China stares at deflation again

Kia ora,

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 with news that despite a sharply recovering economy, China seems to be challenged by deflation again.

But first, the latest assessment of US retail sales shows them softening quite noticeably and down -1.2% from the prior week. And that means the year-on-year gain of +3.2% has fallen away to just +1.1%. A lot now hangs on having a good Black Friday and holiday season, and in turn that depends on the pandemic.

In China, today is Double-11, or Singles Day, a major retailing event. Although the build-up has been massive, it is expected to reach a crescendo today with unreal sales numbers. Alibaba alone has contracted 3000 chartered freight flights to move its sales, and more than 2 bln individual orders are expected today requiring a monumental delivery effort. The day's sales are expected to top US$32 bln and that is double what the US's Black Friday and Cyber Monday combined will generate.

China’s consumer inflation slumped to their lowest level in more than eleven years, just +0.5% year-on-year, dragged down by the first drop in pork prices in 19 months. However, beef (+7.0%) and lamb prices (+3.6%) are still rising. Petrol prices fell sharply. It is such a sharp shift lower than deflation is a real possibility before the end of 2020 and that is quite an unexpected situation.

Deflation is already the story at the factory. It is the ninth straight month of deflation and a situation they can't seem to get out of. Current policies aren't addressing this imbalance at all.

Growing worries the German economy may be heading back into recession has seen the ZEW sentiment index there fall sharply in November, undermined by the second pandemic wave washing over the country.

In Australia, the October business sentiment survey from NAB is reporting a sharp improvement following the lockdown easing in Victoria.

Locally, all eyes will be on the RBNZ Monetary Policy Review this afternoon. International investors are seeing a central bank that now controls a third of our bond market and see 'Japanification' here suddenly. That is such a distorted market, those investors will likely lose interest in it all together, hastening its demise.

Wall Street is marking time today after reaching new highs. The S&P500 is down -0.2% in early afternoon trade after having dipped more earlier. Overnight, European markets rose again, mostly by about +1%. Yesterday's Shanghai fell by -0.4%. Hong Kong gained another +1.1% and the very large Tokyo exchange rose +0.3%. Locally the ASX200 ended up +0.7% and the NZX50 Capital Index was up +0.4%.

The latest global compilation of COVID-19 data is here. The global tally is 50,913,000 and up +322,000 rise in the past day. 

The largest number of reported cases globally are still in the US, which rose +137,000 since this time yesterday to 10,439,000. 

China is facing a winter coronavirus threat, but claims it sees no signs of a renewed outbreak yet. It is applying "strict measures" to ensure it doesn't happen.

In Australia, they are not getting any resurgence. 

The UST 10yr yield will start today very similar to yesterday at 0.96% and holding the big recent gains. 

The price of gold has gained back +US$26/oz from this time yesterday, back up to US$1884/oz.

Oil prices have held up today and are now at just on US$41/bbl in the US, while the international price is now just on US$43/bbl.

And the Kiwi dollar is a tad firmer this morning at 68.2 USc and staying relatively elevated ahead of today's RBNZ Monetary Policy Review. Against the Australian dollar we are firmer at 93.8 AUc. Against the euro we have stayed up at 57.8 euro cents. That means our TWI-5 will start today at 71.3 and near its high for the year.

The bitcoin price starts regaining +1.2% at US$15,277.

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. We will do this again tomorrow.