Here's my summary of the key events over the weekend that affect New Zealand, with news the IMF is downgrading China's growth outlook.
But first, American retail sales were unexpectedly flat in July as locals cut back on discretionary spending, pointing to a moderation in consumption. There have been expectations of a sharp pickup in economic growth in the third quarter but this data casts doubt on that.
China will use the stricter enforcement of environmental, safety and energy efficiency standards as well as tougher credit controls to help fight overcapacity in key industrial sectors. Firms that fail to comply with new energy efficiency targets would be given six months to rectify and would be closed if they fail to make progress. Those that continue to exceed air and water pollution standards would be fined on a daily basis and in serious cases ordered to shut.
China’s economic growth is expected to decelerate to below the 6% level in 2020, partly due to structural problems such as rising corporate debt and structural excess capacity in the steel and coal sectors, the IMF said. Growth in China’s real gross domestic product is projected to slow from 6.9% in 2015 to 5.9% in 2020 and 5.8% in 2021, the IMF said in its annual assessment of the Chinese economy. “The medium-term outlook is clouded by continued resource misallocation, high and rising corporate debt, structural excess capacity, and the increasingly large, opaque, and interconnected financial sector,” the report said.
In addition, they said almost half of the shadow banking products that have fueled China’s credit boom carry an “elevated” risk of default.
However. that slowdown may come faster than the IMF thinks. Almost all of new mainland loans last month were taken out for home mortgages, while lending to corporate borrowers actually shrank, according to central bank data released over the weekend. This is an early sign of a Chinese “balance sheet recession”. “When corporates stop borrowing or stop getting credit, that’s not a good thing,” a Hong Kong analyst said after the data was released.
In New York, the UST 10yr yield was a little lower at 1.51%.
The US benchmark oil price is still rising and is now just under US$44.50/barrel and the Brent benchmark is just under US$47/barrel. In response, there has been yet another rise in the number of US working oil rigs brought back into production and that is now 7 weeks of consecutive rises, 12 of the past 13.
The gold price is down by about US$15 and now at US$1,335/oz.
And speaking of commodities, we will have the next dairy auction this week and market chatter is that it could be another good one, and showing gains exceeding the +6.6% increase we saw two weeks ago.
The Kiwi dollar will start the week at 72 US¢, at 94.1 AU¢, and at 64.5 euro cents. The TWI-5 index is at 75.2. After the March OCR cut, the TWI also rose, but it was only at 71.2 back then.
If you want to catch up with all the local changes on Friday, we have an update here.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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