China services sector contracts; EU retail sales fall; US jobs growth weak; US service sector expansion slows; Aussie retail sales fall; UST 10yr 1.33%, oil and gold slip; NZ$1 = 71.5 USc; TWI-5 = 74.3

Here's our summary of key economic events over the weekend that affect New Zealand with news China's economy appears to be contracting now, and the giant US economy is slowing at the same time.

But first, just a reminder that this is a long holiday weekend in both the US and Canada, their Labor Day weekend (Labour Day in Canada!), signaling the end of their summer holiday season. If you are an investor and "sold in May, and went away", then this is when you return to the markets. (Wednesday, our time.) Volumes will rise from here.

China is on its way back from its summer holidays too, but not to an expanding economy. The private Caixin PMI for their services sector was very weak, contracting at a faster rate. It is now at a 20 month low. New order levels retreated. This is lower than the official version which also signaled a sharp retreat, confirming not only a loss of momentum, but an outright contraction in their service economy.

China's heavy truck sales plunged in August, down almost -20% from July, and down more than -50% from August 2020. Excavator sales fell sharply too. Recovery seems to depend on new Beijing stimulus.

The iron ore price ended last week at roughly the same level it was at the end of the past two weeks - sharply lower than its peak seven weeks ago, but not falling any more. It is back at 2014 levels, although in between, it fell -70% (in late 2015) and rose +60% in (mid 2021).

In Japan, Prime Minister Suga said he won’t seek re-election as ruling-party leader, effectively ending his term after just a year. The old revolving door for Japanese prime ministers might be returning.

In Europe, retail sales in July were another market disappointment. A flat result was expected, but a sharpish fall was reported, down -2.3% from the prior month. Instead of being up +5.4% year-on-year as they were in June, they are now only up +3.1% year-on-year in July.

And the ECB meeting will be in the spotlight this week with investors looking for any clue whether the central bank is ready to start reducing its massive asset purchase program.

In Russia, their central bank is looking at their rise in inflation with alarm. Like all emerging economies, rising global interest rates will corrode any gains they are making from rising commodity prices, capital will withdraw, their currencies will fall, and the huge debts they have racked up will still be payable in US dollar terms. It is not something they are looking forward to.

Back in the US, after adding 1 mln new jobs in July on top of a similar strong gain in June, and an expectation that August would add +750,000, the American non-farm payrolls report disappointed everyone. Only +235,000 new jobs were added in August, apparently because employers are looking at the spreading Delta pandemic with concern. This means that still a net -5.3 mln jobs haven't been recovered since the start of that pandemic.

One reason hiring hesitancy is being blamed on Delta, is that wage rises remain strong. Holding on to existing workers is now the priority if there is to be a bumpy road ahead. Average earnings are up +4.3%, both on an hourly and a weekly basis. (That might be good, but it is less than their CPI. Inflation is corrosive now. And see this.)

This weak jobs report does throw out some uncertainty on whether the Fed will taper this year, or not. And it has sharply shrunk the economic growth some Fed models are recording for Q3.

The view on their giant service economy is mixed. The widely-watched ISM services PMI reported a fast expansion although growing slower. The internationally benchmarked Markit one also reported a good expansion, but at a much more modest level and slowing quickly.

Australian retail sales retreated -2.9% in July from the same month in 2020, sucked lower by the NSW lockdown. June's results were also negative, dropped by Victoria's lockdown, so the recent trend isn't positive. New Zealand will be the same of course.

And labour shortages in rural Australia threaten their harvests. Farmers preparing for massive harvest and hoping to cash in on strong international demand can’t find workers as state and federal leaders squabble over border openings and the vaccination rollout.

And staying in Australia, there were another 1487 new community cases in NSW yesterday with another 1371 not assigned to known clusters, so they remain completely out of control. They now have 23,847 locally acquired cases. Victoria is reporting another 183 new cases yesterday, so it is bad there too. Queensland is now reporting one new case. The ACT has 15 new cases. Overall in Australia, more than 38% of eligible Aussies are fully vaccinated, plus 24% have now had one shot so far.

The UST 10yr yield opens today at just under 1.33%. The US 2-10 rate curve is now at +112 bps and unchanged. Their 1-5 curve is little-changed at +72 bps, while their 3m-10 year curve is still at +129 bps. The Australian Govt ten year benchmark rate starts today at 1.25% and down -1 bp from this time Saturday. The China Govt ten year bond is at 2.85% and unchanged. The New Zealand Govt ten year is now at 1.85% and also unchanged over the weekend.

The price of gold is holding but down by a minor -US$2 from this time Saturday, now at US$1828/oz.

Oil prices have fallen slightly again too, so in the US they are now just under US$69/bbl, while the international Brent price has dipped to just over US$72/bbl.

We should also note that the NZ carbon price surged up to over NZ$60/NZU on Friday. See this.

The Kiwi dollar opens the week at 71.5 USc and +1½c higher than at the start of last week. Against the Australian dollar we firmer too at 96.1 AUc. Against the euro we are +100 bps higher in a week at 60.3 euro cents. That means our TWI-5 starts today at just on 74.3 and above the 72-74 range of the past ten months.

The bitcoin price has held from this time Saturday at US$50,319 and still its highest in 16 weeks. Volatility in the past 24 hours has been low at just under +/- 1.0%.

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