Beijing can't stop a financial exodus

Kia ora,

Welcome to Tuesday’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 investors are marking down Chinese equities in a brutal retrenchment Beijing doesn't seem to be able to arrest. Funds are fleeing to Tokyo and the US both of which reached modern record highs.

But first in the US, a closely-watched leading indicator metric slipped marginally in December even though more components rose than fell. However the improving metrics were more than offset by weak conditions in manufacturing, relatively high interest-rates, and lowish consumer sentiment. But the magnitude of monthly declines has lessened, and the LEI’s six-month and twelve-month growth rates have turned upward even if they remain negative. The 'recession; signal from this data is weakening.

China's Loan Prime Rates were unchanged yesterday, not a surprise given last week's unchanged Medium-Term Lending Facility rate. The unchanged LPR rates are because their central bank is in a very tough position, having already prioritised keeping up the value of the yuan to try and hold back the equity market retreat. Lower interest rates would make it almost impossible to hold the yuan's value - and they are prepared to take the risk on economic expansion.

The declining prospects for the Chinese economy can't now be avoided, even in China itself, it seems. Rare stories are surfacing about a 'deflationary nosedive'.

In Taiwan, export orders fell a sharp -16% in December from the same month a year ago to under US$44 bln, far worse than market forecasts of a -0.3% fall and reversing a +1% gain in the previous month. This was the largest annual decline since June, as demand decreased for all product groups. It is a big change, but one magnified by high orders a year ago, so a base effect is in play here. A significant share of these export orders are for production in China by Taiwanese companies, so the decline won't all be felt in Taiwan.

The almost halving of the nickel price over the past year is causing a messy shakeout among miners in Western Australia (and globally in fact). Mines are closing and those running are loosing big money. High inventories and very weak demand from China are behind the retrenchments. Nickel is mainly used in making alloys such as stainless steel. Among other technical industrial applications, it is used in batteries as a "critical mineral", including rechargeable nickel-cadmium batteries and nickel-metal hydride batteries used in EV and hybrid vehicles. The lithium price has fallen even further and its miners are taking a cold bath too.

The UST 10yr yield starts today at 4.10% and down -3 bps from this time yesterday. 

Wall Street has opened its week modestly higher, with the S&P500 up +0.2% but that is a new record high. Overnight European markets were up a bit more, up +0.6% on average. Yesterday Tokyo surged again ending up +1.6% apparently driven by offshore demand. Hong Kong fell -2.3% and Shanghai a very large (for them) -2.7%. Singapore was little-changed. The ASX200 ended its Monday session up +0.8% which the NZX50 ended up a more modest +0.2%.

The price of gold will start today down -US$6/oz from yesterday at just on US$2023/oz.

Oil prices are up +US$1.50 at just under US$75/bbl in the US and the international Brent price is up +US$1 just over US$79.50/bbl.

The Kiwi dollar starts today at just under 61 USc and marginally lower from this time yesterday. Against the Aussie we are softish at 92.6 AUc. Against the euro we are also soft at 56 euro cents. That all means our TWI-5 starts today just under 69.9 and down -10 bps in a day.

The bitcoin price starts today lower. It is now at US$40,511 and down -2.6% from this time yesterday. Volatility over the past 24 hours however has been modest at +/- 1.8%.

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.