Metal prices signal fundamental optimism for 2023

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 metals prices are indicating 2023 may be a year of global economic recovery.

But first, if you are North Island listener, we trust you are surviving the downpours. They have been 'amazing', and not in a good way. And of course, today is a holiday in the top half of the North Island. Many of us will be using the day to clean up and brace for the next atmospheric waves. Hanging on the phone waiting for an insurance call center might be adding to some frustrations. Long waits for repairs and remediation will become the norm as contractor capacity is clearly going to be overwhelmed. Insurers are triaging claims, as you might expect.

So much damage has been done, it will have economic consequences here for months.

Elsewhere, China will be returning from its week-long Lunar New Year holiday. Although some may have been in a pensive mood, despite the extreme cold in some parts of the country, there is evidence that 'opening up' has being embraced by consumers. This is early evidence, and the strength of the return is still to be assessed. Beijing is making an effort to encourage consumer spending activity.

Meanwhile, the Indian economy is rising fast, with a growing economic expansion that shines in comparison with China now. But it seems the Indians are just copying the Chinese economic playbook, building it on "more debt" to fuel the expansion. Bank lending rose +16.7% from a year ago. Economic activity rose +7.0%.

It is notable that India's economic and regional strategic power seems to be rising as it slides towards autocracy.

In Japan, their special Tokyo inflation data came in at +4.4% and the fastest increase since 1981. Tokyo prices are considered a leading indicator for national Japanese prices. But it is not clear that this will motivate the Bank of Japan to ease off its ultra-loose monetary policies. They are determined to wait out the current cost-push inflation until it turns into a demand-driven one, accompanied by wage growth.

In the US, we got more detail on the American PCE inflation level and it confirmed the implied rate in the Q4 GDP data. By this measure prices are rising at a +5.0% rate in December which is down from +5.5% in November. But the Q-on-Q rate has slipped away quite a bit to an annualised rate under 2%. Markets liked that data and all rose on the assumption the US Fed is more likely to ease back at its next rate review meeting on Thursday, February 2 NZT. (The US January CPI data is not due out until February 15, NZT.)

Also positive is that household incomes are rising (+0.2% in December from November) faster than expenditures which fell more than expected (-0.2%). Consumers themselves are girding for tougher times, it seems. And that may also be a signal the US Fed likes.

Meanwhile American real estate agents are hoping their market funk is easing. Pending home sales unexpectedly rose +2.5% in December from November, the first rise since May, and beating market expectations of a -0.9% drop. Still, year-on-year, pending home sales sank a whopping -34%.

So perhaps it is no surprise that consumer sentiment improved in January, even it was only by a small amount and is still historically low.

In Australia, there is evidence price pressures are easing for businesses. Their producer price index rose +5.8% in the year to December, but only at the annualised rate of +2.8% in the December quarter from the September quarter. We won't get to know how our PPI data tracked in the December quarter until February 21.

Meanwhile, as January draws to a close, Sydney housing market observers are expecting their real estate weakness to mean median prices there have now fallen below AU$1 mln. That will be more than a -12% fall over the past 12 months, down from AU$1.14 mln a year ago (all dwellings). In inflation-adjusted terms, that fall is now approaching -20%. (-12% nominal when consumer prices rose 7.8% over the same time.)

Globally, we should note that some key metals, like iron ore, tin, zinc and aluminium are all now at six-month highs. Dr Copper has joined that group too. These gains are all on the basis that the US will still keep growing in 2023, China will recover, and India's rise will extend. Interestingly neither coal nor oil are in that group. Inflation-adjusted, the oil price is really languishing, hurt by mountains of Russian oil that has few customers, and those it does have are low-balling the price

The UST 10yr yield starts today at 3.51%, and down -2 bps from this time Saturday. 

The price of gold will open today at US$1929/oz and very little changed, even from week-ago levels.

And oil prices start today low at just over US$79.50/bbl in the US even if they are +50 USc up from Saturday's level. The international Brent price is now at US$86/bbl.

The Kiwi dollar is little-changed, still at 64.9 USc. It is also little-changed in a week.  Against the Australian dollar we start today at 91.3 AUc but that is down -1.7% in a week. Against the euro we are still at 59.7 euro cents. That all means our TWI-5 starts today at 71.5. For the week however we are -30 bps lower.

The bitcoin price is firmer today, now at US$23,631 and up +2.2% from this time Saturday. Volatility over the past 24 hours has been modest at +/- 1.5%.

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 will do this again tomorrow.