US sentiment surges; Canadian retail sales rise; China FDI shrinks; China to adopt GM to protect food security; Japan still not sure inflation is back; UST 10yr 4.16%; gold up and oil down; NZ$1 = 61 USc; TWI-5 = 70

Here's our summary of key economic events overnight that affect New Zealand, with news the American equities market is rising, mirroring the Tokyo one and in sharp contrast to China's retreating equities.

But first up today we need to note that American consumer sentiment as measured by the widely-watched University of Michigan survey surged in January, and inflationary expectations retreated. This was a combo that was not expected, or at least, not as decisively. Sentiment is now suddenly its highest in 2½ years. Year-ahead inflation expectations softened to 2.9% after plunging in December. That current reading is the lowest since December 2020. Few analysts saw such a sharp improvement in both measures coming although it is reflective of the steady progress in the American economy in other data, especially labour market data.

But American existing home sales activity dropped by -1.0% in the December month from a month earlier to an annualised rate of under 3.8 million, reaching the lowest level since August 2010 and falling below the market's anticipated 3.82 million units. For all of 2023, they sold 4.1 mln, the lowest level in nearly 30 years.

North of the border, Canadian retail sales jumped in December (but after a drop in November), the sharpest increase in 11 months.

Investors are still withdrawing from China on a net basis. Foreign direct investment into the Middle Kingdom fell by -8% in 2023. But although the transparency on this data is limited, there is a suggestion that there was a small improvement in the month of December from a year ago.

Bloomberg is reporting that things are getting grimmer in Chinese equity markets. Tokyo has overtaken Shanghai as Asia’s biggest equity market, while India’s valuation premium over China has hit a record. The meltdown in Chinese share values is wreaking havoc on the nation’s asset management industry, pushing mutual fund closures to a five-year high. But you won't find any of this in Hong Kong or other Chinese analysis.

Separately, China is going all-in on genetically modified crops as part of its food security push. That is probably triggered by data that shows they imported +12% more grain last year than in 2022.

Japan's December CPI inflation rate came in at 2.6%, down from 2.8% in November. And their core rate was at 2.3%, down from 2.5% in November. That is the 21st consecutive month it has been above the Bank of Japan's 2% target. But with this slippage, the central bank will likely remain very cautious that Japanese inflation is really back. 2.3% is a 17 month low even if over all of 2023 inflation was at a 41 year high in Japan. To help ensure that inflation stays embedded, Japan's government is urging businesses to raise wages ahead of annual spring negotiations between employers and labour unions. The largest union is demanding a 5% rise.

German producer deflation got "worse" in December with producer prices falling a whopping -8.6% from the same month a year ago. On an annual average basis, industrial producer prices were -2.4 % lower in 2023 than in 2022. But the December result is not all bad because a lot is due to extreme base effects. And energy prices in December were down more than -23% from the same month in 2022. Basically it is a gift from Russia. Germany is surviving a cold winter with plenty of gas and low prices.

In the UK, there was a sharp fall in retail sales in December. They tumbled -3.2% in December and far more than the market expectation of a -0.5% fall. It marked the largest monthly decline since January 2021, with non-food store sales plunging by -3.9%.

In Australia, the IMF has released the results of its annual staff review. The IMF wants to see meaningful tax reform and doesn't like that the markets pricing interest rate cuts in 2024. They [rightly] point out that inflation and inflation expectations are still far too high there. The IMF's call for tax reform in Australia is a long-standing position - but one Canberra ignores. (The last IMF review of New Zealand was in August 2023.)

We should perhaps note that makers of electric vehicles are in the midst of a fierce price and margin war, and most are worried whether it is existential for them in that category. It is coming up to a year since the price war started in China. It has spread from there and it shows no sign of ending soon - other than by company collapses. It is not helped by the fact that used EV vehicle prices have always been low and show no sign of stabilising. In many markets used EVs seem worthless which is not a good sign. Some manufacturers see an imminent "bloodbath".

The UST 10yr yield starts today at 4.16% and up another +2 bps from this time yesterday. That means it is up +20 bps for the week. The key 2-10 yield curve is more inverted, now by -24 bps. Their 1-5 curve inversion is little-changed, still by -79 bps. And their 3 mth-10yr curve inversion is also little-changed, by -122 bps. The Australian 10 year bond yield is now at 4.30% and unchanged from yesterday but a week ago it was at 4.07%. The China 10 year bond rate is still at 2.52%, unchanged. The NZ Government 10 year bond rate is up another +6 bps at 4.82% and up +10 bps from a week ago.

Wall Street has opened on Friday with the S&P500 up +1.1% so far and heading for a more modest +0.9% weekly rise but racing to a new all-time high. Overnight European markets mostly closed little-changed although Paris dipped -0.4%. Yesterday, Tokyo ended up +1.4% for a weekly gain of +0.9%. Hong Kong fell -0.5% to tumble -5.8% over the week. Yesterday Shanghai fell -0.5% to be -1.4% lower for the week despite home team intervention. Singapore rose +0.4% yesterday. The ASX ended its Friday session up +1.0% to limit its weekly drop to -1.0% while the NZX50 ended down -0.2% on the day to be -1.6% lower for the week.

The Fear & Greed index remains little-changed in the "greed" range which is also where it was a week ago - and two weeks ago.

The price of gold will start today up +US$11/oz from yesterday at just on US$2025/oz. But that is down from US$2043/oz a week ago.

Oil prices are down -50 USc at just on US$73.50/bbl in the US and the international Brent price is now at just over US$78.50/bbl and unchanged from yesterday. But both benchmarks are up +US$1/bbl from a week ago.

The Kiwi dollar starts today at 61 USc and little-changed from this time yesterday. But that caps an almost -2½c retreat since the start of the year, or a -3.8% devaluation. That is large and there could be inflation implications. Against the Aussie we are down -¼c at 92.7 AUc. Against the euro we are also down at 56 euro cents. That all means our TWI-5 starts today just under 70 and a -1.6% devaluation on that basis.

The bitcoin price starts today lower again, now at US$40,551 and down another -3.0% from yesterday. In fact we are in the largest two-week decline since August last year. Volatility over the past 24 hours however has been moderate at +/-2.2%.

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