Here's our summary of key economic events over the weekend that affect New Zealand, with news markets are starting to worry that the Chinese economic revival may not be sustainable.
In China, their official factory PMI expanded marginally faster in July than in June. Their service sector PMI is expanding much faster, but slowed marginally in July than June. Both were boosted by construction activity, on official stimulus priority so it may not be sustained. And new order growth was modest in both sectors even if they were expanding. But we should note that the rival private sector survey, which will be released later today has been recently posting more expansive results that these official surveys.
China has reverted to its old playbook of local construction projects and encouraging exports to weather this economic crisis. In fact, new data shows it granted NZ$175 bln in export tax relief in the first half of 2020. These rebates “effectively reduce the funding pressure on export companies in China and reduce their cost of funds.”
Elsewhere in Asia, June industrial production in Japan has come in better than expected and positive from May. And retail sales in South Korea came in much better than expected and a large +6% rise compared with the same month in 2019. Both are positive early signals, just like the Chinese PMI data.
However, Taiwan GDP growth for Q2-2020 didn't eventuate and there was a surprise small contraction for them.
In Hong Kong, their jobless rate has risen to its highest in 15 years. And Beijing is pulling some crude strings, banning liberal candidates, postponing their election for a year, and allowing the existing Assembly to expire so they can appoint interim legislators. It is a pretty disgraceful sham, using the pandemic as cover. But it is what autocrats do.
In the EU, GDP dropped -14% in the June quarter from the same period in 2019 in the steepest one quarter drop in history. That follows a -2.5% fall in Q1-2020 on the same basis. Both German and French results were ugly.
The other large economy, Japan, is yet to report GDP results, but they are expected to show a Q2-2020 fall of -26% annualised rate (about -9% in the second quarter alone).
The US released personal income and expenditure data for June and the results seem unsustainable. Personal income fell -1.1% on top of the -4.4% fall in May. But personal spending rose +5.6% in June on top of the +8.5% rise in May. Dipping into household reserves and savings to maintain spending can only last so long, and this data suggests they are much closer to a widespread earthquake in the way American household budgets are managed.
American consumer sentiment is slipping too. It sank further in late July the coronavirus weighed increasing on the population. In the last four months, this sentiment Index has recorded a decline of -25% from the same period in 2019. The ending of some income support in the next month or so isn't going to help sentiment.
There is some good news on the industrial front however. The bellwether Chicago PMI rose more than expected and is now expanding after twelve months of continuous contraction. Particularly encouraging was the snap-back in new orders.
But the inability of Federal authorities to control its debt and the ongoing deterioration has seen ratings agency Fitch warn it could downgrade US Treasuries to a 'negative' outlook.
In Australia, Victoria declared a 'state of disaster' over the weekend and imposed stage four lockdowns for six weeks, including a 8pm-5am curfew imposed on Melbourne, and people are restricted to 5km from their home. However workplaces are to stay open. Regional Victoria will shift to a lighter stage three lockdown.
The pandemic crisis in Victoria is dashing expectations of a V recovery, or in fact any recovery in the whole country. Aussie complacency, right down to individual household levels, is undoing them fast now. The Victorian state government is at a fiscal cliff, appealing to Canberra for emergency financial support. But the fiscal cliff is closer for all Australia now.
In Australia, there have now been 17,923 cases reported, another +1018 over the weekend, and still very much concentrated in Victoria but also small and growing pockets in both Sydney's suburbs, and now Queensland. Their death count is up to 208 (+12). Their recovery rate has slipped to 58%. There are now 7295 active cases in Australia (+566) and almost all are community transfer.
The latest global compilation of COVID-19 data is here. The global tally is 17,852,000 and that is up +517,000 since this time on Saturday. Global deaths reported now exceed 680,000 (+6,000).
A quarter of all reported cases globally are in the US, which is up +122,000 from this time Saturday to 4,791,000. US deaths are now just over 158,000 and a death rate of 478/mln (+7/mln). And the net number of people actively infected in the US rose +44,000 over the weekend to 2,261,000.
The UST 10yr yield is little-changed changed but softer at just over 0.53% and now a new record low. Their 2-10 curve is marginally lower at +42 bps. And their 1-5 curve is flatter at +9 bps, while their 3m-10yr curve is unchanged at +44 bps. The Aussie Govt 10yr yield is down -1 bp at 0.83%. The China Govt 10yr is up at 2.99%. But the NZ Govt 10 yr yield is sharply lower and now at 0.75% after another sharp drop at the end of last week.
The gold price will start this week at a very high US$1,976/oz. Headlines will no doubt light up as soon as it crosses US$2000/oz.
Oil prices start the week firmer than this time last week. They are now just under US$40.50/bbl in the US and the international price is now on US$43.50/bbl.
But the Kiwi dollar is starting the week with a softer tone and back at a similar level to this time last week at 66.3 USc. Against the Australian dollar we are softer than a week ago at 92.9 AUc. Against the euro we are -¾c lower in a week at 56.3 euro cents. That means our TWI-5 is at 69.6 and about -50 bps lower for the week.
The bitcoin price is little-changed today at US$11,279. The bitcoin rate is charted in the exchange rate set below.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».