China falls in love with 'wealth management products' again

Kia ora,

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 American factory orders are rising and setting up a good second half of 2024.

But first we should note that the US is on holiday today and tomorrow, their Memorial Day (like our ANZAC Day but with more retail). This marks the start of their summer season when investors traditionally pull back from markets a little. But to be fair, it is less of a 'thing' now than it used to be. They return Wednesday, NZT.

The week will be 'highlighted' by the first full Budget by the new government, on Thursday. In Australia, they will release CPI inflation data, and inflation data will also come out in Germany and the EU. There will be Japanese data too (retail sales and industrial production) and some important guidance from the Bank of Japan. And from the US, they will release an important PCE update, more data on their GDP growth, consumer sentiment (CB) and home sales updates. We will also get the official PMIs for China for May at the end of the week.

And this is a big week in India. It is the final week in their six-weeks of staggered regional voting for 543 parliamentary seats. The ruling BJP are expected to win in what is a system with questionable vote-counting integrity. Final official results will be released some time on Tuesday, June 4, 2024

In China, isolation by foreign investors is becoming quite stark. New net foreign investment grew a paltry +US$8.3 bln in April from March which looks like it is a decade low. For a country the size of China, this amount is just a 'rounding error'. In April 2023 it was only +US$14.1 bln and also considered low. In fact the total new foreign investment in the first four months of 2024 was -31% lower than in the same period a year earlier which itself was weak. The international de-risking trend is biting hard now as the nation turns inward.

And Bloomberg has an interesting story about the record withdrawals from Chinese bank deposits in April. One-year term deposits at China’s largest banks pay a record-low of just 1.45% pa. There was a large -NZ$880 bln outflow in deposits from banks in April, -1.3% of all deposits, and much of it flooded into bonds and "wealth management products". The policy goal is to spur national economic impetus by making these funds work harder. But China has had significant issues with "wealth management products" in the recent past so this is a very risky strategy. There is a history of a lot of people getting hurt - and very angry.

In Japan, their inflation rate fell to 2.5% in April from 2.7% in March. Their core inflation rate dropped to 2.2% from 2.6%. While these falls were not unexpected, they are the lowest levels since January.

Singapore's industrial production recovered sharply in April after the big miss in March. But it still isn't back to year-ago levels.

Across the Pacific, US durable goods orders rose by +0.7% in April from March, following a +0.8% increase in March and defying market expectations of a -0.8% drop. That makes them a very impressive +7.9% higher than in April a year ago and augers very well for their factory sector in coming months. It was mainly driven by strong demand for transport equipment.

An updated University of Michigan consumer sentiment survey result for May was released, coming in very much better than the preliminary version which recorded a drop. Yes there is still an easing but only a minor one. And this current level is +17% higher than a year ago.

After three dour and disappointing consecutive months, Canada's retail sales sparked into life in April with its best rise in a year. But it will still be only +2% higher than a year ago and less than inflation's bite.

The UST 10yr yield is now at 4.47% and up +1 bp from Saturday. And that is up a net +5 bps in a week. 

The price of gold will start today down a minor -US$1 from Saturday at US$2333/oz, and down -US$85 from a week ago.

Oil prices are down -50 USc at just over US$77.50/bbl in the US while the international Brent price is just under US$82/bbl. These levels were US$79.50 and US$83.50/bbl a week ago, so about -US$1.50 less since then.

The Kiwi dollar starts today unchanged from Saturday at just over 61.2 USc but -¼c lower than this time last week. Against the Aussie we are marginally firmer at 92.4 AUc. Against the euro we are also marginally firmer at 56.5 euro cents. That all means our TWI-5 starts today just under 70.6, which is up +20 bps from a week ago.

The bitcoin price starts today at US$67,735 and down -0.4% from this time Saturday. Volatility over the past 24 hours has been quite low at just on +/- 0.6%.

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.