China's investment momentum slows fast

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.

Today we lead with news the pressure is on China to revive its fast-slowing momentum.

First however, this week will bring some key American data covering durable goods orders and PCE inflation data on Friday (NZT), new and pending house sales, and the Conference Board's consumer sentiment survey result on Wednesday (NZT). The US Fed will also release its annual stress test results on Thursday (NZT). We will also get key inflation data from the EU, Canada and importantly from Australia on Wednesday. The Westpac MI consumer confidence survey will also come this week, tomorrow in fact. Finally, look out for some key Japanese data on Thursday especially on retail sales and industrial production.

Over the weekend China said attracted virtually no more foreign direct investment in May than in April in an outcome that will probably alarm Beijing privately. It is still flowing in at the rate of about US$50 bln per month, but that is now holding at that level. That puts the May FDI level -28% lower than the year-ago level in a trajectory that is as tough for them as in the depths of the GFC. And it is probably going to get tougher for them, especially for important tech.

And it isn't much better at home for investment. During the first six months of this year, the total value of mainland China's IPOs has plummeted -84% on the year to just 33 bln yuan (NZ$7 bln), while only 44 companies went public, down -75%. In any other market, this would called a crash.

It is no surprise then that the Chinese yuan is weakening, especially against the USD.

The early versions of the Japanese PMIs reported gains in their factory sector to a modest expansion, but a fall back in their services sector to a surprise (although tiny) contraction.

Meanwhile, Japanese CPI inflation rose in May to 2.8%, up from 2.5% in April. Food was up +4.1%,

In India, their early PMIs rose to faster expanding levels in both sectors.

And the monsoon has arrived in India, taking some pressure off its heat and water stress - although not yet in parched northern India.

In the US, the first of their June PMIs are in, the internationally benchmarked versions. Their factory sector PMI rose but still a modest expansion and a 3 month high. And their services PMI rose to a good expansion to a 2 year high. Both were on the back of rising new orders. Making this a bit more impressive is that cost inflation was much lower in both sectors, and business confidence in the immediate future (1 year) rose. And they report that for the first time in 3 months, companies planned to expand their workforce.

In what might seem like a bit of irony, the Conference Board leading index was released over the weekend and it retreated - but it was more May and isn't reporting on the same period as the June PMIs. It's a 'leading index' that trails current data!

Also for May, American existing home sales fell -0.7% in May from April to a seasonally adjusted annualised rate of 4.1 mln units, the lowest in four months. The decline comes as the median sales price climbed to a record high of US$419,300 (NZ$685,000). Meanwhile, unsold inventory sits at a 3.7 months supply at the current sales pace. Interestingly, it you match the housing sales level between the US and New Zealand on a population basis, they will sell about 64,200 houses in a year on a NZ equivalent basis. Over the past year to May we have sold 67,400. Both markets are in the doldrums.

Retail sales in Canada are projected to have dropped by -0.6% in May 2024 compared to the previous month, according to a flash estimate. This would represent the steepest decline since March 2023. Such a decrease would offset the +0.7% surge in April, the largest in a year.

Canadian producer prices rose +1.8% in May, their fastest increase since January 2023.

In the EU, their PMIs show their recovery is slowing in June as new orders fall for first time in four months. Their huge service sector is still expanding, but their factory sector is contracting at a slightly faster rate.

The UST 10yr yield is now at 4.26% and unchanged from this time Saturday. 

The price of gold will start today unchanged from Saturday at US$2320/oz.

Oil prices are unchanged from Saturday at US$80.50/bbl in the US while the international Brent price is still just on US$84.50/bbl.

The Kiwi dollar starts today unchanged from Saturday at 61.2 USc. Against the Aussie we are marginally firmer at 92.2 AUc. Against the euro we are also marginally firmer at 57.3 euro cents. That all means our TWI-5 starts today little-changed at 70.9.

The bitcoin price starts today at US$64070 and up a mere +0.1% from this time Saturday. Volatility over the past 24 hours has very low at just under +/- 0.5%.

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.