China PMIs lackluster; China suffers FDI outflow; US non-farm payrolls grow but PMIs soft; Aussie retail volumes sink; Albanese in Beijing; UST 10yr 4.58%; gold and oil tick up; NZ$1 = 60 USc; TWI-5 = 69.4

Here's our summary of key economic events over the weekend that affect New Zealand, with news economic activity is expanding at a lackluster pace in the world's largest economies but so far their labour markets are still expanding at a robust pace.

But first, in the week ahead it will be headlined by the RBA Monetary Policy report tomorrow (Tuesday) and possibly by the high level meetings in Beijing. In the US, speeches by several Fed officials, more sentiment surveys and foreign trade data are due. Also, the Wall Street earnings season will rolls on, featuring reports from large companies such as Gilead Sciences, Uber, and Walt Disney. Across the Pacific, China will focus on inflation rates, new yuan loans, and foreign trade data. Countries like England, the Philippines, and Indonesia will release their Q3 GDP growth rates. Germany will update factory order and industrial production performance.

Late Friday, data from China showed their private services PMI expanded marginally in October, but little-changed from September. Business activity across their service sector is still subdued with a further slowdown in new order growth, which was the weakest in 2023 so far. The Caixin services PMI records an expansion score of 50.4 which was slightly duller than the official services PMI score of 50.6. Expansions yes, but very minor ones. (New Zealand's last services index was at 50.7. In Australia, a very weak 47.9, quite the contraction.)

And staying in China, they released their balance of payments data Friday too. That showed outflows of foreign direct investment in the country have exceeded inflows for the first time since 1998. FDI came to -US$12 bln in the quarter, with more withdrawals and downsizing than new investments for factory construction and other purposes.

And the brutal price war going on in China for EV market share just went up a notch with BYD cutting already very low prices by another -10%. It is supposedly a 'temporary' cut. Major shareholder Warren Buffett is probably not happy with the management move.

In the US, the main weekend headline news was that total nonfarm payroll employment increased by +150,000 in October, and the unemployment rate was little-changed at 3.9%. That was lower than the expected +180,000 gain for October. But as regular readers know, we look behind these seasonally adjusted numbers to the actual survey data. That shows that employer payrolls actually rose +1,066,000 in October from September to a record high 156 mln at the end of the month. And that was on top of the impressive +526,000 gain in September. But wait, there is more. Including the unincorporated self-employed, the employed workforce in the US is now 161.7 mln. But the self-employed portion of the workforce isn't growing much at all now. All the surge is in company payrolls. None of this indicates that the US labour market is 'cooling' as most headlines suggest.

The US needs payroll growth of +70,000/month to keep up with its working aged population, so by any interpretation, their labour markets are tightening. American inflation might well be easing and the Fed may well stand pat now, but it is unlikely to be because of its labour market track. More on tight global labour markets here.

Meanwhile the widely-watched American ISM services PMI reports an easing to its lowest level in five months. Still an expansion, but less so. However, new order levels rose much faster and suggests that future levels in the services PMI will rise. (New export orders were weak however.) The internationally-benchmarked Markit services PMI reported an expansion too, but that was even softer than the ISM one.

In Canada, their unemployment rate rose to 5.7% in October from 5.5% in the previous month, the highest since January 2022 and above market expectations of 5.6%. The result was in line with the Bank of Canada’s warning that its aggressive rate-hiking cycle has had a notable impact, slowing down the Canadian economy, prompting softer labour market conditions, although the unemployment rate remained below pre-pandemic averages. The number of jobless individuals rose by +40,300 to 1,229,400 in the period. Employment rose by +17,500 and well less than expected. And part-time employment rose by +20,800 while full-time jobs fell -3,300. So what payroll growth they did get was low quality.

In Australia, retail sales rose a very minor +0.9% in September from August, up +2.0% from a year ago in value terms. But that belies a weak background. Retail sales volumes are down -1.7% compared to the September quarter last year. And volumes are lower despite a period of strong population growth. On a per capita basis, retail volumes are down -4.0% compared to this time last year, the largest 12-month fall in the history of their tracking, starting more than 40 years ago.

The iron ore price rose to its highest since march yesterday on the expectation that the recent Beijing financed stimulus will result in more traditional infrastructure projects there to combat the economic slowdown. (Coal prices keep falling however.)

Meanwhile, the Australian prime minister is in Beijing today to meet President Xi. Interestingly, he holds important cards for China, so it is likely to be more a meeting of equals than is usual. China reinforced its desire to join the CP-TPP, but Australia was non-committal. Japan has already said it opposes China's entry and membership requires unanimous agreement. To back off its trade pressure, China will require Australia's support. Xi will also be testing reactions ahead of his expected meetings with US President Biden in the US in a little over a week.

In financial markets, traders are pricing a rising chance that the RBA will raise interest rates on Tuesday, a two-thirds chance. But they also see an almost 100% chance of a December 5 rate hike if it doesn't happen on Tuesday. This is all quite the reverse of how the rest of the world assesses the chance of rate hikes elsewhere.

The UST 10yr yield is down sharply from Friday, but up +2 bps from Saturday in a small recovery to 4.58%. There is still a bond markets rally underway. But their key 2-10 yield curve is still inverted by -27 bps. Their 1-5 curve is inverted by -79 bps and that is also little-changed. Their 3 mth-10yr curve inversion is now -82 bps and slightly less than Saturday. The Australian 10 year bond yield is now at 4.68% and up +2 bps from Saturday. The China 10 year bond rate is unchanged at 2.68%. The NZ Government 10 year bond rate is also unchanged at 5.35%.

We should note that Berkshire Hathaway reported a loss in Q3-2023 to trim its year-to-date profit to US$58 mln. But Buffett & Munger have been selling down some of their investments and sit on a US$174 bln in cash at present in a balance sheet that now tope US$1 tln. That is as much cash as 9 months of New Zealand's economic activity as measured by GDP.

The price of gold will start the week at US$1992/oz and up +US$1/oz from this time Saturday.

Oil prices have stabilised lower, up +50 USc from Saturday to just over US$80.50/bbl in the US. The international Brent price is now just on US$85/bbl.

The Kiwi dollar starts today at 60 USc and up more than +1c from Friday on a slumping greenback, and a little more from Saturday. A week ago it was at 58.2 USc. Against the Aussie we are firmer at 92.2 AUc. Against the euro we are also firmer at 55.9 euro cents. That all means our TWI-5 starts today at just on at 69.4. That is +110 bps higher than a week ago and a three week high.

The bitcoin price starts today at US$34,983 and 1.6% higher than this time Saturday.  Volatility over the past 24 hours has been low at just on +/- 0.9%.

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