yesterday. Volatility over the past 24 hours has been modest at +/- 1.5%.

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 will do this again tomorrow.