China's population and property data stirs deep concerns

Kia ora,

Welcome to Thursday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.

I'm David Chaston and this is the international edition from Interest.co.nz.

And today we lead with news the strains in the Chinese economy are grabbing market attention today.

But first, it is mostly upbeat economic news from the US. American mortgage applications were up +10% last week as this market shows signs of stirring again. Benchmark mortgage rates slipped with the key 30 year fixed rate down to 6.89% plus points.

So it won’t be a surprise to know that the NAHB/Wells Fargo Housing Market Index rose, extending the rebound from a near-on-year low touched in November and its best level since August 2023

December retail sales came in much better than expected. They were up +0.6% from the prior month, following a +0.3% rise in November and beating forecasts of +0.4%. It is the biggest increase in three months, led by sales of cars. Year on year they were up +5.6% and handily beating inflation which rate at 3.4% over the same period.

Adding to today's positive vibe, US industrial production also rose more than expected in December although the bar wasn't high here. On a volume basis, it is +1% higher than a year ago.

The UST 20yr bond auction today was well supported, with a median yield of 4.36%, up from the prior equivalent event a month ago at 4.15%. That is a notable rise.

There was a big set of important Chinese economic releases late yesterday. As foreshadowed in Davos, China recorded a Q4-2023 GDP expansion of 5.2% which was marginally less than the +5.3% expected. The official 2023 target was "around 5.5%" so they undershot slightly. Disappointing analysts was that this was only achieved by outsized public-sector spending. Consumer spending was a drag on this result.

China's industrial production grew by +6.8% year-on-year in December 2023, after a +6.6% gain in the previous month and beating market forecasts of +6.6%. It was the fastest recorded pace of expansion in industrial production since February 2022 and electricity production rose +8.0% which supports the industrial production claim.

However their housing development retreat deepened in December. And new house prices fell at their fastest pace since March. Prices for pre-owned units fell faster and everywhere.

Meanwhile, China's population is declining faster now, as deaths rise above norms. The number of people in the world’s second-largest economy fell for a second year to 1.41 billion in 2023. The Chinese population started shrinking in 2022 for the first time since 1961.

We should also note the Chinese Lunar New Year runs this year from January 26 to March 5. It is the Year of the Wood Dragon. It is also the first post Covid period where family travel is high. In the middle, Spring Festival, China's biggest festival, will fall on February 10. Passenger trips via railway, highway, waterways, and civil aviation are expected to hit 1.8 billion during the period officials predicted. About 80% of the trips will be by car, which are likely to hit a new high. They also expect Covid to spike and spread during this gigantic travel and intermingling.

Both S&P and Moody's issued separate global reports overnight for 2023 that showed sharply higher funding costs are resulting in many more corporate defaults. The 12 month trailing corporate default rate rose to 4.8% in December, the highest rate since May 2021. Although almost half the defaulters they rated were in the US, Europe was where the biggest increase came from. And in 2024 it is the "media and entertainment" industry that is the most vulnerable.

In Australia, they are getting to realise that rate cuts may not be on the agenda as soon as they had priced in. And in Canberra yesterday at a long press conference, the Chinese ambassador took a tough line over Australia's complimentary comments about the free and fair democratic voting in Taiwan. There seems to be a cooling underway in China-Australia relations not long after a thawing had started.

Locally, the REINZ will release its December transaction data at 9am this morning. We will have full coverage.

The UST 10yr yield starts today at 4.12% and up +4 bps from this time yesterday. 

The price of gold will start today down another -US$22/oz from yesterday at just on US$2005/oz.

Oil prices are softer at just under US$71.50/bbl in the US and down by another -50 USc. The international Brent price is now at just over US$76.50/bbl and down almost -US$1.

The Kiwi dollar starts today at 61 USc and down almost another -½c from this time yesterday. Against the Aussie we are holding at 93.3 AUc. Against the euro we are lower at 56.2 euro cents. That all means our TWI-5 starts today just under 70.1 and -30 bps lower.

The bitcoin price starts today lower, now at US$42,308 and down -1.9% from yesterday. Volatility over the past 24 hours however has remained modest at +/-1.5%.

You can find links to the articles mentioned today in our show notes.

You can get more news affecting the economy in New Zealand from interest.co.nz.

Kia ora. I'm David Chaston. And we will do this again tomorrow.