90 seconds at 9 am: China swings up

WTO & IMF warn on world trade pullbacks; China's economy may have turned a corner; China profits up, foreign debt up, tourism spurts; UST 10yr yield at 1.56%; oil and gold drop; NZ$1 = 73 US¢, TWI-5 = 76

28th Sep 16, 7:28am by David Chaston

Here's my summary of the key events overnight that affect New Zealand, with news of a raft of positive economic indicators out of China today

But first, the World Trade Organization has cut its forecast for global trade growth this year by more than a third. The new figure of +1.7%, down from its April estimate of +2.8%, would be the slowest pace of trade and output growth since the 2009 financial crisis.

At the same time, the IMF is warning of the dangers from populist moves for more protectionism, saying it will just deepen the fallout from lower trade levels.

Sea cargoes are where the weaknesses are; airfreight volumes are still showing healthy growth. Not measured in either of today's WTO or IMF releases are the trades in digital goods, and services, both of which are growing strongly.

Independent markers for the health and direction of the Chinese economy are improving. Both electricity production and railway freight showed good gains in August, the third consecutive rise in these indicators. These suggest real growth of about +3%, a long way lower than the +6.7% official measure, but an improving trend all the same.

Adding to the sense of improvement in China, profits of China’s industrial corporations jumped the most in three years, boosting prospects for their ability to repay debt.

At the same time, China's foreign debt levels to June were announced and they pointed to growing liabilities. The deleveraging we had seen from Chinese companies has now ended, and rising corpoate debt levels are back in vogue, the country's foreign exchange regulator said when it released the data.

This new spurt in Chinese activity abroad is also showing up in tourism. About 120 million Chinese traveled overseas in 2015, up from 109 million the previous year, according to the CNTA. They forecast that these numbers will reach a staggering 600 million by 2021. Even today, Chinese overseas travel is the largest from any country. In five years time it will be fives times as large. For New Zealand, that could be an overwhelming number, as it could be for most other countries too.

In New York the UST 10yr yield has fallen again today to 1.56%.

The spurt in the oil price we saw yesterday was reversed today, with prices down today by -3%, dashed by the usual Saudi-Iranian tensions. The US benchmark price now just under US$45 a barrel, while the Brent benchmark is now just on US$46 a barrel.

The gold price is also much lower, now at US$1,329/oz.

The New Zealand dollar is just a touch higher today than at this time yesterday, at 73 US¢, and on the cross rates it is at 95.3 AU¢, and 65 euro cents. The TWI-5 index is now at 76.

If you want to catch up with all the local changes yesterday, 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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9 Comments

by Stephen Hulme | 28th Sep 16, 9:29am 1475008187

But first, the World Trade Organization has cut its forecast for global trade growth this year by more than a third. The new figure of +1.7%, down from its April estimate of +2.8%, would be the slowest pace of trade and output growth since the 2009 financial crisis.

Hmmmm...

While it will come as a shock to Janet Yellen’s public face, the WTO specifically cited both of the world’s biggest two economies and not just China as the unrelated “overseas” (from the US perspective) problem. For all the reliance upon the unemployment rate here, there is a shocking disconnect in how supposedly rapid and sustained job growth just hasn’t translated into economic gains accrued anywhere. For an economy at “full employment”, there just isn’t any “demand” growth, a fact being felt and described in grim detail especially overseas. Read more

Bond markets are never wrong.

by murray86 | 28th Sep 16, 10:51am 1475013107

"...IMF is warning of the dangers from populist moves for more protectionism, saying it will just deepen the fallout from lower trade levels. Does the IMF understand that the free market is not free at all? Does the IMF understand that the big players, America, Europe, China have all maintained some level of protectionism irrespective of their noises to the contrary? Does the IMF understand that the pendulum needs to swing to the middle where a balance between protectionism and trade is required to preserve jobs and living standards? This all relates to the reasons behind Brexit and Trump, but note on the debate yesterday Hillary Clinton admitted that she did not believe "Trickle Down" was working and something needed to be done to preserve and protect living standards. Also reports on this site have indicated a number of times that countries around the world are recognising that the free market doesn't work and putting regulation in place to control and limit it, even though they may not be speaking it. This needs to happen here too, in a more effective way.

by DFTBA | 28th Sep 16, 11:11am 1475014295

I agree. I think globalisation, the rush to the bottom on wages and prices, and so called 'free trade (which translates as corporations being 'freed' from costs) are largely responsible for the state the world economy is in.
.
That and the quantative easing.....if any money gets printed, it should be given to the poorest in societies, not to the richest.

by JetLiner | 28th Sep 16, 2:02pm 1475024544

Agree. Even some bankers are getting it; e.g. Ian Narev of the CBA in this Australian Financial Review article (http://www.afr.com/business/banking-and-finance/cba-boss-populist-polit…).

"So I think there's been a decent degree of condescension towards populism [by saying] 'people don't understand' or whatever when actually what we are seeing is a very understandable human reaction by smart informed people who are feeling, 'well I'm not actually as well off as I'd hoped'."

by mlpc | 28th Sep 16, 11:32am 1475015530

I don't think the CNTA report is actually saying that there will be 600 million tourists by 2020. More like 600 million between now and 2020.
Still, the numbers are huge.

by JetLiner | 28th Sep 16, 1:52pm 1475023957

Very interesting comment regarding Chinese real estate from Investing In Chinese Stocks (https://investinginchinesestocks.blogspot.com/2016/09/official-panic-on…):

The moves come in the wake of People's Daily editorial calling for sanity in the housing market: Commentary in China’s mouthpiece media seeks to calm property speculation, draws online derision instead

An opinion piece carried by the website of the communist party media flagship on Monday night said hard work is more meaningful than profiting from property deals.

That's an unfortunate line because it came around the same time as this article: 见证楼市疯狂：房价1年涨幅顶家庭10年收入. The headline says the past 1 year of home price increase is equivalent to 10 years of household income. It discussed people closing their factories to flip houses. It isn't a fictional story, it's a reality repeated all over China.

The source of the devaluation is not the home prices though, it is currency devaluation. Inflation has greatly reduced the value of the yuan and it is expressing itself in soaring property prices. Every credit fueled bubble is the same, with people abandoning real work in order to trade the speculative asset du jour.

“When hard work is deemed inferior to property speculation, it can lead to a wrong direction and values,” the author Li Zhen wrote. “If the public spend too much time on short-term benefits from speculating on properties, it will squeeze out the desire to fight for long-term goals.”

It's called malinvestment. The market is sending the wrong signals because central planners have completely destroyed market signals across the world. China is destroying its economy, consuming wealth in order to produce an extra 1 to 2 percent of GDP in order to avoid the painful, but necessary, recession that will clean out the bad investments.

One popular comment that was liked by close to 1,000 readers said, “Didn’t People’s Daily get it the wrong way round? It is ridiculous that home prices make our hard work meaningless.” Another widely shared comment said, “These words sounds good to the ears, but those who say them are not good people. Most people spend their lives working hard but eventually lose their earnings to high taxes and rocketing home prices. Policymakers don’t try to reduce the tax. What’s the point of talking about all this trash? ”

The official panic has begun, as have the stringent buying restrictions and credit restrictions that will lead to the next crisis.

Something for us to learn here in NZ? Or are we too 'she'll be right' to heed the warnings?

by meh | 28th Sep 16, 2:51pm 1475027503

The source of the devaluation is not the home prices though, it is currency devaluation. Inflation has greatly reduced the value of the yuan and it is expressing itself in soaring property prices. Every credit fueled bubble is the same, with people abandoning real work in order to trade the speculative asset du jour.

And the so called experts keep calling for more inflation. Economists - the blind leading the blind. The result of compound inflation over time, no matter what the per annum rate is results in the purchasing power of money being devalued to nothing. And when nobody can buy the over priced property, where is the wealth then?

by Alter Ego | 28th Sep 16, 2:01pm 1475024499

This one resonates too...Maybe we are all the same mind ...under the skin.
Maybe we are all as daft as each other.

https://investinginchinesestocks.blogspot.co.nz/2016/09/ping-pong-polic…

by Alter Ego | 28th Sep 16, 2:12pm 1475025170

Warning.. DAVID.
My VIRUS CHECKER PICKED UP THIS.
INVESTING IN CHINESE STOCKS....SITE WHILST READING ANOTHER ARTICLE.
There are virus links in this above site. You have been WARNED...