Omicron threatens re-opening

Kia ora,

Welcome to Thursday’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 the world's factories seem to be in a good expansion mode - except in China.

But first we should note that the OECD says the rise of the Omicron pandemic variant threatens to intensify supply shortages and inflation. They are positive about New Zealand with strong growth forecasts for this year and next, but they are warning of an overheating economy here and excessive inflation that will need to be addressed.

Countries are hardening their border responses to the Omicron threat, which in turn will slow international travel and the related industries that thought they were on the way back.

The US ADP employment report, ahead of this weekend's non-farm payrolls report, shows a broad-based rise in hiring, even if it isn't a special jump. Analysts see the non-farm payrolls rising a similar +550,000 in November to keep their expansion on track.

There were many November PMIs released around the world overnight. In the US, the ISM one expanded slightly faster on strong new order data. The Markit one slipped from its high expansion. Both are strong expansions, both say it is demand-driven that now includes strong export order growth. Both noted improving supply chain conditions.

Canadian building permits rose in October from a year ago when a fall was expected. So that keeps their higher levels in place and they are now +14% higher than the October 2019 level when we look past the 2020 pandemic-affected data.

Canada's factories maintained their good expansion.

And so did the EU, where Italy deserves a special mention because it posted a record high expansion. Greece is doing well too.

And Japan is expanding faster, as is India.

However, although the official stats suggested Chinese factories started expanding again in November, the unofficial review (which recently has been more optimistic than the official view) reports that moved from a very modest expansion in October, to a contraction in November. This survey has seen little to cheer about all year.

And the expansions in South Korea, Vietnam and Thailand were all pretty lackluster, dragged down by China. Taiwan stood out in this region, perhaps Malaysia too.

An update on the Turkish lira. It has now devalued -35% in the past eight weeks, taking the total five year devaluation to -73%. Currency devaluations like this certainly don't make a country stronger or improve living standards. Turkey is now selling its reserves to keep the currency from falling even further.

In Australia, their latest factory PMI is positively positive, expanding at a faster rate in November than the good rate reported in October. Input prices rose at a record rate amid supply shortages.

Australia also reported stronger than expected Q3 GDP economic growth of +3.9% for the year to September. But this was achieved because the July to September shrinkage came in less than feared. Delta's hit to the Aussie economy wasn't as hard as initially thought.

The UST 10yr yield opens today at 1.44% and -1 bps lower from this time yesterday. 

The price of gold will start today at US$1785/oz and recovering all of yesterday's US$11 fall.

And oil prices have recovered a portion after yesterday's sharp fall, up +US$2.50 to be just over US$67/bbl in the US, while the international Brent price is now just over US$70.50/bbl.

The Kiwi dollar opens today firmer at 68.4 USc and a full +½c rise. Against the Australian dollar we are unchanged at 95.9 AUc. Against the euro we are a tad firmer at 60.4 euro cents. That means our TWI-5 starts today at 73.1 and off its recent lows. And it’s worth noting that the Chinese yuan has appreciated +5% over the past month against the NZD.

The bitcoin price has risen to now be at US$58,744 and +3.3% above the level at this time yesterday. Volatility over the past 24 hours has been moderate at just over +/- 2.2%.

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.