Here's our summary of key economic events over the weekend that affect New Zealand, with news a pair of surveys confirm the giant Chinese economy is just crawling along, neither expanding nor contracting.
First up today however, we need to note that it is a holiday in much of Australia, their Labour Day.
And late on Friday, they released a review of June quarter foreign investment rulings. In the residential section, China (including Hong Kong) had AU$1.3 bln of applications approved, taking the total for the prior 12 months to AU$4 bln (page 6). The next eight largest country sources got approvals for AU$2 bln combined. From all sources, they approved AU$7.9 bln in that year. So there seems to be a rush on by buyers from China and Hong Kong to acquire Aussie houses.
In China, their factory sector moved back to expansion in September, according to the official PMI survey, their first expansion since March. Their timid service sector expanded too, and at a fractionally faster rate. But also released over the weekend were the private Caixin PMI surveys for September. That confirmed the marginal factory expansion, but suggested the services expansion was weaker than the official measure.
And staying in China, their Mid-Autumn Festival has started and they are on holiday from Friday until the end of this week. This year, the National Day holiday spans from September 29 to October 6, overlapping with the Mid-Autumn Festival. To partially offset the seven consecutive days of the National Day holiday, Saturday, October 7 and Sunday, October 8, have been designated as official workdays, resulting in a 7-day working week next week. But Hong Kong will only be closed for National Day, on Monday, October 2, 2023.
All this is generating a surge in internal travel. More than 20 million trips were made across the rail network on the first day of the holiday, with travel by all means expected to jump almost 80%.
In Japan, August retail sales rose +7% from a year earlier, unchanged from an upwardly revised July result. This August increase was much higher than the consensus forecast for +6.6% growth and was the fastest pace since February. Consumption continues to recover solidly after the pandemic-induced retreat. Japan has CPI inflation at 3.2%.
In the US, a truly last minute short-term compromise to keep the US funded was agreed, but only after the blocking Republicans were sidelined with a bipartisan deal. They will be back with another attempt to get an enduring resolution in 45 days - mid-November when all this silly drama will probably happen again.
However, the American core PCE inflation level came in at 3.9% from a year ago, the lowest since May 2021. And the recent track has it running at an annualised rate well below 2%. So some inflation progress here.
US personal income growth however is running faster than that, picking up in August to be +4.6% higher than a year ago, and a faster pace recently. This is not a sign of stress among most households. Personal expenditure remains strong and is continuing to underpin the global economy.
US wholesale inventory levels are not rising, but retail inventories are although broadly in line with inflation. And the American merchandise trade deficit is falling.
The manufacturing heartland Chicago PMI fell back in September to July levels. The strikes at carmakers won't be helping.
But consumer sentiment held in the month, as measured in the widely-watched UofM survey, and is +16% better than a year ago. This result confirms its earlier 'flash' reading.
In Canada, an interesting class-action lawsuit is underway, claiming the residential real estate industry conspired to agree fixed prices for brokerage and commissions, and this has hurt vendors.
EU inflation fell more than expected in September, down to 4.3% year-on-year and reaching its lowest level since October 2021. Analysts had expected a 4.5% rate.
In Germany, retail sales unexpectedly fell -1.2% (real) in August from July, missing market forecasts of a +0.5% rise and following an upwardly revised flat reading in the previous month. It was the steepest decline in retail trade since December 2022. Interestingly, on-line sales slumped more than -8% in August.
Tomorrow and Wednesday, we will get Monetary Policy Reviews from both the RBA and the RBNZ. Neither are expected to change policy rates. But each will still be important in its own way. The RBA's decision will be the first under new Governor Bullock. The RBNZ one is in the shadow of the upcoming election, and its observations about where we stand will be closely followed for how they will react after the election.
The UST 10yr yield starts today up +1 bp from Saturday at 4.58%. And that is up +12 bps from a week ago, up +38 bps in a month. The inverted curves have stopped flattening. Their key 2-10 yield curve is little-changed from yesterday at -47 bps. And their 1-5 curve is now at -85 bps and a bit less inverted. Their 3 mth-10yr curve inversion is unchanged at -82 bps. The Australian 10 year bond yield is now at 4.47% and down -1 bp from Saturday. And the China 10 year bond rate is unchanged at 2.71%. But the NZ Government 10 year bond rate is unchanged at 5.39%. This is up +13 bps in a week, up +50 bps in a month, so big movements here.
The price of gold will start today at just on US$1848/oz and down another -US$2 from Saturday. This is a new low since February 2023, all driven by the sharply rising yields. A week ago this price was US$1923/oz. A month ago it was US$1941/oz, so almost -5% lower since then.
Oil prices have moved little since Saturday so still at just on US$90/bbl in the US. The international Brent price is just over US$92/bbl. A week ago these prices were very similar. A month ago they were -US$5 lower.
The Kiwi dollar starts today at marginally under 60 USc. A week ago we were at 59.6 USc and at the start of the month 59.7 USc. Those indicate very little net movement. Against the Aussie we are firmish too at 93.3 AUc and to a four month high. Against the euro we up +½c at 56.7 euro cents. That all means our TWI-5 starts today at 69.9, up +60 bps from a week ago, and up +140 bps in a month. We have had significant rises against almost all others except the greenback.
The bitcoin price has moved back up today from Saturday, and it is now at US$27,135 and +1.0% firmer from then. A week ago, this price was US$26,812, and a month ago US$27,303. So the net movements have all also been very minor. However, at the start of July the price was US$30,445 so a -12% quarterly loss for this benchmark crypto. Volatility over the past 24 hours has been low at just under +/-0.6%.
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16 Comments
Bank of Japan intervened in the bond market on Friday by purchasing $2 Billion worth of 10 Years. Didn't make much dent in yields though, which are at 0.77. They can either try to save the Bond market or the Yen.
When my daughter was a child I used to read her this book about a goat called Haggis. Haggis lived in a thatched cottage that had a hole in the roof but he couldn't fix it because on rainy days it was too wet to work and on sunny days it didn't need fixing.
Inadvertently BoJ may be about to embrace the principles of Daoism.
Can anyone share a view on how the US debt ceiling plays out? Is it that bad? What’s the end game when you can’t run a surplus?
Kicking the can down the road and doing this again in 45 days seems mad.
Hi Hugh,
That is a great question but I would like to clarify something. This current drama is not about debt ceiling. The debt ceiling has already been passed some time back. But the budget needs to be approved by the congress, and the current drama revolves around republicans hesitant to pass the budget.
Basically debt ceiling = "We dont have the money"
Govt Shutdown = " We dont want to spend this much money"
But all this is drama, political leverage, nothing to worry about.
The question of debt which you ask if what is really worrying. US is issuing a lot more of it and it is getting more and more expensive.
The very short answer is that it plays out one of two ways: They either default or they Inflate Inflate Inflate. But all this is still some time away.
Hope that helps!
Ah, yes. Sorry, I meant the debt ceiling as their financing costs escalate into a spiral.
Of the things I don’t envy about the US, the political system is at the top.
Hi Ashwin.
How long can the increasing debt ceiling go on for? 5 years? 10 years? Or is it infinite?
Bottom line is the debt ceiling is just a number. Until the rest of the world loses confidence in the USD it will go on forever. Seriously what has changed so far ? basically nothing so they will continue to push it up ever higher until something breaks. The USA has bigger things to worry about than debt, they are hysterical about China moving to the top spot, why ? it threatens the USD as the worlds reserve currency.
Servicing the debt is one of the federal government’s biggest expenses. Net interest payments on the debt are estimated to total $395.5 billion this fiscal year, or 6.8% of all federal outlays,
Until the rest of the world loses confidence in the USD it will go on forever ...LOL
Stress in the financial system is rising: The value of global bonds dropped another $428bn this week as the interest rate world keeps repricing for a higher for longer. In past quarter, bonds lost ~$1.8tn in value and everyone is puzzling over who has the losses on their books. Link
Personal expenditure remains strong and is continuing to underpin the global economy.
We've relied on consumers to prop up the economy, but what if that's no longer feasible? Our soft landing scenario hangs in the balance. Link
In China, their factory sector moved back to expansion in September, according to the official PMI survey, their first expansion since March.
Another example of reality: Currently there around 150k containers of Chinese goods waiting to be unloaded across Russia due to the limitations on their capability to process imports fast enough. Recall trade between China and Russia has risen by 37% in the first seven months of 2023, yoy, to reach $134bn equivalent. Link
Oil prices have moved little since Saturday so still at just on US$90/bbl in the US. The international Brent price is just over US$92/bbl. A week ago these prices were very similar. A month ago they were -US$5 lower.
"Premiums Are Going Nuts Everywhere": Plunging US Supply Sends Oil Prices Around The World Soaring
In other news, I had a chat to Nicola Willis our likely next finance minister at an electioneering event in Ōhāriu electorate which she is trying to win. She speaks really, really well and is very passionate about making what she considers positive change. But she is in a total Khandallah bubble, seems to idolise Peter Dunne, she really needs to go live in Porirua or something to understand whats happening to most people. In my chat to her I asked her about productivity, she defaulted to "growing the economy through immigration and making it easier for businesses to make money" mode. So basically clueless. I asked her what the review of the RBNZ would seek to find out, she clearly didn't really know much about how its operated and defaulted into electioneering spin.
She would make a half decent PM though, especially if she got some real world experience working with poor people.
Remember this is your next finance minister, when she keeps making stupid decisions you will know why.
Best speaker was the local Greens candidate who tore shreds off the National parties understanding or commitment to climate change. And actually had a clue about the economy and energy flows. Unfortunately the TOP candidate Jessica was looking far too tired and barely answered any questions. Labour candidate/incumbent Greg O'connor just talked about police the whole night and was fairly clueless about anything else, would make a good minister of police and customs probably.
Oh and the local ACT candidate said a lot without really saying anything. Something I have seen before with ACT candidates. There was another guy there too from some party that relies on alliteration in their advertising, or just really likes the letter P. Clearly an engineer, very utilitarian, won't make it, says reasonably smart things but little to do with workable policy.
Great observations.
I would counter and say she doesn’t speak ‘really really well’. She is certainly well spoken (perhaps that’s what you mean), but there’s a total lack of depth and intellectual rigour to what she has to say.
Is she the Tory Jacinda?
Yeah, she doesn't know her own space well at all and is a bit out of touch IMO. Yes, Tory Jacinda is exactly how I would describe her. Would way prefer her as PM rather than Luxon though, the thought still terrifies me. We are about to elect an evangelical christian who is a property investor and is utterly out of touch who thinks doing well is ensuring big companies and landlords can make mega profits. And the country has been convinced that he represents us.
State-side, weaknesses are emerging among young people and lower-income households. That helped send the 60-day-plus delinquency rate for subprime auto loans in July to the highest-ever level, S&P Global Ratings said in a note this month.
It’s part of a wider realization among market participants that we may be in for a long, drawn-out default cycle as the impact of higher borrowing costs slowly works its way through the system.
https://au.finance.yahoo.com/news/us-consumer-spending-signaling-pain-1…
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