China's services sector expanding again

Kia ora,

Welcome to Monday'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 with news China's services sector is stirring again despite some bumps in the road.

But first, the OECD has achieved its big reform of how and where multinational companies will be taxed; their BEPS reform. It is an agreement between 136 countries, and brings a reluctant US on board. The deal included a 15% minimum rate for corporations and the main parameters of how much profits of multinationals would be taxed in more countries: 25% of profits over a 10% margin. The bottom line is it should see countries collect around US$ 150 bln in new revenues annually. That will be massive for many countries, and will be felt in the largest corporate boardrooms. In the US, anti-tax Republicans are already lining up to try and neuter it.

And the UN-FAO released its September food price data showing another rise in overall prices globally. In nominal terms prices are approaching their highest ever levels achieved first in September 2011. In real terms, they are the highest since 1974 when droughts, an oil crisis and raging inflation all conspired to hit food at the same time.

China is still getting its share of adverse weather. 1.75 mln people have been affected by days of flooding and landslides in the normally arid northern Chinese province of Shanxi and these will have a national impact. 120,000 people have been evacuated and more than 17,000 buildings had collapsed. This in turn has affected important national supplies of coal and other minerals. About 60 coal mines, 372 non-coal mines and 14 chemical factories had been forced to close.

Staying in China, their services sector is expanding again, and at a moderate pace, and bouncing back from a weak August. At least, that is according to the private Caixin services PMI released over the weekend. Still, it can't hide the general softer trend evident in 2021. And their 'Golden Week' travel activity is down -40% from last year, suppressing service sector enthusiasm in October.

However Taiwanese exports impressed again, rising +29% above year-ago levels when a +25% gain was expected. These are now +37% higher than for September 2019. It is a standout export success story.

In the US, the expected +500,000 gain to their non-farm payrolls didn't eventuate for September. The headline number was only a +194,000 gain, the smallest rise in 2021 and a big miss.

However we may be the only one noting this, but we need to be extra careful of following the herd and using these seasonally adjusted numbers, when perhaps the pandemic twists are screwing around with seasonal adjustment mechanisms.

The actual data is far more positive and more consistent with the falling jobless claims data. There are now actually 147.7 mln people employed in the US as at the end of September, up +654,000 from the end of August, and up +5.7 mln from a year ago. That paints quite a different picture than the seasonally adjusted monthly +194,000 gain. The same distortion happened in August. Actual employment is what is important. By this data, US hiring is actually rising, not slowing.

Markets sense the under-reporting and still think the Fed will push ahead with its tapering, undeterred.

In Canada they reported very positive employment data for September, with a gain of +157,000, and topping both estimates and for August. 

In Australia, their central bank issued its latest update to its Financial Stability Review. One aspect stands out: it thinks it is only a matter of time before a large bank is crippled by a cyber attack and "the defences of a significant financial institution will be breached". They are also directly concerned about the "risk of excessive borrowing due to low interest rates and rising house prices".

The UST 10yr yield opens today at just over 1.61% and up another +1 bps from this time Saturday and a +13 bps rise in a week taking it to its highest in 20 weeks. 

The price of gold will start today little-changed again at US$1757/oz. Over the past week, the gold price has also changed very little.

And oil prices are up +US$1 to just over US$79/bbl in the US, while the international Brent price is unchanged at US$82/bbl.

The Kiwi dollar opens today unchanged at just on 69.3 USc. Against the Australian dollar we are also unchanged at 94.8 AUc. Against the euro we marginally softer at 59.9 euro cents. That means our TWI-5 starts today unchanged and down just on 73, and right in the middle of the 72-74 range of the past eleven months. It is also unchanged over the past week.

The bitcoin price is higher again than this time Saturday, up +1.7% to be now at US$55,269. A week ago it was at US$47,496 so it has risen more than +16% in the past seven days. Volatility in the past 24 hours has been modest at just over +/-1.8%.

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 tomorrow.