Chinese economic momentum leaks away

Kia ora,

Welcome to Monday’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 inflation is high in the US and Europe, but growth is leaking away in China.

China's official PMIs remained in a stall in October. The factory survey showed retreating conditions, and marginally weaker than for September. Their services sector is still expanding but this was a small downgrade too. Overall it is a bit of a sorry story, hampered by high costs, energy shortages, a resurgent pandemic in some northern provinces, and a difficult transition to cleaner operating conditions. It is a clear momentum downgrade.

However Evergrande has made a second overdue bond interest payment late on Friday, late but not so late as to trigger default. It seems to be successfully buying time to organise its finances and negotiate with creditors. But it is one thing to make interest payments; it is quite another to repay the bond principal amounts none of which are due quite yet.

In contrast, in Japan consumer confidence rose again in October continuing its recovery, even if it isn't quite back to pre-pandemic levels yet. But data for Japanese industrial production wasn't so flash, in fact quite disappointing given most other recent industrial measures like their PMIs. Supply chain issues are crimping production and shipments still there too.

Japan voted in national elections over the weekend and the ruling party looks like it will win again, but with a reduced majority.

Also slightly less than expected was the Taiwanese Q3 economic expansion. However strong investment levels probably mean this will improve well from here and rate hikes are less than a year away now.

Singapore business confidence is holding and looks better ahead. But Singaporean producer prices are rising faster that the expected fast rise. But again, this is really all about energy (oil) costs.

Updated OECD data on foreign direct investment for the first half of 2021 shows the expected strong recovery with both China and the US the main beneficiaries, each making identical gains. Interestingly, Australia was one of the new developed countries with net outflows.

In the US, the inflation number the Fed watches was out over the weekend, core PCE, and that came in unchanged from August at +3.6% and well above its policy target but well below the headline CPI rate of 5.4%. Of equal interest was that personal income retreated quite sharply in September as pandemic support was withdrawn. Personal expenditure rose a modest amount, and it was an unexpected surprise that it rose in these circumstances.

But that tightening didn't affect sentiment much, at least according to the University of Michigan survey. It slipped just a minor amount, but it is recording high uncertainty levels again.

The Chicago PMI reported a pickup to quite a high level after two months of consecutive slippages. New orders were up, but prices paid rose again and to a 42 year high. Supply chain issues dominate sentiment here.

Q3-2021 GDP data for Mexico disappointed with an unexpected slip from Q2.

Annual consumer inflation in the Eurozone jumped to 4.1% in October of 2021 from 3.4% in September and higher than market forecasts of 3.7%. It is all about energy costs there.

Economic activity expanded +3.7% from a year ago in the EU in Q3-2021 and that was more than anticipated.

In Australia, retail sales rose in September, but it is hard to know what to make of the data given the pandemic effects. But most analysts saw it as "encouraging".

And staying in Australia, the RBA turned down another chance to suppress runaway bond yields on Friday, reinforcing the view the central bank will bring forward its cash rate guidance to no later than 2023 amid rising inflation. By skipping the opportunity, that has powered up their wholesale market yields - and it has turned a consolidating market in New Zealand into one where earlier falls were cancelled.

More clarity about their evolving policy will probably come tomorrow at the RBA's regular monthly rate review.

The UST 10yr yield opens today at 1.56% and down -8 bps in a week. 

The price of gold will start the week at US$1784/oz. At this level it is -US$10 below the week-ago price.

And oil prices are up by another +50 USc to just over US$83.50/bbl in the US, while the international Brent price is now just over US$84.50/bbl. 

The Kiwi dollar opens today just under 71.7 US. Against the Australian dollar we little-changed at 95.3 AUc. Against the euro we are a firmer at 62.1 euro cents. That means our TWI-5 starts today marginally firmer that at this time Saturday at just under 75.3, still well over the top of the 72-74 range of the past eleven months, possibly now resetting this range.

The bitcoin price has slipped -3.1% since this time Saturday, and now at US$60,599. Volatility over the past 24 hours has been moderate at just over +/-2.0%.

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.