China trade rises, American deficits leap

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 China's trade rose at the end of 2019 and America's budget deficits hit new record highs.

But first in the US, inflation as measured by their CPI rose to +2.3% pa in December, a little higher than November but not quite the rise expected. It was boosted by medical care, rent and fuel prices, restrained by clothing and food prices.

It was a rise that is faster than wages, so real average weekly earnings fell from November. It was a sharp monthly fall that wiped out all their annual gain.

And the dust is settling on American holiday retail sales data - and it's not positive. It was a weak result with most retailers posting lackluster results.

The US has removed China from its designation as a "currency manipulator". Putting it on there was just a political step in the first place. The same notice taking it off is as well, but the notice fingers a range of US allies under threat of a similar designation: Germany, Ireland, Italy, Japan, Korea, Malaysia, Singapore, Switzerland, and Vietnam. No country with a strong-man dictatorship is on the list.

The December update to the US Federal fiscal position sees it worsening sharply. The calendar 2019 deficit was US$1.02 tln, all of it "borrowed from the public" and more than 70% higher for this Republican Administration than the previous Democrat one. The 2019 deficit was -4.7% of US GDP. In 2016 the same deficit was -3.1% of GDP. Watch out when it hits -5% which looks like will happen in June 2020 and reach -5.3% by the end of 2020.

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China posted a +US$422 bln trade surplus in 2019 as exports jumped in December. Goods exports rose +7.6% from the same month a year earlier to US$238 bln, ending four straight months of contraction. The December growth rate was the highest since March. Imports also rose sharply, rebounding from tame levels, although some of that 'growth' will have been price related rather than rising volumes. China's trade with the US has been declining, and trade with ASEAN nations is now their number one source. But despite lower China-US trade, it ended the year with more than 70% of its overall surplus the result of that bilateral trade.

In the investing world, the world’s largest asset manager - Blackrock - controlling and voting on almost US$7 tln in investments, has fundamentally shifted its investing policy. It will take a tougher stance against corporations that aren’t providing a full accounting of environmental risks. One early target is Australian thermal coal, and it will offload AU$½ bln in such shares. Although others will no doubt buy, it does signal that fossil-fuel capital will become much more costly, just at a time when demand and returns are under threat.

The UST 10yr yield is now down to 1.83% retracing -1 bp overnight. 

Gold will start today lower again, down another -US$8 at US$1,543/oz.

US oil prices are unchanged today now just under US$58.50/bbl and the Brent benchmark is at US$64.50/bbl.

The Kiwi dollar is soft as well at 66.1 USc. On the cross rates we are lower at 95.8 AUc. Against the euro we have slipped to 59.4 euro cents. That puts our TWI-5 at 71.2.

Meanwhile, bitcoin is sharply higher from this time yesterday at US$8,707, a rather remarkable +7.5% leap in just 24 hours. Bitcoin miners are approaching new reductions in supply.

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

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