Debt questions over China's post-pandemic economic growth

Kia ora,

Welcome to Tuesday'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 data out of China has confirmed it is back growing again.

But first in the US, talks between the Congress and the Administration are dragging on in search of agreement for more stimulus for their battered economy. But few now think the Republicans will agree.

China reported its Q3 GDP late yesterday, saying their economy grew at the rate of +4.9% pa. That is less than most were expecting (+5.2%) but better than the +3.2% reported for Q2. It is currently the only 'hope' to drag the world economy out of its pandemic funk.

A massive amount of this recovery is based on debt. New estimates put China's overall leverage ratio at 270% - that is $270 of debt for every $100 of economic activity.

China also said its retail sales were up +3.3% year-on-year in September which was quite a bit better than expected. And their industrial production was up +6.9% and far better than expected. But electricity production, which had been rising for the past six months, stumbled lower in September to be only 5.3% higher than a year ago.

And Beijing is letting the yuan appreciate, now at 6.7 to the US dollar, its strongest in 18 months.

Japan has reported merchandise trade data for September and that wasn't as buoyant as expected. Exports fell -4.9% when a -2.4% fall was expected, and imports fell -17.2% when a -21% fall was expected.

In Australia, three firms trading in CFDs have been hit with fines totaling for than AU$75 mln for "systemic unconscionable conduct while providing over-the-counter derivative products to retail investors" by their Federal Court. Lose-only leveraged trading is behind the judgement. It didn't help that evidence showed that account managers for the firms were instructed to "kill your customers".

And the Australian tax authorities have updated their tax gap data. This shows that they only collect 92% of GST, leaving AU$5.2 bln being avoided by taxpayers. Earlier they had reported that large corporates had avoided AU$2 bln in income tax, small business had avoided AU$11 bln in income taxes, and sole traders some AU$8.3 bln. This data also shows that high net worth individuals are avoiding AU$800 mln in annual income tax. On a proportionate basis, they have the most problems collecting fringe benefit-, luxury car-, and alcohol taxes.

Wall Street has started the week lower with the S&P500 down -0.4% in early afternoon trade. Overnight European markets fell by a similar amount. Yesterday, Shanghai ended its Monday session down -0.7%, Hong Kong ended up +0.6%, and the large Tokyo exchange was up +1.1%. The ASX200 ended up +0.9% while the NZX50 ended down -0.4%.

The latest global compilation of COVID-19 data is here. The global tally is 40,186,000 and a record +394,000 per day. And Europe is locking down again and that will further embed their economic recession. 

The largest number of reported cases globally are still in the US, which rose +41,000 in Sunday's update to 8,394,000. 

In Australia, there have now been 27,399 COVID-19 cases reported, and that is just +9 more cases than we reported yesterday. 

The UST 10yr yield is marginally firmer this morning at just on 0.76%. 

The price of gold is up +US$9 from from this time yesterday and now at US$1909/oz.

Oil prices are unchanged today, still just under US$41/bbl in the US, while the international price is still just under US$43/bbl.

The Kiwi dollar starts today little-changed at just under 66.3 USc. Against the Australian dollar we are also little-changed at 93.5 AUc and holding those recent gains. Against the euro we have dropped to 56.2 euro cents. And that means our TWI-5 is still at 69.6.

The bitcoin price is +2.6% higher today than this time yesterday, now at US$11,766. 

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.