Weird data and weird public policy choices

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 news markets are hesitant and nervous as weird data mixes with weird public policy choices.

Wall Street is flat today, unsure what to make of the rising global tensions. But at least their fears of a year-end funding squeeze never materialised thanks in large part to the quarter-trillion dollars the Federal Reserve stuffed into the market via repos to ensure nothing became gummed up. Now attention is turning to how the Fed gets out of the liquidity fix it is in.

In Europe overnight, equity markets were weak, with most bourses down about -0.6%.

German retail sales for November came in better than expected, but German car production is on the skids, with 2019 recording -9% lower output than for 2018 and exports down -13%.

And the Sentix global investor survey has surprised with sharply improving sentiment worldwide. It is a result that has flummoxed the survey takers.

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In China, they revealed their tax and fee cut program in 2019 released NZ$425 bln in liquidity and they say that had the effect of adding +0.8% to 2019 GDP. Given that China's 2019 GDP rose +6.1%, that is a lot of one-off stimulus from just one policy action.

And the China Banking and Insurance Regulatory Commission, their financial watchdog, released a guideline saying it would promote the conversion of household savings into long-term capital market fund. It did not say how it would do this. But it is a move that will juice up the Chinese stock market substantially when it is implemented.

In Australia, as their subsoils and clays start a rare drying out, they are shrinking. And that is causing buildings to crack and other structures to subside. Australia may have avoided the leaky building problems of more temperate countries (New Zealand, Canada, USA), but they have a new and worrying building crisis ahead of them too now, one that won't be going away, and one that will cost billions to remediate.

And the two rival PMI reports of their factory sector both show it contracting in December. The long-running AIGroup report and the internationally benchmarked Markit one both reveal declining new orders and declining production. When January data is available, almost certainly it will be weaker as the drought and fires bite. Services are also contracting although not as sharply yet.

The UST 10yr yield will start today little-changed at 1.80%. 

The price of gold is much firmer again today, up another +US$12, now at US$1,564/oz, after serious American mis-steps in the Middle East.

US oil prices are holding at their higher level at just over US$63/bbl and the Brent benchmark is also higher at just under US$69/bbl. The potential for an oil price shock hit the Tokyo stock markets hard yesterday, down -1.9%.

The Kiwi dollar will start today unchanged at 66.7 USc. On the cross rates we are a lot firmer at 96.2 AUc. Against the euro we are holding at 59.6 euro cents. That keeps our TWI-5 at 71.5.

But bitcoin is up +1.1% to US$7,534. 

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

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