China relaxes some tight rules; Chinese New Year travel to be epic again; Taiwan squeezed harder; US payrolls rise again; US activity slows noticeably; UST 10yr 3.57%; gold and oil little-changed; NZ$1 = 63.5 USc; TWI-5 = 71.3

Here's our summary of key economic events over the weekend that affect New Zealand, with news all eyes this week will be on Chinese and American December inflation levels.

Although most of the data has been coming from the world's largest economy, the most interesting tends are coming from the second largest, China. There are risks aplenty, giant weaknesses, and giant opportunities. It is just we can't get a great picture because its economic data is so opaque. There are some sources other than official sources, but not to the extent we expect in an open economy.

We should note first than an importer has placed an order for Australian coal, providing clear evidence of the lifting of an unofficial ban imposed more than two years ago on that trade with Australia.

China's new energy relationship with Russia isn't solving their issues in northern China.

And the sheer amount of money Chinese banks have been 'lending' to their property developers to keep them afloat is astounding.

Meanwhile, China's foreign exchange reserves rose marginally in December, mainly on reduced import demand, but they didn't rise by much as expected. They are now at US$3.13 tln.

Chinese authorities said Chinese New Year travel will nearly double to 2.1 billion trips this season, after the country all but abolished pandemic border restrictions recently. Most travel will be internal. But there will also be a surge in international travel. Chinese booking site Trip.com said the most popular destination is Australia, followed by Thailand and Japan. We will probably see some spillover from the travel to Australia, maybe even more so given Australia decided to place pandemic testing restrictions on Chinese travelers.

Taiwanese exports fell a sharp -12.1% in December from the same month a year ago. Although this was less than anticipated, it is still a notable fall, mostly resulting from the trade squeeze neighbouring China is put on their country.

In Japan, the world's third largest economy, the yield on 10-year Japanese government bonds rose to a seven-year high of 0.5% on Friday, hitting the Bank of Japan's new upper limit in just weeks as other buyers shy away from the asset. The BOJ surprised the market on December 20 by widening its target band for 10-year yields to 0.5%. Investors lose on rising yields and are no longer buying.

In the US, there were no surprises in the American non-farm payrolls data for December. Those payrolls grew +233,000 in December to 153.7 mln in the headline series. Markets had expected a +200,000 gain. But as regular readers know, there are two related surveys, the widely-reported Establishment (employer) survey, and the parallel Household survey. This second survey shows there is a 159.2 mln employed workforce, more than +15 mln higher than the employer survey. It has recorded that larger level before the pandemic, the difference fell away during the pandemic, and in 2022 is back to the same +15 mln additional. That extra is almost certainly the unincorporated self employed.

Average hourly earnings rose +0.3% from the prior month, to US$32.82 in December (NZ$51.80/hr or NZ$108,000 pa) following a downwardly revised +0.4% gain in the prior month and below market forecasts. This was the smallest growth in average hourly earnings in four months.

This reinforces the fact that the momentum in the American labour market is slowing, and the Fed will take heart from that. Financial markets did too. They expect that and other more recent data will continue to temper credit conditions. There is something of a new and recent rush on by corporate treasurers to tap bond markets again.

Employment data tends to lag economic activity however, and this may be a high-water mark to start 2023. A leading indicator wasn't so positive, factory orders. In November they dipped -1.8% from October to take them back to just +6.8% higher than year-ago levels and struggling to account for inflation. A -0.8% fall was anticipated, so this is a worse result. And that was largely due to low orders in the month for civilian aircraft.

Perhaps we should also note that 5.8% of all American cars sold in 2022 were EVs. That is up from 3.2% in 2021. For perspective, total car sales fell -8% in 2022 but mainly on earlier chip-supply constraints.

Also falling away much sharper than expected is the widely-watched ISM services PMI. It was expected to come in slightly less positive (55 index level from the November 56.5 level), but in fact it dived into a minor contraction in December (49.6) in a sharp shift no-one saw coming.

At the same time, American inflation is biting households. Even though petrol prices are no longer adding to inflation, rents are. In a December survey, more than half the respondents said their rents rose by +$US100/month. Four percent said their increase was more than +US$500/month. The US will release its December inflation data on Friday (NZT).

The same survey showed more than 35% of households used credit cards or loans in December to cover spending needs in the prior week. That’s up from around 32% in November and just 21% in April 2021, when they first started collecting this data.

In Canada, they also reported labour force data for December. Their employed labour force grew +104,000 in the month and far more than the +8,000 expected. Most of it (+84,500) was for full-time jobs. It is also a good result for them, and like the Americans, both their participation rate rose and their jobless rate fell. It probably means that more big rate hikes are coming from the Bank of Canada. For perspective, their employed labour force is 19.8 mln, so only 12% as large as their giant southern neighbour.

The EU released its December inflation report, and for the Euro area it came in at +9.2%. This was far less than the expected 9.7% and much lower than the November 10.1%. From the prior month, inflation is slowing fast, running at an annualised -4.2% deflation rate now. Much of this can be attributed to the success of their efforts to insulate themselves from the Russian energy stand-over tactics.

EU retail sales however showed some surprise strength, rising at a +10% annualised rate in November from October.

Germany reported its December retail sales data and said it will have grown +8.2% in 2022, but that will be less than inflation. They also reported some rather grim November factory order data.

The UST 10yr yield starts today at 3.56%, and down -1 bps from Saturday. The UST 2-10 rate curve is still inverted at -70 bps. But their 1-5 curve is much more inverted at -102 bps. Their 30 day-10yr curve is also more inverted, now at -64 bps. The Australian ten year bond is little-changed at 3.70%. The China Govt ten year bond is still at 2.90%. And the New Zealand Govt ten year is starting at 4.38% and down -2 bps.

The price of gold will open today at US$1866/oz and little-changed.

And oil prices start today a bit softer from yesterday's levels at just under US$74/bbl in the US while the international Brent price is just under US$78.50/bbl and easing back to its 12-month lows.

The Kiwi dollar has stayed up at 63.5 USc. Basically, we are back to week-ago levels. Against the Australian dollar however we are recovering at 92.4 AUc but still about -1c below week-ago levels. Against the euro we are firmish at 59.7 euro cents with another +¼c rise. That all means our TWI-5 starts today at 71.3, up a net +20 bps from Saturday.

The bitcoin price is now at US$16,944 and up +0.6% from this time Saturday. Volatility over the past 24 hours has remained very low at just +/- 0.3%.

The easiest place to stay up with event risk today is by following our Economic Calendar here ».