Neither foreign investors nor Chinese house buyers like what they see

Welcome to Monday’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 China is having a tough time sharking off its housing blues.

However in the week ahead, the Americans will release PCE data that will be closely watched. They will also release updates for the ISM Manufacturing PMI, the second estimate of GDP growth rate, durable goods orders, consumer sentiment, and housing sales data. There will be CPI inflation updates coming from Japan, Australia, and the EU. GDP growth for India and Canada will be updated. And factory PMIs for China, Russia, and Canada will out. And the RBNZ MPS and OCR interest rate decision will attract international focus on Wednesday afternoon. Locally, it is the key focus this week of course.

But today we start first in China. They released official data that showed foreign direct investment in January was down more than -11% from the same month a year ago. That is their biggest retreat since the GFC. And the more recent data is even worse, falling more than -20% from December.

It wasn't the only retreat released in official data. China's new house prices fell the most in almost a year in January with prices in 60 of their 70 largest cities retreating. For resales, this official data only showed two of the 70 cities in their survey with a month-on-month gain, none with year-on-year gains. For such pervasive declining prices to show up in official data probably means the situation is much worse, and it is now quite difficult to sell a house. Buyers have vanished, unwilling to buy a depreciating property. It is notable that China does not release official sales volume data.

Recall that in February, the Chinese central bank chopped its 5 year MLF rate by a record -25 bps to its lowest ever. This is the rate on which home loans are based. They also cut the reserve ratio earlier in the month, another easing that might help their property sector.

EU inflation expectations are essentially holding at 3.3% for the next twelve months. The ECB would have been disappointed at that, and the fact that the "last mile" is proving very sticky. However, it is not a problem that they have alone.

The German economy slipped into recession in the second half of 2023 if you buy into the "two negative quarters" rule on GDP changes. The retreat is minor however and was as expected.

In Australia, Rio Tinto has given the go-ahead for a big new iron ore mine. It is in West Africa. The iron ore price has held relatively high, encouraging miners, and Rio Tinto's decision is just one of many. But the accumulation worries some. Iron ore prices are not factoring in the wave of new supply, leaving it vulnerable to the same collapse that smashed battery metals like nickel, some say. If that were to happen to iron ore, it would rock Australia.

The UST 10yr yield starts today at 4.25% and down -1 bp from Saturday, down -5 bps from a week ago. 

The price of gold will start today down -US$3/oz from Saturday at US$2035/oz and up +US$25 from a week ago.

Oil prices are still lower at just on US$76.50/bbl in the US while the international Brent price is still down to just under US$81/bbl. Both levels are -US$2 lower than a week ago.

The Kiwi dollar starts today at just under 62 USc and little-changed from Saturday. But it up more than +¾c from a week ago. Against the Aussie we have settled back to 94.4 AUc. Against the euro we are slightly firmer at 57.3 euro cents. That all means our TWI-5 starts today at just under 71.4 and that is +60 bps higher than a week ago.

The bitcoin price starts today at US$51,299 and up a minor +0.5% from this time Saturday. But it is down -1.9% from a week ago. Volatility over the past 24 hours has been low at +/- 0.7%.

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.